London, May 2 - Brazil could alone determine if the global 2008/09 balance will end in surplus or deficit, sugar merchant ED&F Man said on Friday.
"Brazil is almost certainly the only country which will determine whether sugar in 2008/09 is in a global surplus or deficit season," London-based ED&F Man said in its latest monthly report.
The market consensus figure for the 2008 centre/south Brazil sugar cane crop stands at 495 million tonnes, 15 percent higher than in 2007, ED&F Man said.
Using a cane allocation of 42.5 percent to sugar and 57.5 percent to ethanol, results in sugar and ethanol production of 29 million tonnes and 24 million cubic metres respectively, it said.
However, the relative price of sugar and ethanol will be paramount for millers when they decide where to concentrate their production.
Currently the respective returns are very similar, but this can change. A one percent shift towards sugar equates to an additional 0.7 million tonnes of production and 0.4 million cubic metres less ethanol.
"This said, flexibility is limited due to constraints placed from both a sugar and ethanol export point of view and more importantly domestic demand for ethanol. Thus the theoretical maximum sugar allocation is likely to be 45 percent."
ED&F Man said that with competition for land expected to curb sugar production in many countries, Brazil looks set to be one of the few countries that will increase its sugar output across 2008 and 2009.
"Despite the sugar market seemingly returning to some sort of fundamental basis, the macroeconomic picture (ongoing credit crisis, crude oil and U.S. dollar) will continue to bring significant uncertainty," it said.