Ethanol output in Brazil's main center-south production region from April 1 through August 15 fell 19% to 12 billion liters compared to the same period in 2010 as poor quality crops and a lack of investment in sugarcane fields continued to cramp productivity, sugarcane industry group UNICA said on Thursday.

Official data also shows producers of the sugarcane-based biofuel have been favoring sugar output due to higher profit margins.

In the first two weeks of August, production of the sweetener amounted to 50.3% of total sugarcane crush, up 3.4 percentage points from the same period in 2010.

From April 1 through August 15, sugar production represented 47.1% of total sugarcane crush, an increase of 2.1 percentage points.

According to Brazilian research institute CEPEA/ESALQ, sugar sales paid over 50% more than ethanol in the month July.

Despite a drop in total ethanol output, producers continued to prioritize production of anhydrous material for blending into gasoline. According to Brazil's fuel quality specifications, anhydrous ethanol needs to be blended into gasoline to a mandatory level of 25%.

Higher anhydrous production, which soared 16.2% year-on-year to 4.5 billion liters, came at the expense of hydrous ethanol, which fell over 31% to 7.5 billion liters.

Hydrous ethanol can be used directly into flex-fuel cars and competes directly with gasoline at the pump.

The industry move to guarantee enough anhydrous ethanol supplies came after the Brazilian government signaled a regulatory clampdown on the ethanol sector to avoid a supply crisis.

UNICA maintained its 2011-12 production guidance of 21 billion liters of ethanol for the current season, adding it is actively "monitoring production and conditions of sugarcane crops."

In 2010, Brazil produced 25.4 billion of ethanol.

Severe weather conditions and aging sugarcane fields led UNICA to revise down its initial March estimates twice this year.

The revised figures put Brazil on course for the worst sugarcane harvest of the last decade, forcing the country to buy ethanol in foreign markets to meet burgeoning national demand.

Ethanol experts forecast imports of the biofuel to top 1.3 billion in 2011-12, with most product coming from the US.

source: platts

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