Brazilian ethanol prices sign that millers may favor biofuel

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LONDON — Brazilian ethanol prices trading above raw sugar futures for the first time in almost two years are spurring speculation that millers will favor making the biofuel over the sweetener in the season starting in April.

Hydrous ethanol, used in flex fuel cars in Latin America’s largest economy, is trading at about 19 cents a pound, according to Lausanne, Switzerland-based Kingsman, which has provided sugar and biofuels research for more than 20 years. The price is 3 percent higher than raw sugar futures, which closed at 18.46 cents a pound on ICE Futures U.S. in New York Monday. Ethanol surpassed sugar for the first time since April 2011 on Feb. 7, said Beatriz Pupo, a Kingsman analyst.

“If ethanol prices continue rising, millers may well prefer to produce ethanol and sell it in the domestic market, which will provide them with cash quicker,” Pupo said by phone from Montreal.

The global sugar surplus that sent prices down the past two years may be eliminated within 18 months depending on the amount of cane that is used in Brazil for ethanol, Jonathan Drake, chief operating officer at RCMA Commodities Asia and former head of sugar trading at Cargill, said in an interview in Dubai on Feb. 4. Sugar futures climbed 1.8 percent Monday, the biggest gain since Jan. 30.

Millers in Brazil, the world’s biggest producer of sugar, convert cane into ethanol to sell mostly on the domestic market for reais or into the sweetener, which is largely sold overseas for dollars.

The strengthening local currency, which has gained 4 percent against the greenback this year, the most among 25 emerging-market currencies tracked by Bloomberg, also diminishes the allure of exporting sugar.

Brazil’s currency had fallen 22 percent between June 2011 and the end of last year.

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