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UPDATE 2-Datagro cuts Brazil sugar forecast, sees excess demand
September 19, 2012 / 2:20 PM / 5 years ago

UPDATE 2-Datagro cuts Brazil sugar forecast, sees excess demand

* Datagro raises cane crush estimate but lowers sugar output
    * Says gov't likely to raise ethanol blend requirements
    * Datagro sees excess demand in few years

 (Adds quotes from Datagro president, Petrobras comments)
    By Reese Ewing
    SAO PAULO, Sept 19 (Reuters) - Brazil's 2012/13 sugar output
will be 1.5 million tonnes less than was forecast in June due to
dry weather, lower than expected yields and unexpected flowering
of the cane crop, consultants Datagro said on Wednesday.
    As he cut production estimates for the world's top sugar
exporter, Datagro President Plinio Nastari said that global
demand growth for sugar and ethanol would soon outstrip supply.
    Expanding Asian consumption of sugar, the lack of investment
in crushing capacity in Brazil and a growing U.S. biofuels
mandate will whittle down the global sugar surplus to just over
3 million tonnes in 2013, half what it was this year, he said.
    In a fresh forecast of the main center-south cane crop,
Datagro said the region's cane crop had grown to 512.1 million
tonnes with the help of above average rains in May and June, up
from 508.7 million projected in June. 
    But yields were not improving, which meant that sugar output
would be expected to fall from June's 32.7 million tonnes to par
with last season's sugar output of 31.3 million tonnes.
    "The cane crop is unexpectedly flowering, which has
surprised the sector. We are looking at the weather in February
and March that would have triggered that," Nastari told
reporters around a board room in Sao Paulo.
    When cane fields flower it diverts plant's energies to
reproduction rather than the accumulation of sugars.
    That will translate into a smaller exportable surplus of
sugar on the local market of 22.25 million tonnes, down from
June's expectation of 23.5 million tonnes. Brazil accounts for
half of the world's sugar exports.
    The smaller northeast cane crop, which accounts for about 10
percent of national output, would also fall to 60.5 million
tonnes from 62.1 million seen in June and 65.1 million tonnes
last season. Sugar output will slip to 4.38 million tonnes from
4.52 million in June and 4.58 million last year, Datagro said.
    Considering the global sugar fundamentals, Nastari said he
expected demand for sugar and ethanol to outstrip production.
    "We are on the brink of an excess of demand," Nastari said.
"There are no investments in crushing capacity in Brazil. Demand
is growing strong in Asia. India and Thailand will produce less
due to dry weather. The EU is going to export less sugar and the
United States is increasing its biofuels mandate."
    Cane is the raw material for sugar and ethanol.
    Under this scenario, Nastari did not expect the price of
sugar to linger below 20 cents a pound for long. He added that
Brazilian mills were currently shipping sugar that was sold
several months ago at prices ranging 24 cents to 26 cents.
    Although the size of the 2013/14 cane crop would depend on
the rains in the coming months, Nastari said output would be
sufficient to support an increase in Brazil's national ethanol
blend to 25 percent. He expects the government to announce
shortly an increase in the blend to start in May or June of 2013
after the start of the next crushing season.
    In October 2011, the government lowered the blend over
supply concerns after the poor harvest in 2011/12, when 494
million tonnes of cane were collected. It was Brazil's first
drop in cane output in 11 years.
    A five percentage point increase in the blend would equate
to about 25 million tonnes of additional cane needed for the
production of anhydrous ethanol, Nastari said.
    Brazil's ethanol sector has been struggling with rising
costs and government price controls on fuels, which has
generated losses in mills' biofuels divisions.
    Chief executive of state-run oil company Petrobras
, Maria das Gracas Foster, said in the capital of
Brasilia on Wednesday that she expected the ethanol industry "to
be back on its feet again" in a year or two.

 (Reporting by Reese Ewing; Editing by Marguerita Choy and
Sofina Mirza-Reid)

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