Aug. 13 (Bloomberg) -- Mexico's sugar production may drop 3.1 percent next year because drier-than-normal weather limited crop growth and farmers used fewer nutrients after the cost of fertilizer jumped to a record, an industry group said.

Output may fall to 5.35 million metric tons in the crop year ending Sept. 30, 2009, from an estimated 5.52 million tons this year, said Carlos Blackaller, president of the National Sugar Cane Growers Association. Fertilizer prices jumped 46 percent to as much as 7,000 pesos ($689) a metric ton, he said.

``Farmers haven't been able to give fields the attention they need because of record fertilizer prices,'' Blackaller said during an interview in Mexico City yesterday. ``We are expecting a smaller crop because of a lack of rain, too.''

The higher costs for farmers probably won't be made up by any increase in sugar prices, said Blackaller, who owns a sugar- cane farm in Jalisco state. Domestic prices in Mexico, the world's sixth-largest producer, averaged 200 pesos per 50- kilogram bag this year, he said. The price needs to rise 60 percent to 320 pesos to cover farmers' expenses, he said.

Mexico, with 750,000 hectares (1.85 million acres) of planted sugar cane, has about 175,000 sugar-cane workers and another 275,000 are employed in related sugar jobs, Blackaller said.

Biofuels

Farmers would need to plant another 150,000 hectares, or 20 percent, to supply the state-owned oil company, Petroleos Mexicanos, with enough sugar cane to meet a government goal for ethanol production in 2010, Blackaller said. Ethanol is an alternative fuel to gasoline.

``This is going to give farmers more options,'' he said. ``They'll be able to get more money for their crop because it will be used to make a product with more value.''

Mexico says it will use 200 million liters of ethanol in 2010 in the three largest metropolitan areas of the country.

Mexico passed a law this year that regulates the biofuel industry and allows only surplus food crops to be used to make biofuels. The government has rejected using corn, a staple food, because of concern it would create a shortage of the grain.

The U.S., the largest energy consumer, uses mostly corn to make the gasoline additive. Brazil makes ethanol from sugar cane.

Sugar futures for October delivery rose 0.24 cent, or 1.8 percent, to 13.61 cents a pound on ICE Futures U.S., the former New York Board of Trade. The price has gained 26 percent this year.

To contact the reporter on this story: Andres R. Martinez in Mexico City at amartinez28@bloomberg.net

Last Updated: August 13, 2008 07:52 EDT