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Tereos sees scope for higher sugar prices on Brazil woes

Credit: REUTERS/PASCAL ROSSIGNOL

French food group Tereos believes the international sugar market has not fully priced the production problems in top sugar maker Brazil, seeing room for prices to go even higher, according to the head of the group's unit in Brazil.

By Roberto Samora

SAO PAULO, July 1 (Reuters) - French food group Tereos believes the international sugar market has not fully priced the production problems in top sugar maker Brazil, seeing room for prices to go even higher, according to the head of the group's unit in Brazil.

Pierre Santoul told Reuters the Brazilian operation is expected to crush 10% less sugar cane in the 2021/22 season that started in April than in the previous year, due to drier-than-normal weather in the last months.

"It is significant, unfortunately the drought is a very important event," he said.

Tereos is the second largest sugar producer in Brazil and also the second largest in the world, only behind Raizen, the joint venture between Cosan SA CSAN3.SA and Royal Dutch Shell Plc RDSa.L.

It processed 20.9 million tonnes of cane in Brazil last season, allocating 62% of that cane to produce 1.8 million tonnes of sugar. The company sees a slightly higher allocation for sugar in the current season at 63%.

Despite the expectation of a 10% fall on cane crushing, Tereos says it has hedged sugar sales this year at prices 13% higher than the average last year, so the result will more than offset the losses to the drought.

Sugar prices hit a four-year high this year due to production problems in Brazil and other countries. Frosts this week are seen adding to the drought losses.

Tereos issued 480 million reais ($95.21 million) in local green bonds on Wednesday to finance investments in cane fields.

"It is the largest part of our capex (plantings). We have a strong focus on the good agricultural practices, on using the best cane varieties," Santoul said.

($1 = 5.0417 reais)

(Reporting by Roberto Samora, writing by Marcelo Teixeira; editing by David Evans)

((marcelo.teixeira@tr.com; +1 332 220 8062; Reuters Messaging: marcelo.teixeira.thomsonreuters.com@reuters.net - https://twitter.com/tx_marcelo))

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