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(Adds details on quarter, Cosan comments)
SAO PAULO, Aug 12 (Reuters) - Cosan SA Industria e Comercio , Brazil's largest sugar and ethanol producer, said in a filing with the market regulator on Wednesday that its net income fell to 49.4 million reais ($14.2 million) in the second quarter, 52.5 percent less than in the same period a year earlier.
Cosan, who is also a major local player on lubricants and natural gas distribution, said it has faced a challenging business environment in Brazil, with falling economic activity and rising inflation impacting its sales.
The company said the smaller profit was also a result of higher costs to service its debit and costlier hedging operations in a period of high interest rates and a weaker local currency.
A slower start to cane crush season due to above average rains in Brazil's center-south region resulted in significant reductions on sugar and ethanol sales in the quarter compared to last year.
Sugar sales fell 29 percent, ethanol 27 percent.
But the company said the wetter climate improved crop conditions in terms of cane volume, which should help the company going into the rest of the season.
Cosan also said that climate conditions improved a lot for cane processing lately with a long dry spell in the last part of the quarter.
"Production volumes should be normalized along the next quarters," said the company in the filling. (Reporting by Marcelo Teixeira; Editing by Alan Crosby, Bernard Orr)