* Stronger dollar makes sugar exports more attractive
* Export margins not big enough to change mills' production
* Ethanol is more liquid, offers mills better cash flow
SAO PAULO, Aug 7 (Reuters) - Sugar and ethanol output fromBrazil's biggest sugar and ethanol group Raizen Energia, a jointventure between Cosan SA and Royal-Dutch Shell, could fall 6 percent due to recent frost and rains, alocal newspaper said.
Pedro Mizutani, Raizen Energia's chief financial officer,said in the Brazilian financial paper Valor Economico's onlineedition late on Tuesday that two days of frost would reducecrushing at one of its mills in Mato Grosso do Sul state by100,000 tonnes to 2.05 million tonnes, for example.
"The most damaging effect of the frost will occur next yearbut it's still too early to quantify this effect," Mizutanisaid.
The president of sugar and ethanol analyst Datagro, PlinioNastari, told Reuters that frost damaged 65 million tonnes, orat least 18 percent, of the yet unharvested sugar cane in thesouthernmost regions of Brazil's growing region.
Nastari said on Tuesday, that he would release a newforecast of the cane crop with an estimate of losses from thefrost in about a week to 10 days.
The day after, Brazil's second-largest sugar and ethanolcompany Biosev SA, which is controlled by Frenchcommodities trader Louis Dreyfus, said the frost would reducethe cane it crushed in Mato Grosso do Sul where it operatesthree large cane mills.
Mizutani said that in addition to an estimated 3 percentloss in company output from the frost, he expected an additional3 percent loss in sugar and ethanol output due to rains in Juneand July that have diluted the sugar levels in the cane.
"Even if weather remains dry and favorable for crushing,it's difficult to recover all the drop in ATR (recoverablesugars)," he said.
In total, Raizen expects to crush 59 million to 62 milliontonnes of cane in the current 2013/14 (April-March) season,which Mizutani estimates is half completed.
STRONGER DOLLAR
Mizutani estimated that the recent strengthening of thedollar by 14 percent since May has made exports of sugar moreattractive than producing ethanol, for the local marketpredominantly.
But he added that he did not expect mills to change theirproduction plans to produce more of the sweetener. Mills havebeen favoring ethanol production this season by about 57 percentto 43 percent sugar.
"Ethanol has greater liquidity than sugar. So, forgenerating cash flow, mills prefer ethanol when the differencein returns (compared with sugar) is slim," he said.
