Brazil Sugar Mills are considering switching to ethanol

Sugarcane processors are watching the gap in price between sugar and biofuels and may start producing more of it if the sugar prices fall further and the oil prices recover from their recent lows.

A major discussion topic this week at the annual sugar market conference in New York was the possible change in production strategy.

Sugar analyst Michael McDougall said, "We haven’t discussed ethanol in a while but now that the gap is narrowing, the issue has returned." He was referring to Brazilian sugarcane processing companies' price differences between ethanol and sugar.

Brazil's mills, which are the second-largest ethanol and sugar producers in the world, can adjust their production to produce more or less ethanol and sugar, depending on market prices.

Sugar mills have seen a better return on investment in the last four years due to the higher international sugar prices and the lower Brazilian ethanol prices.

Rodrigo Martini is the head of Sugar & Ethanol for broker StoneX.

A sugar trader who requested anonymity estimated that Brazil's sugar production would drop by 1 million tons if the price of sugar fell to about 16,5 cents per pound. Instead, cane would be used for ethanol.

On May 2, the raw sugar price on ICE reached a low of 16,97 cents per pound, a record low for three years. On Thursday, it recovered to 17.7 cents.

Since May 5, oil prices have risen by up to 15%.

Mills in states such as Goias and Mato Grosso do Sul, which are far from sugar-exporting ports, could switch sooner, according to Gustavo Segantini. This is because they sell sugar locally, but have additional costs for logistics. (Reporting and editing by Richard Chang; Marcelo Teixeira)

(source: Reuters)