UPDATE 2-Cosan sees sugar price firm for another crop

* Cosan posts record net profit of 337.3 million reais

* Rising sugar prices, derivatives boost results

* Over 50 pct of crop hedged in futures markets (Recasts with details, quotes, context)

SAO PAULO, Aug 14 (Reuters) - Cosan CSAN3.SACZZ.N, one of Brazil's largest sugar and ethanol groups, expects world sugar prices to remain firm for at least another cane crop, one of its executives said on Friday.

“This price that is at a rather high level should be sustained for at least one more crop,” Finance Director Marcelo Martins said in a conference call on the company’s earnings.

He said smaller-than-expected cane crops in India and Brazil were important price-forming factors.

Raw sugar futures have rallied to a 28-year high, mainly due to prospects for huge imports by India after a weak monsoon hurt the country’s cane crop development.

In Brazil, excess rains in the center-south in June and July reduced the pace of crushing and the content of sucrose in cane. Brazil is the world’s top sugar producer and exporter.

Tight sugar stocks in the United States and the possibility of Mexico raising imports have also contributed to the rise in prices, which was bigger than forecast, Martins said.

More than 50 percent of the company’s expected sugar production this season is hedged in the futures market, he said, adding the volume is 30 percent lower than it was a year ago. The company has been hedging sugar for the 2010/11 crop.

“As sugar prices rose, we reduced our hedging for this crop, which has proven to be a right decision, but this doesn’t mean we’ll not accelerate hedging again if we sense prices are close to their peak,” Martins said.

“When the market starts to overshoot it’s hard to foresee how much further it can go up. Some say prices could reach over 30 (cents per lb) but this is a hypothesis which we haven’t worked with,” he said.

Cosan expects to direct 54 percent of its crush to sugar production this year, with the remainder going to ethanol.

Sugar output is forecast to reach 4.2 million tonnes, with 80 percent going to the international market. Ethanol production is expected to total 2.1 billion liters.

Ethanol exports will be lower than in 2008/09 but above initial forecasts, as demand is rising in Asia and Europe.

Cosan has 21 sugar and ethanol plants in Brazil, and two more plants are scheduled to come on line later this year.

Martins said Cosan is “analyzing” purchase opportunities in Brazil’s sugar and ethanol sector but added that, at current prices, it does not see any takeover target.

“We don’t have the pressure to grow as in the past ... A few (mills) could be attractive but at current prices nothing interests us at all,” he said.


Cosan returned to profit in the April-through-June quarter, helped by rising sugar prices and gains on derivatives contracts. Net profit was a record 337.3 million reais (US$184 million) from a net loss of 58.1 million reais a year earlier.

This was the first quarter with fully consolidated results of Cosan Combustiveis e Lubrificantes, an arm created from Exxon Mobil’s operations in Brazil, which were bought in 2008. It also included a month of results of NovAmerica, a sugar and ethanol group Cosan took over in March 2009.

Helped by these new operations, revenue soared nearly sixfold to 3.6 billion reais -- two-thirds came from the new fuel and lubes division.

Revenue from the sugar and ethanol operation doubled from a year ago, reflecting higher sales volumes of sugar and ethanol and an average increase of about a third in sugar prices over the three months ended June 30, the company said.

The company’s operating year starts on April 1 and ends on March 31, as it follows the sugar cane harvesting cycle in Brazil’s center-south region. (Additional reporting by Guillermo Parra-Bernal)