UPDATE 1-Brazil's 2020-21 sugar output seen record near 40 mln T - govt

(Adds report details, comments)

SAO PAULO, Aug 20 (Reuters) - Brazil’s total sugar production in the 2020-21 season (April-March) is expected to grow 32% and reach a record 39.33 million tonnes as mills allocate more raw material to sugar production and less to ethanol, the government said on Thursday.

In its second projection for national production, which includes the major center-south region as well as the smaller north-northeast area, Brazil’s Conab food supply agency projected total sugar cane crush of 642.07 million tonnes, 0.1% smaller than in 2019-20.

This year’s sugar production will keep Brazil as the world’s largest producer, ahead of India, which is expected to have a large crop in 2020-21 seen around 32.5 million tonnes. The large Brazilian output has so far found destination, with exports rising 70% in the first four months of the crop, said Conab.

“We expect exports to remain high, boosted by sugar price recovery, a weak local currency and limited supplies from some important producers in Asia”, said the agency.

Brazil’s largest competitor in the international market, Thailand, is on its way to produce another dismal cane crop, the smallest in 10 years, due to a persistent drought.

Brazil’s currency fell to the lowest level against the dollar since May on Thursday, as investors worry about the country’s fiscal situation.

Conab said the area planted with cane fell again in 2020-21 to the smallest since 2016, as it loses ground for more profitable crops such as soybeans and corn. Cane-planted area was projected at 9.75 million hectares (24 million acres), 2.9% less than in 2019-20.

As mills increase sugar production at the expense of ethanol, due to better prices for the sweetener, Conab projected total ethanol output to fall 14% in the current season to 30.56 billion liters.

That volume includes corn-based ethanol, which is expected to surge 61% in the season to 2.69 billion liters. (Reporting by Carolina Mandl and Luciano Costa; Additional reporting and writing by Marcelo Teixeira in New York; Editing by Dan Grebler)