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Adecoagro says 'positive' on sugar prices, as it explains hedging lag

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Adecoagro said that it was upbeat on sugar prices, thanks to global output setbacks and demand fillips, as it explained why it had been slower than many rival to boost forward sales of the sweetener into a market recovery.

 

“We are positive for sugar prices,” said Renato Junqueira Santos Pereira, director of sugar and ethanol operations at Adecoagro, which farms over more than 470,000 hectares of Argentina, Brazil and Uruguay, in markets from dairy to soybeans.

 

The optimism was based on “problems” in “some countries that are important suppliers of sugar”, he said, highlighting “dry weather in Thailand”, the second largest sugar exporter, and in the European Union the yellow virus threatening to cut beet yields.

 

Cane-growing areas of Brazil itself were suffering drought “that can be partly compensated by the high TRS [sugar concentrations in cane], but not fully compensated”.

 

Meanwhile, the market was seeing “demand that no one was expecting” from China, Pakistan and Indonesia.

 

“And if you consider that the demand for ethanol will recover next year” from levels depressed in 2020 by the Covid-19 dent to fuel demand, “this is going to reduce part of the [extra] 10m tonnes of sugar that Brazil had this year” as mills switched more cane to making the sweetener rather than biofuel.

 

‘Adeco hasn’t started yet’

The comments followed a question from BTG Pactual analyst Pedro Soares over why Adecoagro had not accelerated its 2020-21 sugar hedging as fast as many competitors, and had yet to begin its 2021-22 programme at all.

 

“We’ve been seeing a lot of discussions on how Brazilian millers have been accelerating hedges for the next year as well,” Mr Soares said.

 

“But the thing is that Adeco hasn’t started yet.”

 

For 2020-21, Adecoagro had as of the end of June hedged 406,044 tonnes of sugar for 2020-21, up from 186,588 tonnes as of the end of March. The figure was also above the 219,050 tonnes as of the end of June 2019.

 

However, that comes against a backdrop of increased sugar output prospects too, as softened ethanol demand, and prices, drives mills to turn more cane into sugar instead.

 

Adecoagro converted 54% of its cane into sugar in the April-to-June quarter – up from 25% a year before.

 

‘Progressively increasing’

BTG Pactual said in a note that it saw the lack of Adecoagro sugar hedging for Brazil’s 2021-22 sugar year, which starts next April, “as a concern given limited price upside as the global market should soon turn into surplus”.

 

Mr Pereira added that Adecoagro had been “progressively increasing our hedging” since the end of June, and as sugar prices have over the past two weeks extended their recovery.

 

New York raw sugar futures have rebounded from a 12-year low of 9.05 cents a pound in April to stand at 13.20 cents a pound on Monday, on a spot contract basis, close to five-month highs.

 

“So far, we have currently hedged 80% of the 2020 season at 12.3 cents per pound and 16% of the 2021 crop at 12.7 cents per pound.”

 

Nonetheless, the pace remains behind that of rival Sao Martinho, which a week ago revealed that, as of the end of June, it had sold 95% of its 2020-21 sugar output as of the end of June, and 28% of 2021-22 output.

 

‘Lack of rains’

The comments followed the release of results showing a loss of $12.04m for the April-to-June quarter, compared with earnings of $23.26m a year before, on sales down 20% at $181.9m.

 

The decline into the red was largely down to currency effects, with adjusted ebitda for the quarter, at $81.25m, down 6.6% year on year.

 

The group revealed some setback to yields in Argentina from dryness, with an average yield for soybeans down 23% year on year at 2.7 tonnes per hectare, “slightly below expectations in the Pampa region, due to lack of rains during the crop cycle”.

 

Yields on the group’s, relatively small, area of late corn were also “affected by the lack of rains during this cycle, especially in the Pampas region, reaching an average of 5.2 tonnes per hectare”.

 

For wheat, Adecoagro said that it was “concluding the planting of 39,000 hectares” of the grain, up 45% year on year, in conditions which “are currently optimal”.

 

The comments come amid growing concerns over dryness for some parts of Argentina’s wheat belt too.

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