Sugar to Stage Small Comeback in Brazil in 2009/10

Sao Paulo, Jan 29 - Brazil's center-south region is likely to devote a bigger share of the 2009/10 cane crop to making sugar than last season with the prospects of exports and prices rising, analysts and industry sources said on Wednesday.

For two seasons, ethanol has been claiming a growing share of the country's huge cane crop because of booming domestic demand for cane-derived biofuel, hopes of higher biofuel exports and a world surplus of sugar that has pushed prices down.

But the tide appears to be turning in favor of sugar in the center-south, the country's main cane area.

"The 2009/10 season will have more sugar. We see the amount of cane going to ethanol production in the center-south falling to 58.2 percent from 60.2 percent in the 2008/09 crop," said Plinio Nastari, head of Datagro consultancy.

Domestic ethanol sales are forecast to rise by 2.1 billion liters in the next season, whose harvest will start around March. But exports of the fuel could drop by 1.3 billion liters to 3.75 billion liters, according to Datagro projections.

That would mean Brazil will still have to raise ethanol output by 800 million liters to satisfy local and international demand.

But it is sugar which is set to see the most startling growth next season, doubling to 3 million tonnes from 1.5 million last season and ending two years of stagnation.

Producers in Brazil see an opportunity in a deepening global sugar deficit which is raising prices. [ID:nLS170439]. Prices have rallied already this year with March raw sugar futures up about 7 percent and whites up 15 percent.

"Market conditions should alter the production mix this season in favor of sugar. Prices are good currently so sugar will be an opportunity for mills, unlike in the last two seasons," said Julio Maria Borges, director of Job Economia consultancy.

EYE ON EXPORTS

Analysts AgraFNP sees the share of cane set for sugar production rising to 44 percent from 43, compared with around 40 percent in 2007/08.

The Sugar Cane Industry Association (Unica) agrees sugar will claw back some of the cane crush from ethanol but said it was still too early to guess by how much.

"Evidently there's going to be a change in the mix but this won't be significant," said Unica's technical director, Antonio de Padua Rodrigues. "Since mills will produce more sugar, (ethanol-only distilleries) are expanding. That will offset part of the rise in sugar output."

Unica estimates distilleries, which crushed 13.5 percent of the cane available in 2008/09, will process 16 percent of the cane next season. Production at these units, most built in the last few years, is set to rise 30 percent over last season.

Analysts foresee a rise in cane availability next season but a possible drop in yields as mills and independent suppliers cut the use of fertilizers and defer the replacement of aging cane plants because of the credit crunch.

A fall in the price of corn-based ethanol produced in the United States has made the Brazilian biofuel less competitive for its No. 1 buyer. This is likely to cut exports which are already expected to come under pressure from the tumble in oil prices.

"But everything can change if grain prices start to rise, for example. Exports could boom as in 2008 depending on ethanol prices here and in the U.S. over the next months," Padua said.