Sao Paulo, May 25 - Ethanol and sugar mills in the northwest of Sao Paulo, Brazil's largest cane producing state, expect ethanol output in 2009-10 to drop slightly from last season despite a 7-percent rise in cane crushing volumes.
The Biocana milling association, which comprises 18 mills in the region, said on Monday it sees cane crushing reaching 48.9 million tonnes, up from 45.5 million tonnes in 2008-09.
But the increase will be diverted to sugar production, which is currently offering better returns to mills than ethanol.
"Sugar prices, more favorable (than ethanol prices), lead to a drop in ethanol production," Biocana said in a statement.
Ethanol output from the association is forecast to total 1.9 billion liters, down 0.6 percent from last season. Sugar production is seen at 3.6 million tonnes, up 16.2 percent from 2008-09.
The trend is not restricted to the region this year.
The share of cane going to sugar production will grow throughout Brazil's center-south, which is expected to crush 550 million tonnes of cane this season, up 9 percent from 2008/09.
International sugar prices have been buoyed in recent months mainly by a steep drop in Indian production. Brazilian exports are expected to increase over last season, ending two years of virtual stagnation.
Ethanol prices, on the contrary, have been pressured as mills hit by credit restrictions have sped up sales of the fuel on the local market.
In 2008-09, mills in the Biocana region raised ethanol production by 42 percent from the previous season while sugar output rose 10.5 percent.
Brazil's center-south 2009-10 cane crush is racing ahead of last year's pace, with twice as much cane processed by May 1 as the same time last year, as mills seek quick sales to raise cash.
Favorable weather conditions and millions of tonnes of cane left in the fields from last season contributed to the higher volume of cane crushed this year.
The season officially started on April 1.
"The pace of crushing remains steady. In April, production was bigger than in the same month last year," Luciano Sanches Fernandes, head of Biocana, said in the statement.