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Brazil Will Favor Sugar at 21 Cents, Morgan Stanley Says

Jan. 31 (Bloomberg) -- Sugar millers in Brazil, the world’s largest producer, will favor production of sugar over ethanol with prices at or above 21 cents a pound, Morgan Stanley said.

Producers in the South American country can make either sugar or ethanol from the raw material sugar cane. The raw sweetener traded in New York was up 1.2 percent to 24.13 cents a pound at 11:04 a.m. London time on ICE Futures U.S.

“Strong gasoline demand in Brazil has also led to an increase in anhydrous ethanol demand, though economics still support sugar production over ethanol down to a sugar price of 21 cents a pound,” Hussein Allidina, head of commodities research at the bank, wrote in a report dated yesterday.

Sugar supplies will exceed demand by 7.7 million metric tons in the 2011-12 season ending Sept. 30, with more production in the Northern Hemisphere and output in Brazil ending “stronger” than initially anticipated, he said.

“We remain bearish on sugar given our estimates for a global surplus in 2012,” Allidina said. “Sugar fundamentals should soften in the first half of 2012.”

The global supply outlook for coffee is “bearish,” with slowing economies weighing on demand for arabica beans in emerging markets, according to the report. Arabica coffee is harvested mainly in Latin America and used in specialty drinks favored by Starbucks Corp.

“With increased arabica production slated to come out of Brazil and robusta production out of Vietnam, the impending supply outlook is bearish,” Allidina said.

To contact the reporter on this story: Isis Almeida in London at ialmeida3@bloomberg.net

To contact the editor responsible for this story: John Deane at jdeane3@bloomberg.net

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