SAO PAULO, May 8 (Reuters) - Brazilian cane mills appear to have scrapped plans to boost sugar production this year, reverting to a heavy focus on ethanol in a shift from the start of the year, according to millers and analysts.
As expectations of a global sugar deficit have failed to boost prices, leaving benchmark sugar values near multi-year lows, Brazilian mills have turned back to their last season’s favorite, ethanol, which is following gasoline prices higher at the pump.
The ease with which Brazilian mills switch from producing sweetener to fuel makes them a key swing factor in sugar markets. The global sugar surplus dwindled last year as Brazil, the world’s largest producer, cut output from its center-south cane belt by almost 10 million tonnes.
Franciele Rivero, an analyst at sugar trader Group Sopex, expects Brazil to repeat a 35 percent cane allocation to sugar this year, in line with last season’s all-time low.
“Some analysts earlier this year expected the mix to go higher on sugar, to 39 or 40 percent, but that has changed,” she said.
Some Brazilian mills, such as the Alcoeste mill in Fernandópolis, Sao Paulo, have already washed out sugar export contracts this year.
“I had some contracts with a cancellation clause and I decided to cancel them. Margins are negative to exercise those contracts, so I would rather not produce that sugar,” said miller Luís Arakaki. Alcoeste produced almost no sugar last year, and its sugar plant remains idle.
A larger player in the main Brazil cane belt, Grupo Usina Santa Adelia, dismissed 50 workers at an idle sugar plant in Sud Mennucci. The group, part of the Copersucar cooperative, said it will meet its contractual obligations to produce sugar using only its main Santa Adelia plant in Jaboticabal.
Luiz Gustavo Junqueira Figueiredo, commercial director at Alta Mogiana mill, said a big price advantage for ethanol will lead mills to favor the biofuel for most of the crop.
Alta Mogiana was one of several mills that invested in distillation equipment for the new season, increasing capacity from 1.2 million liters per day to 1.4 million liters per day.
Plinio Nastari, chief analyst at consultancy Datagro, said limits on ethanol capacity may still support sugar’s share of a larger cane harvest.
If this season yields more than 580 million tonnes of cane, as Nastari forecasts, mills may only be able to convert less than 65 percent of that into ethanol, turning the rest into sugar instead of leaving cane uncrushed. Last season’s crop was 573 million tonnes. (Reporting by Marcelo Teixeira Editing by Brad Haynes and Phil Berlowitz)