UPDATE 2-Brazil hopes for bigger cane crop in 2012

* Center-south cane crop seen 519 mln T vs 573 mln T May

* CS sugar output seen 31.9 mln T vs 35.9 mln T in May

* Gov't eyes tax cuts to stimulate ethanol production

* Ethanol imports seen around 1.03 billion ltr in 2011
(Recasts, updates with comment from agriculture official)

By Peter Murphy

BRASILIA, Aug 30 (Reuters) - Brazil's weather-ravaged sugar
cane crop could rebound next year, helping the country begin to
revive lagging ethanol production, an agriculture official said
on Tuesday, but raising output to a comfortable level will take
time and effort.

The world's top sugar producer has been unable keep output
of cane ethanol biofuel in step with fast growing demand after
adverse weather slashed yields and after mills recovering from
the 2008 financial crisis slackened investments.

Secretary for production, Manoel Bertone said the main
center-south cane belt could return to "normal" output of near
600-million tonnes next year if the weather played in its favor
while the government studied measures to stimulate expansion.

Brazil aims to more than double the amount of cane it grows
by 2020 to keep up with huge demand for ethanol biofuel burned
pure in its pioneering flex fuel cars and needs mills to invest
urgently and aggressively to get there.

The government is considering stimulus measures to
encourage mills to speed expansion including a cut in fuel tax
on ethanol in some states to make it more competitive with
gasoline, as well as tax credits generated by making ethanol.

Bertone said Brazil had not given up on its goal of
commoditization of ethanol and creating a large international
market for the fuel despite supplies falling short at home.

"Brazil needs to increase cane production to balance both
markets," he told reporters at the agriculture ministry when
announcing a forecast for the current cane crop 8 percent
smaller its previous estimate four months ago.

Brazil would have to import around 1.03 billion liters of
ethanol this year to make up a shortfall of the biofuel,
Bertone said, with around 580 million liters of that amount
still to be delivered in the coming months.

Cane production for both the center south cane belt and the
smaller northeastern cane crop, would reach a combined 589
million tonnes, down from 642 million tonnes forecast
previously.

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Graphic of industry forecasts: r.reuters.com/puq23s

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FORECAST CRUSHED

Nationally, sugar output was now forecast to fall to 37.1
million tonnes, down from 40.9 million tonnes forecast
previously. Ethanol production was expected to total 23.7
billion liters, down from 27.1 billion forecast previously.

This would bring about the first drop in output in a decade
after rapid expansion to meet ballooning demand for ethanol
with millions of flex fuel cars taking to the roads.

Brazil's government will reduce the amount of ethanol it
mixes into its gasoline from Oct. 1 as a means of stretching
out lower-than-hoped-for supplies through to next year's
harvest which will start around March. See: [ID:nN1E77T06B]

This season's center south cane output would fall to 519
million tonnes from 573 million and lag last year's 560 million
tonne output. Even the new, lower forecast looks optimistic
beside those of private analysts as low as 476 million.
See:[nN1E77L07K]

The drop in output is also the result of slower investment
after the 2008 financial crisis that left mills with cash flow
problems. The agriculture ministry estimates 15 percent of cane
plants are overdue for renewal as yields tail off beyond their
fifth year.

Bertone said interest in investing in the sector was being
revived with companies like the United States' commodity giant
Bunge (BG.N) and state oil company Petrobras (PETR4.SA)(PBR.N)
leading the way with plans to expand in cane. See:[nN1E77H1U2]

Bertone said the government's goal was for 15 new mills,
each with a capacity of 3.4 million tonnes a year of crushing
capacity to open each year, but the actual pace was slower.

Mills in the main center-south producing region are just
past the peak in this year's crush and are expected to wind
down operations in November, slightly earlier than normal due
to the smaller crop.

(Additional reporting by Reese Ewing and Fabiola Gomes;
Editing by Dale Hudson and David Gregorio)