SAO PAULO - Brazil's center-south ethanol production should fall in the next three years if projections for growing global sugar deficits are confirmed, a local sugar and ethanol analyst said on Tuesday.
Brazil's main center-south cane belt should produce 27.2 billion liters of ethanol in the current crop (2016/17) compared to 28.2 billion liters in the previous season, said FG/AGRO consultancy during a presentation at NovaCana Ethanol Conference in Sao Paulo.
In contrast, it sees center-south sugar production growing to 36.8 million metric tons from 31.2 million last crop, as mills allocate as much cane to sugar production as their industrial installations allow, as they react to a global deficit in the sweetener.
If the projections for sugar deficits are confirmed, and there are no major changes in gasoline taxes, FG/AGRO estimates ethanol production will fall to as low as 23.1 billion liters in the 2019/20 crop year, while sugar output would climb to 43.5 million metric tons.
"The difference in earnings for mills between ethanol and sugar is big right now in favor of sugar, and it seems that it will only get bigger," said Willian Hernandes, head of analysis and partner at FG/AGRO.
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"I believe the ethanol market will be surprised by the rise on sugar production," he said.
Local sugar and ethanol broker Bioagencia estimates that sugar offers mills more than 30 percent bigger returns compared with ethanol.
Estimates for global sugar supply deficits vary greatly among analysts, but most see shortages between 4 million and 8 million metric tons for the next two years at least, depending on the reaction from producing countries going forward.
Sugar prices have been rising in 2016 on the global deficits expectations and are hovering around a two-and-a-half peak in New York.
FG/AGRO's projection for sugar production in Brazil's center-south in the current crop is among the largest in the sector. Most analysts see production at 35 million to 35.5 million metric tons.
