Date: February 4, 2008

Author: Thomas Kutty Abraham

Source: Bloomberg

Sugar-cane production in Brazil, the world's biggest producer of sugar, may rise this year as growers plant more to benefit from soaring demand for biofuels, research company Datagro Ltd. said.

Brazil may harvest as much as 45 million tons more cane than in the previous year, Plinio Nastari, head of the Sao Paulo-based company, said. The amount of sugar produced from the crop in the year starting May 2008 may be between 30 million tons and 31.5 million tons, compared with 30.6 million in 2007-08, he said in an interview at a conference in Dubai today.

Higher Brazilian sugar output may add to a global surplus and stem a rally in prices of sugar, the best performer in the UBS Bloomberg Constant Maturity Commodity Index this year. Sugar jumped 14 percent in January and reached a 17-month high of 13.09 cents a pound on Jan. 17.

``Brazilian output is certainly going to rise this year,'' Nastari said. ``Price equilibrium is going to be dictated next year more by Brazil than India.''

Mills may use as much as 59 percent of the cane produced in Brazil's Center-South region to make ethanol, up from 56 percent last year, he said.

Demand for ethanol in blending with gasoline to run vehicles in Brazil will rise by 2.9 billion liters this year from 16.7 billion last year as more and more people buy so-called Flexi cars, Nastari said.

``Brazil is adding more than 2 million Flexi vehicles every year and that's going to push up local demand for ethanol,'' said Marcos Jank, president of Brazil's Sugar Cane Industry Association, also known as Unica, said. ``Brazil is looking at the local market to grow its ethanol industry.''

Soros

Investors including billionaire George Soros are pouring 30 billion reais ($17 billion) into Brazil to develop 80 new mills, according to Maurilio Biagi Filho, a producer whose family accounts for about 10 percent of sugar output in Brazil.

Ethanol exports from Brazil may decline marginally to 3.46 billion liters next year compared with 3.84 billion liters last year as the U.S. government was expected to introduce quotas to save its local bio-fuel makers, Nastari said.

``I don't expect the U.S. to remove the duty on imports of ethanol,'' he said. The U.S. government may introduce a quota system so that local producers' interests are protected.''

Datagro expects sugar to trade between 12.5 cents to 14 cents a pound in the next four months as investors scale down a global surplus to as low as 6 million tons from 11 million tons a month earlier, Nastari said.

Surplus

The global sugar surplus may disappear in the year to September 2009 as growers switch to other crops in India and excessive rains hamper planting in Brazil, he said.

``Heavy rains in recent days have denied standing crops the light and warmth required to mature and planting of the new crop for 2009 has also been hit.''

Sugar for March delivery rose 0.2 percent to 12.38 cents a pound on ICE Futures U.S., formerly the New York Board of Trade, at 9:33 a.m. London time. Sugar, which has gained 14.5 percent this year, reached a 17-month high of 13.09 cents on Jan. 17.

White sugar for March delivery was 0.1 percent lower at $344 a ton as of 12:14 p.m. on the Liffe exchange in London today.