Brokers say that Brazil's sugar mills will focus more on ethanol because they are underhedged.

Sugarcane producers in Brazil have been very slow to hedge for the season 2026/27 that will begin in April. They are also likely to focus more on ethanol, as the current sugar prices are below the cost of production.

Czarnikow is a broker and provider of supply chain services. According to a Monday report, Brazilian sugar mills hedged by taking short positions on the ICE exchange in New York. However, they only hedged a little?more than 20 percent of their anticipated raw sugar sales.

This compares with more than 40% at the same time last year and nearly 70% two years earlier.

Ana Zancaner is a senior sugar analyst at Czarnikow in Sao Paulo. She said, "we haven't seen pricing in the last two months. Mills aren't eager to price below their cost of production."

She estimated that the current sugar production cost in Brazil's central-south is around 16,3 U.S. dollars per lb. This compares with Monday's raw sugar futures price in New York, which was around 14.30 U.S. dollar cents per lb.

Zancaner estimated that the price of sugar per metric ton in Brazilian reais? was around 1,700, which is the lowest it has been in five years.

She said that "Brazilian millers will have a tough season" and that producing more ethanol, the alternative, is not a good option for them, since the gasoline prices are falling and limiting any price increases for biofuel.

Czarnikow has revised his sugar mix projections, or the amount of cane mills that will be used to make sugar to 48.3%, from 50.5%. This means that the sugar production in central-south will be reduced by 700,000 tonnes to 40,000,000 tons.

Due to the favorable weather, the broker raised its forecast for sugarcane output from 610 to 621 millions tons. (Reporting and editing by Jan Harvey; Marcelo Teixeira)

(source: Reuters)