Biosev SA, the sugar and ethanol unit controlled by commodities trader Louis Dreyfus Co, expects sugar production in Brazil's center-south to fall by 4 million or 5 million tonnes in the new crop that starts in April. Biosev Chief Executive Officer Rui Chammas told Reuters on Friday, a day after the company released earnings, that mills in the world's largest cane processing region are likely to divert as much cane as possible to ethanol production, reducing the amount of raw material they will use to make sugar.
Ethanol prices and demand have jumped in Brazil in the last few months, following a rise in gasoline prices. The fuel is giving mills much better returns than sugar, since prices for the sweetener in New York are hovering around the lowest level in years, 40 percent below the peak of 23 cents per pound seen late in 2016. "Seeking higher profitability, mills will try to produce as much ethanol as possible," Chammas said.
Biosev reported a net loss of 279 million reais ($84.5 million) in the quarter from October to December, compared with a profit of 42 million reais ($12.6 million) in the same quarter a year earlier. The company reported a negative impact of 238 million reais on profits in the quarter from the real's devaluation against the dollar. Chammas believes the economic recovery in Brazil, after the deepest recession on record, will boost demand for fuels and benefit ethanol, which has a large price advantage against gasoline in the top consuming market of Sao Paulo state.
Sugar production should total 35.2 million tonnes in the 2017/18 crop ending in March, according to Brazilian cane industry group Unica. If Chammas' predictions are confirmed, the center-south region would produce around 30 to 31 million tonnes from the new crop. An expected reduction in sugar output in Brazil would avoid an even larger global surplus of the sweetener, the main factor behind falling prices.
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