Central America revs up to meet Mexico sugar demand

* Central American sugar producers plan to export more
* Neighboring Mexico expecting big import needs
* Prices recovering after dipping from a 29-year peak

SANTA LUCIA COTZUMALGUAPA, Guatemala - Central American cane cutters are working overtime to increase output and sugar producers say they should have no problem covering increased demand from Mexico where the crop is expected to fall short.

Mexico announced its sugar harvest would be smaller than expected due to bad weather and aging cane fields, forcing the Economy Ministry to open a 250,000-tonne import. In addition, countries are scrambling to ramp up production to take advantage of sugar prices recently hitting a 29-year high.

"Everyone's looking to see how they can produce more to take advantage of the market opportunities generated by Mexico," said Jose Orive, the head of the Central American Sugar Association.

Workers in the fields of Guatemala, Central America's largest producer, are hauling nearly twice as much cane in an average shift to meet the booming demand.

"We're working as fast as we can because this year there's more activity and we're all earning more money," said Abednego Alonzo, one of a group of 55 men hacking away with machetes at cane stalks near the southern town of Santa Lucia Cotzumalguapa.

Alonzo said each worker is cutting 10 tonnes of cane a day, compared with around 6 tonnes in an average year in the fields near the Pantaleon sugar processing plant, one of Central America's largest.

Guatemala last year exported 277,000 tonnes of sugar to its northern neighbor compared with around 30,000 tonnes in an average year.

Total sugar exports from the seven-country Central American region are expected to increase to around 2.8 million tonnes in the 2009/10 season from an annual average of between 2.2 million to 2.6 million tonnes, Orive said.

Guatemala's sugar industry is more streamlined than Mexico's with a few powerful owners in charge of land, sugar factories, cane fields and ports.

In Mexico, hundreds of cane farmers often wrangle with myriad of processing plants over prices and contracts, hampering efficiency. But Guatemala, like many Central American producers, has a scarcity of land available to expand cane planting, capping the amount the sector can grow.

BULLISH ON PRICES

Soaring global prices are making the sugar business more attractive. Sugar prices hit a 29-year peak of 30.40 cents on Feb. 1, then retreated 15 percent, but recovered on Thursday on consumer buying. Many analysts are bullish on prices because smaller harvests in Thailand and Mexico have aggravated the the tight global supply situation.

"This spike in sugar prices is stimulating the industry to increase production, but we have to be careful not to increase volumes too much and end up depressing prices," Carlos Melara, the head of Honduras' sugar producers association.

He said Honduras will produce 413,000 tonnes of sugar this year and will boost exports by 30.5 percent compared with last year. The United States will receive 20,000 tonnes to fill U.S. quotas and 87,000 tonnes will hit the global market.

Nicaragua is also expecting a record 2009/10 crop at 544,000 tonnes, up 4.8 percent from the previous cycle, which will allow it to fill the 10 percent share of Mexico's import quotas it receives under a trade pact.

The country wants to ramp up production to 644,000 tonnes in the next three years by boosting planting.

source: forexyard