* Copersucar sells smallest ever portion of early crop to sugar market
* Datagro sees 2013/14 surplus shrinking
* Shift to ethanol will continue - Unica
By Chris Prentice
NEW YORK, May 15 Demand from Brazil's resurgent biofuels industry will cut the burgeoning global sugar surplus, helping cushion prices that fell below 17 cents per lb for the first time in almost three years, the chief of the world's biggest producer said on Wednesday.
Brazil's Copersucar has sold only one third of its early crop to the sugar industry, the lowest portion dedicated to sweetener in the company's history, Chief Executive Paulo Roberto de Souza said at Datagro's Sugar and Ethanol Conference.
Mills have shifted sales in response to sinking sugar prices and to government incentives that boost profits for selling more early cane crushing to the ethanol industry, rather than exporting raw sugar.
The Brazilian government mandated an increase in the amount of ethanol in fuel blends from 20 to 25 percent beginning on May 1. It has also reduced taxes to boost consumption beginning in May, and increased gasoline prices earlier this year.
Many sugar traders hope growing demand from Brazil's biofuel industry will help offset the sluggish export market for raw sugar and support raw prices.
The most-active July contract on ICE Futures U.S. sank below 17 cents per lb on Wednesday for the first time in almost three years, as the market braced for massive oversupply as a bumper Brazilian cane harvest ramps up.
Copersucar intends to devote 42 percent of this year's crop to sugar production. This would include 135 million tonnes of sugar between their own production and associated producers. That would be down from 49 percent of last year's crop, due to higher ethanol production.
"Ethanol has been providing a soft landing for sugar prices," he said during a presentation at the conference.
Sugar growers and traders hope a move to ethanol production in Brazil will whittle down a huge global sugar surplus.
Datagro forecast a global surplus of 10.24 million tonnes in 2012/13 through September 30, which will fall to 6.2 million tonnes in the next crop year largely due to the growing ethanol demand, president Plinio Nastari said on Wednesday.
Without a reduction in the surplus, some traders have said they expect global prices to drift lower, to 16 cents a lb.
The Copersucar chief's comments will also allay concerns among traders after Unica data released on Monday showed that only 60 percent of Brazil's early crush in April was dedicated to ethanol production.
That was less than the 61.5 percent during the same period last year and shocked many traders who had expected a bigger shift to ethanol. The remaining 40 percent went to sugar.
Part of the reason for April's numbers reflect the earliest production, weighted towards mills in the state of Parana that tend to have a higher sugar mix, said Copersucar's de Souza.
Should sugar prices stay near 16.5 cents a lb, as much as 9 million tonnes of sugar equivalent will move into ethanol production, he said.
Once sugar prices move below 17 cents a lb, producers will shift away from sugar and toward ethanol. If they recover to about 19 cents, the mix will shift back toward a greater sugar mix, he said.
On Wednesday, Unica president Elizabeth Farina said the industry association expects an increase in demand from biofuels.
"We expect an important shift in the ethanol and sugar mix based on current market forces," she said, pointing to significant rise in ethanol output due to higher fuel consumption, which is expected to grow 20 percent this year, and government policy developments. (Reporting by Chris Prentice; Editing by David Gregorio)