June 17 (Bloomberg) -- Sugar millers in Brazil’s center south, the main growing region of the world’s biggest producer, will use more cane to make ethanol as prices for the sweetener tumble, according to Usina Alta Mogiana S/A.
Producers in the area will direct 55.2 percent of all the 580 million metric tons of cane processed to making the biofuel in the 2013-14 season started there in April, the Sao Joaquim da Barra mill in the state of Sao Paulo said in a report e-mailed today. That compares with a previous forecast for 53.5 percent. Last year, millers used 50.5 percent of the cane to produce ethanol, data from industry group Unica showed.
Sugar futures, down 13 percent in 2013, are heading for a third year of declines, the longest slump since 1992. The global sweetener surplus will be a record 10 million tons in the 2012-13 season that ends in September in most countries, the International Sugar Organization in London estimates.
"The main change is in the production mix," Alta Mogiana said, referring to the percentage of cane used for either sugar or ethanol. "This change is related to low sugar prices in the world market, rising demand for ethanol in the domestic market, the potential for ethanol exports to the U.S. and Europe as well as the incentive given by the government to millers."
Brazil said in April it will give producers tax breaks to raise ethanol output, making the biofuel more competitive against gasoline and lifting domestic consumption. Ethanol production in the center south will be 25.7 billion liters (6.8 billion gallons), Alta Mogiana estimates. That compares with a previous forecast of 24.2 billion to 24.9 billion liters. Last year, ethanol production was 21.4 billion liters, Unica data showed.
"Another factor that will benefit ethanol is the recent upwards move in the dollar," Alta Mogiana said. "Apart from turning Brazilian ethanol more competitive in external markets, the devaluation of the real can put more pressure on the government to allow a new increase in gasoline prices."
The real fell 5.8 percent against the dollar over the past month and is the worst performer among 24 emerging market currencies tracked by Bloomberg. While most of Brazil’s sugar sold in dollars to the world market, the majority of the ethanol remains in the domestic market and is sold in reais.
Higher usage of cane to ethanol will leave sugar production at 34.2 million tons in 2013-14, Alta Mogiana said in the report. That compares with a previous estimate of 34.4 million to 35.3 million tons. Last year’s output was a record 34.1 million tons, data from Unica showed.
Raw sugar for delivery in October was 0.1 percent lower at 17.07 cents a pound by 10:19 a.m. on ICE Futures U.S. in New York.