Brazil ethanol topping sugar signals millers may favor biofuel

Carnival Holiday

The real strengthened beyond 2 per dollar for the first time since July last month as Brazil exempted foreigners from a tax on real-estate funds traded on the stock exchange, encouraging speculation that inflows would sustain the currency. Trading in the real, which closed last week at 1.9727 per dollar, resumes tomorrow after the two-day Carnival holiday.

Should sugar prices remain below ethanol, millers in Brazil’s center south, the country’s main growing region, may direct 44% to 45% of their cane crop in the 2013-14 season to making sugar, London-based futures and options broker Marex Spectron Group said in a report e-mailed yesterday. That’s down from 49.6% in the current season, data from Sao Paulo-based industry group Utica showed.

“If prices remain below the parity during the peak of the center south Brazil harvest period (say June to September), then the mix could fall to about 44% to 45% and thus ‘lose’ some 4 million tons of sugar production,” Paul Bannister, the head of sugar brokerage at Marex Spectron, wrote in the report.

Ethanol Tax

Sugar may need to climb to 19.75 cents a pound to make it attractive enough for millers to favor the sweetener over ethanol should the government eliminate taxes on the biofuel, Marex Spectron estimates. Brazil is planning to reduce taxes on ethanol to stimulate domestic production and consumption of the biofuel, Trade and Development Minister Fernando Pimentel said in an interview with Valor Economic newspaper last week.

“If there was to be a change in the taxes then, definitely, there is a substantial change in the outlook for sugar,” Tom McNeill, a director at Brisbane, Australia-based researcher Green Pool Commodity Specialists Pty., said by phone.

Sugar is down 7% this year after falling 39% in 2011 and 2012 as supplies are set to outpace demand by 11.5 million tons in the 12 months starting Oct. 1, Kingsman estimates. The Standard & Poor’s GSCI gauge of 24 commodities has climbed 5.1% this year and the S&P index of 500 stocks is up 6.4%.

Less Sugar

Denatured fuel ethanol futures in Chicago, where corn is the chief feedstock, climbed 7.7% this year. Crude oil gained 6.1% in New York.

Brazil’s center south sugar production may total 4 million tons to 7 million tons less than currently forecast should millers switch more production to ethanol, according to Green Pool. Sugar output in the region will be 36 million tons, according to a Feb. 4 estimate from Copersucar SA.

A 20% increase in Brazil’s ethanol consumption would eliminate the sugar surplus, Ben Pearcy, chief development officer and managing director of sugar and bioenergy at White Plains, New York-based Bunge Ltd., said in an interview in London on Nov. 28.

Bloomberg News

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