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Brazil's Cosan Thanks Low Sugar Prices For Tepid Earnings

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Despite record oil prices, it has not been a great year for making money from ethanol. High corn prices are killing corn ethanol companies in the U.S., while Cosan, the world’s largest sugar company as well as its leading maker of sugar-based ethanol, has had the opposite problem: a glut of sugar has caused sugar prices to remain low.

In the wake of tepid earnings, Cosan’s U.S. shares fell 5.7 percent to $13.09 Thursday. The company said sugar prices declined 33 percent last season, causing a net loss of $3.4 million for the three months through April 30. That followed a $30 million loss in its most recent fiscal year.

In an era when many commodity prices are skyrocketing, sugar has defied the trend. But sugar prices have been rallying in the past few weeks on expectations that the situation will change: Countries like Russia are expected to increase exports, while exporters like India and Brazil will see smaller crop yields.

In its earnings announcement, Cosan suggested that shift may continue, but not dramatically so.

“Despite the recent sharp increase in sugar prices in the futures market, there are still significant discounts in the physical market… although we are optimistic regarding price trends throughout the 2009 fiscal year, we do not expect either sugar or ethanol prices to climb by more than 15 percent.”

Reuters is also reporting that a Cosan executive said the company will improve exports of ethanol, especially into the United States.

The group’s ethanol exports should account for 25 percent of the expected output for the season, compared with less than 20 percent in recent years, said Cosan’s commercial vice president Marcos Lutz.

Cosan’s listing on the New York Stock Exchange last summer had a rocky start, raising only half the $2 billion it had initially hoped for. Sugar prices was one factor, as was the concern among new shareholders that their voting rights were unfair.

Still, Cosan has vastly outperformed some of the ethanol plays in the U.S. Its stock listed at $10.50 and rallied as high as $15.75 in early March. Even with the declines, it’s up 3.6 percent so far this year, while Pacific Ethanol and Verasun are both down 60 percent or more.

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