Cosan sees sugar price firm for another crop

* Cosan posts record net profit of 337.3 million reais
* Rising sugar prices, derivatives boost results
* Over 50 pct of crop hedged in futures markets

SAO PAULO, One of Brazil's largest sugar and ethanol groups, expects world sugar prices to remain firm for at least another cane crop, one of its executives said on Friday.

"This price that is at a rather high level should be sustained for at least one more crop," Finance Director Marcelo Martins said in a conference call on the company's earnings.

He said smaller-than-expected cane crops in India and Brazil were important price-forming factors.

Raw sugar futures have rallied to a 28-year high, mainly due to prospects for huge imports by India after a weak monsoon hurt the country's cane crop development.

In Brazil, excess rains in the center-south in June and July reduced the pace of crushing and the content of sucrose in cane. Brazil is the world's top sugar producer and exporter.

Tight sugar stocks in the United States and the possibility of Mexico raising imports have also contributed to the rise in prices, which was bigger than forecast, Martins said.

More than 50 percent of the company's expected sugar production this season is hedged in the futures market, he said, adding the volume is 30 percent lower than it was a year ago. The company has been hedging sugar for the 2010/11 crop.

"As sugar prices rose, we reduced our hedging for this crop, which has proven to be a right decision, but this doesn't mean we'll not accelerate hedging again if we sense prices are close to their peak," Martins said.

"When the market starts to overshoot it's hard to foresee how much further it can go up. Some say prices could reach over 30 (cents per lb) but this is a hypothesis which we haven't worked with," he said.

Cosan expects to direct 54 percent of its crush to sugar production this year, with the remainder going to ethanol.

Sugar output is forecast to reach 4.2 million tonnes, with 80 percent going to the international market. Ethanol production is expected to total 2.1 billion liters.

Ethanol exports will be lower than in 2008/09 but above initial forecasts, as demand is rising in Asia and Europe.

source: reuters