OREANDA-NEWS. Brazilian ethanol production is poised to break another record in the 2016/17 season, defying a recent rise in sugar prices.

Several weeks before most of the country's mills start the crushing season, analysts and traders hold mixed views on how much more of the crush mills will divert to sugar this season.

After four years of surplus, the global sugar market is expected to move into deficit territory this year, helping to push up prices.

Consultancy Archer said the bulk of Brazilian mills are still struggling with massive debts in a tight credit market as the economy sinks deeper into recession.

Cash-poor mills will look to generate working capital as fast as possible once the harvest starts, which will encourage them to favor ethanol over sugar.

Ethanol can be sold on the spot market to generate immediate cash, while sugar export deals take more time for payment.

Archer said despite the recent jump in hydrous ethanol prices, motorists continue to choose the biofuel over gasoline.

According to the oil regulator ANP, it is currently more cost effective for motorists to use gasoline rather than hydrous ethanol in every state of Brazil.

To be competitive, the hydrous ethanol price must be less than 70pc of the gasoline price, but Archer believes that motorists are not doing the calculation and are opting for hydrous ethanol, which remains roughly R1.00/liter ($0.93/USG) less expensive than gasoline at the pump.

According to early estimates, cane output in the center-south region will increase by 3-5pc in the upcoming 2016/17 season. The increase reflects a recovery in precipitation which will increase sugar cane output per hectare, rather than expansion of cane planted area.

Ethanol production from Brazil's center-south region could increase by as much as 7.5pc to 28.5bn liters (491,122 b/d) in the 2016/17 season, according to leading sugar and ethanol consulting firm Datagro, in line with other estimates

The cane industry association Unica expects overall sugar production in Brazil's main center-south cane region to rise, but steady demand for ethanol could stem the migration of production of the biofuel to the sweetener. Unica will release its estimate of the new crop in the coming weeks.