Aug. 27 (Bloomberg) -- Sugar futures will rise 14 percent in coming months as higher fuel prices prompt mills in Brazil to turn more cane into ethanol rather than sweetener, according to Acucar Guarani SA.

Sugar will rise to about 16 cents a pound, said Jacyr Costa Filho, chief executive officer of Guarani, Brazil's third- biggest sugar and ethanol producer by market value. The price has climbed 30 percent this year to 14.08 cents yesterday on ICE Futures U.S., formerly the New York Board of Trade.

``Sugar will likely rise to 16 cents to match the returns in ethanol,'' Costa said in a Bloomberg Television interview in Sao Paulo. ``We believe that in the near future they'll be balanced relative to ethanol.''

Mills in Brazil, the world's biggest exporter of sugar and ethanol, have boosted fuel output to power the growing fleet of flexible-fuel cars. Domestic fuel sales have given mills higher returns as the Brazilian real's rally against the dollar and rising fertilizer costs erode sugar-export profits, Costa said.

In order for sugar output to be profitable for Guarani, the sweetener has to trade at 14 cents to 15 cents a pound, Costa said. Ethanol prices in Brazil, which currently give Guarani returns equal to sugar at 16 cents, have boosted profit margins, he said.

Sao Paulo-based Guarani processes about 43 percent of its cane into fuel, Costa said.

Mills in Brazil's Center South, which accounts for more than 80 percent of the country's sugar and ethanol output, processed 60 percent of their cane into ethanol this year through July, up from 56 percent in the year-earlier period, the region's sugar and ethanol association said on Aug. 13.

Guarani is controlled by Lille, France-based Tereos, the French sugar cooperative.

Guarani rose 10 centavos, or 1.6 percent, to 6.39 yesterday on the Sao Paulo stock exchange. It's down 51 percent since it started trading on July 23 of last year.

To contact the reporter on this story: Carlos Caminada in Sao Paulo at at ccaminada1@bloomberg.net

Last Updated: August 27, 2008 08:47 EDT