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Cosan stockpiles sugar too as cane yields fall

Cosan underlined the strategy among Brazilian sugar producers of stockpiling supplies, in the hope of higher prices, as rival Sao Marthinho forecast a drop of at least 10% in its cane yield thanks to drought.

Cosan, Brazil's top sugar and ethanol producer, said that its production of the sweetener during the April-to-June quarter rose 13.7% to 1.35m tonnes.

The rise reflected a 13.0% increase in the volumes of cane crushed at its sugar and ethanol division, Raizen Energia, coupled with a higher concentration of sugars in the crop, lifted by the early-2014 drought.

'Postponement of shipments'

However, the volume of sugar sold tumbled 23%, driving revenues for the sweetener down 23% to R$582.8m.

"The main factor driving this reduction in net revenue from sugar sales was the postponement of shipments to the end of the 2014-15 harvest," the group said.

Inventories as of the end of June were, at 800,000 tonnes, 84% higher than a year before.

The increase reflects expectations among Brazilian sugar producers that current prices, which on Wednesday fell below 16.00 cents a pound on New York's Ice exchange for the first time in five months, are unsustainably low, given the prospect of a drought-shortened cane harvest.

Yield hit

While cane crush volumes have risen in Brazil's Centre South, responsible for some 90% of the country's sugar output, that is down to dry conditions, which speed harvest, rather than strong yields.

Indeed, Cosan reported a drop of 8.1% to 79.5 tonnes per hectare in cane yields during the April-to-June quarter.

Separately, rival sugar and ethanol producer Sao Martinho, which itself reported an increase in cane yields during the quarter to 93.3 tonnes per hectare, said that the rise would prove temporary.

"In the 2013-14 crop year, TCH [tonnes of cane per hectare] was close to 100, and this year it should drop to something close to 90, or even a little less than 90," Sao Martinho spokesman Felipe Vicchiato told investors, discussing the group's own results for the quarter.

"Now this year [TCH] will be 10% less at least."

'Sudden death'

With Centre South mills crushing more cane, harvested at lower yields, mathematics suggest that supplies will run out earlier than would have been expected  in a normal season – a prospect being termed "sudden death" in Brazil.

"If we didn't have this long, dry season, most probably the Sao Martinho group would have a surplus of sugar cane, and would have to once again leave cane unharvested to be crushed in the next season," Mr Vicchiato said.

Sao Martinho earlier this week highlighted that it too is stockpiling sugar, in expectation of the early finish to the Centre South cane harvest spurring higher prices.

The harvest, which starts in April, typically stretches into November-December, before a seasonally rainy period.

Profits rise

Cosan's Raízen Energia division achieved a 14.1% rise to R$1.69bn in revenues in the April-to-June period despite the drop in sugar sales.

Sales of ethanol soared 51%, and of electricity generated from cane waste by 80%.

The division's earnings before interest, tax, depreciation and amortisation (ebitda) rose by 15.8% to R$478.3m.

At a group level, earnings hit R$104.1m, compared with a loss of R$201.5m a year before, on revenues up 0.9% at R$2.25bn.

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