UPDATE 2-Brazil '12/'13 sugar output seen up from prior season

Tue Apr 10, 2012 1:11pm EDT

* Output rise marks turn around after disappointing '11/12

* Expanded planted area helps, weather a bit better

* Center South output to expand but Northeast stagnant (Adds quote, background on recent cane industry's struggles)

By Peter Murphy

BRASILIA, April 10 (Reuters) - Brazil's sugar output will rise about 5 percent in the 2012/13 season that is now starting, the government forecast on Tuesday, as better weather and replacement of old cane plants have the crop on a recovery path after output dipped last season.

Sugar production should rise to 38.9 million tonnes, government crop supply agency Conab said in its first forecast of the season, up from 36.9 million tonnes in the prior season and also ahead of the 38.2 million tonnes produced in the season before that.

Brazil is the world's top sugar producer and accounts for half of the world's trade in the sweetener.

"Prospects for cane in the next harvest are good," Conab's report said, adding that speedy progress in last year's harvest meant cane had longer to grow to a larger size for this year's crop.

Although forecasts from analysts F.O.Licht, European producer Czarnikow and the International Sugar Organization see a global sugar surplus of between 5 million and 7 million tonnes this year, futures prices have yet to reflect the increase in output from second tier producers such as Thailand, India, Russia and Australia.

The May raw sugar contract on New York's ICE futures exchange was trading 2 percent lower at 23.9 US cents per lb after the crop report's release and has hovered mostly between 23 and 26 cents the last six months. See:

The agency said cane output would recover this season, expanding 5.4 percent to 602.2 million tonnes from the 571.4 million in the 2011/12 season that was stressed by bad weather and bridled by declines in yields from aging cane plants.

Millions of Brazilian drivers of flex-fuel cars that run on any mixture of ethanol and gasoline are set to enjoy lower prices in the coming months as mills resume pumping out the biofuel after several months of interharvest.

About half of Brazil's cane crop goes to produce ethanol.

Ethanol output is expected to grow 4.8 percent to 23.96 billion liters from 22.86 billion liters last season.

SLOW RECOVERY

Brazil's cane production expanded at an aggressive pace in the last decade with the launch of flex-fuel cars in 2003. The use of biofuels as a gasoline additive in many other countries created a vast new source of potential demand for ethanol.

But the sugar and ethanol sector has had a rough time since 2008 when the bubble of investments burst during the financial crisis. Prospects for the mills dulled last year with a smaller cane crop that meant ethanol could not compete with gasoline on price across much of the country.

The government has launched credit lines to encourage producers and cane mills to invest more aggressively in replacing aging cane plants to raise yields. Mills deferred some renewal to maximize output when sugar prices shot up in 2011.

CENTER-SOUTH

About 90 percent of the country's cane is grown in the center-south region. Output there is expected to reach 532 million tonnes, up from 501 million tonnes in the 2011/12 season, Conab said. The same region's sugar production will reach 33.7 million tonnes from 31.7 million last season.

The forecast showed cane output from the northeast, which expanded a lot last season when rains were plentiful, would stagnate this season after a harsh drought at the start of the year. Total planted area there should decrease slightly.

The center-south cane industry association Unica is expected to release its own estimate for the coming crop on Thursday.

For a factbox of private analyst's forecasts, see:

Conab said more than one tenth of the total cane area would be replanted in the 2012/13 season but that would still only be about half the optimal level of replanting.

Cane fields are good for about five harvests, after which yields drop sharply without replanting.

(Graphic of past sugar output based on industry data: link.reuters.com/fej95s) (Reporting by Peter Murphy; Editing by John Picinich and Bob Burgdorfer)

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