Brazil's center-south region will produce 30.2 million tonnes of sugar in the 2019/20 season, about 14 percent more than it did in the previous crop, broker and analyst INTL FCStone said in a report on Thursday. Mills will tend to increase the amount of cane earmarked for sugar production and cut ethanol production in the new crop starting in April, INTL FCStone said, as lower oil prices reduce the price advantage of ethanol compared with gasoline at pumps.

FCStone sees ethanol output in the new crop falling to 26.8 billion liters from 30 billion liters last season. João Paulo Botelho, FCStone's sugar and ethanol analyst, sees a positive outlook for sugar prices, which could benefit from a swing to deficit in the global supply balance. He says oil prices will hardly recover all the value they lost in recent months.

That combination backs the analyst's view for a change towards sugar in mills' production mix during the new crop. Botelho sees companies earmarking 41 percent of available cane to sugar production compared with 35.3 percent in the previous season, an all-time low. The global sugar supply balance in 2018/19 is seen at a deficit of 700,000 tonnes versus a surplus of more than 9 million tonnes in the previous crop year.

Copyright Reuters, 2019