Brazil Increases Amount of Cane Used for Sugar

(Bloomberg) -- Brazil, the world’s largest sugar exporter, increased the amount of cane used to produce the sweetener in the second half of November, for the first time in five years, Czarnikow Group Ltd. said.

Sugar production in Latin America’s most populous country is now likely to rise this year compared with 2007, Czarnikow analysts led by Toby Cohen said in a report today.

Brazil turns most of its cane into fuel. Sugar output in the country’s Center South, the main production region, jumped 52 percent in the second half of November after dry weather allowed mills to accelerate the harvest and make up delays in previous months, a regional industry group said Dec. 10.

“Production during the second half of November was impressive,” the analysts said in the report. “Sugar production is now likely to show a minor improvement on last year.”

Brazilian sugar mills have been hurt by the credit crisis as costs to service debt used to finance expansion plans have increased, the analysts said. Higher borrowing costs and the Brazilian real’s drop against the dollar have hurt profitability, Czarnikow said.

Four Brazilian companies are under credit protection, and as much as 20 percent of the industry may be operating “in restricted circumstances,” according to the report.

“Though mills are covering operating costs at current market levels, they are not making the returns required to service debt and make a contribution to shareholder capital,” Czarnikow said. “The strong end to this season’s crop is consequently being driven by the need to continue to generate revenue.”

Cheaper Sugar

Sugar producers and refiners worldwide may curtail long-term investments because of a lack of funding and falling sugar prices, according to the analysts. Supply will fall 5.8 million metric tons short of demand in the 2008-09 season, Czarnikow said in a Dec. 10 report.

Raw-sugar futures are unchanged this year on ICE Futures U.S. in New York, after falling for two consecutive years. White sugar traded on the Liffe exchange in London has slipped 2.3 percent this year, after dropping 8.1 percent in 2007.