Brazil to quicken shift from ethanol to sugar: Cosan

Brazilian sugar cane mills are likely to accelerate a shift away from ethanol production to sugar in the upcoming season as sharply lower oil prices erode the competitiveness of the biofuel against gasoline.

Brazil's largest sugar and ethanol producer Raizen said yesterday it would speed up plans to produce more of the sweetener in the approaching 2020-21 cane crushing season after the global oil price drop.

"We had already planned to allocate more cane to sugar, and the drop in oil prices will only accelerate this," Raizen's vice president Ricardo Mussa said at an investor event held by Brazilian conglomerate Cosan, which holds 50pc of Raizen with partner Shell.

Brazil will likely boost its sugar output in the 2020-21 season by 3mn-6mn tons from 30.15mn t in the current season, Mussa said.

Brazil's sugar production peaked at 38.7mn t in 2016-17, according to the government's crop supply agency Conab. Over the past two seasons, mills have been heavily favoring ethanol over sugar.

Raizen expects to harvest a larger cane crop in the 2020-21 season, with forward guidance currently at 61mn-64mn t, up as much as 7pc from the current 2019-20 season that ends on 31 March.

Brazilian cane mills had been planning to increase sugar production in the coming season that starts crushing officially on 1 April, with prices already fixed - through hedging on the Ice futures exchange - for 78pc of the expected sugar output in the 2020-21 season, according to local commodities risk analyst Arnaldo Correa of Archer Consulting.

A global sugar deficit is projected to reach 9.4mn t this season because of smaller production from Thailand, India and most importantly Brazil, according to the International Sugar Association.

"We've never had a year in which mills had fixed the price of such a large portion of their (future) sugar sales before crushing started," Correa said in note.

Cosan chief executive Marcos Lutz said that the oil price decline and the depreciation of Brazil's currency gives the group's cane industry important efficiency gains with less expensive diesel and fertilizer costs and improved returns from sugar and ethanol exports.

The Brazilian real has weakened against the dollar by 17pc since the start of 2020. In nominal terms, the real closed trading yesterday at its weakest ever at R4.72/$1.