* Stronger dollar makes sugar exports more attractive
* Export margins not big enough to change mills’ production
* Ethanol is more liquid, offers mills better cash flow
SAO PAULO, Aug 7 (Reuters) - Sugar and ethanol output from Brazil’s biggest sugar and ethanol group Raizen Energia, a joint venture between Cosan SA and Royal-Dutch Shell , could fall 6 percent due to recent frost and rains, a local newspaper said.
Pedro Mizutani, Raizen Energia’s chief financial officer, said in the Brazilian financial paper Valor Economico’s online edition late on Tuesday that two days of frost would reduce crushing at one of its mills in Mato Grosso do Sul state by 100,000 tonnes to 2.05 million tonnes, for example.
“The most damaging effect of the frost will occur next year but it’s still too early to quantify this effect,” Mizutani said.
The president of sugar and ethanol analyst Datagro, Plinio Nastari, told Reuters that frost damaged 65 million tonnes, or at least 18 percent, of the yet unharvested sugar cane in the southernmost regions of Brazil’s growing region.
Nastari said on Tuesday, that he would release a new forecast of the cane crop with an estimate of losses from the frost in about a week to 10 days.
The day after, Brazil’s second-largest sugar and ethanol company Biosev SA, which is controlled by French commodities trader Louis Dreyfus, said the frost would reduce the cane it crushed in Mato Grosso do Sul where it operates three large cane mills.
Mizutani said that in addition to an estimated 3 percent loss in company output from the frost, he expected an additional 3 percent loss in sugar and ethanol output due to rains in June and July that have diluted the sugar levels in the cane.
“Even if weather remains dry and favorable for crushing, it’s difficult to recover all the drop in ATR (recoverable sugars),” he said.
In total, Raizen expects to crush 59 million to 62 million tonnes of cane in the current 2013/14 (April-March) season, which Mizutani estimates is half completed.
Mizutani estimated that the recent strengthening of the dollar by 14 percent since May has made exports of sugar more attractive than producing ethanol, for the local market predominantly.
But he added that he did not expect mills to change their production plans to produce more of the sweetener. Mills have been favoring ethanol production this season by about 57 percent to 43 percent sugar.
“Ethanol has greater liquidity than sugar. So, for generating cash flow, mills prefer ethanol when the difference in returns (compared with sugar) is slim,” he said.