SAO PAULO, Aug 13 (Reuters) - Cosan SA, Brazil’s largest sugar and ethanol producer, said it was foregoing sales of sugar for better conditions later in the 2014/2015, when supplies of the sweetener are expected to tighten after an early end to harvest.
In the company’s second-quarter earnings report released late Wednesday, Cosan posted a consolidated net profit of 104.1 million reais ($45 million), compared with a 201.5 million real loss in the same three months last year.
Cosan, which has divisions spanning sugar, ethanol, natural gas, fuel distribution, logistics and farm land management, posted strong quarterly gains from its fuel distribution unit, a joint venture known as Raizen with Royal-Dutch Shell. Sales of ethanol, gasoline, diesel and aviation fuels rose 16 percent in the second quarter versus a year ago.
Raizen’s sugar and ethanol production surged as well by nearly 14 percent and 19 percent, respectively, compared with a year ago output, due to strong crushing results over the first three months of the season. Weather in the main cane belt has so far been dry and favorable for harvest.
And though ethanol sales grew by 51 percent in the quarter, sugar sales dropped 23 percent, especially on exports.
“The main factor for the drop in net revenue was the postponement of shipments for the end of the 2014/15 season,” Cosan said in its earnings results.
The company is not the only in the Brazil’s sugar sector to stockpile the sweetener amid horrid prices that have been hovering just over 16 cents a lb on the ICE futures market in recent days, which is well below production costs.
Sao Martinho, one of Brazil’s medium-sized sugar producers, reported similar commercial plans for its sugar sales on Monday in a quarterly earnings report.
Brazil’s main cane belt was hit by a severe drought early in 2014 that shrunk the size of the crop by roughly 10 percent from December expectations by most accounts.
This combined with the continued dry weather is accelerating the harvest which will likely end a month early in November and lengthen the intraharvest period. This will help unwind the global glut in sugar and tighten the supplies on the world market from December through March.
Cosan also reported strong earnings from sales of electric energy on the spot market from its cogeneration plants that run on bagasse left over from the crushing of sugar cane. Net revenues from energy sales rose 80 percent in the second quarter from a year ago to 175 million reais.
Brazil is in the midst of an acute shortage of water in its main hydroelectric reservoirs which has driven up the price of electric energy to record levels on the spot market. (Reporting by Reese Ewing; Editing by Lisa Shumaker)