Brazil increases ethanol blend

Brazil increases ethanol blend

A stronger dollar reduces Brazil's incentive to buy U.S. ethanol

Farmers in Brazil’s Mato Grosso state—who grow about one-third of all the country’s beans—are 67% done with their later-than-planned harvest. And producers in Parana, Brazil’s number-two soy state, were last reported at 66% done. One important consultancy puts the nationwide harvest progress rate at 50%, slightly behind this point last year.

A stronger dollar reduces Brazil's incentive to buy U.S. ethanol

The Brazil truckers’ strike is pretty much over, but a group of exporters, trading companies and crushers invited by the government to establish a working group to set a new standard per-mile price table for hauling commodities just came back with no consensus. But even if the truckers go back on strike, much of the 2014-15 crop is now shipped.

Meanwhile, Brazil raised its national mandatory ethanol blend this month to 27% for regular gas, up from 25%. The increase, which doesn’t cover premium gasoline, could mean additional sugarcane ethanol demand of up to 264.6 million gallons per year in the South American country.

And while the increased blend might sound like good news to U.S. corn producers, the Brazilians also just announced a new deal to ship some 30,000 tonnes (somewhere near 39 million gallons) of the so-called “sweeter alternative” to the United States.

Things that make you go hmmm

For a country that’s been importing U.S. corn ethanol (in 2014, Brazil brought in some 800 million gallons of the stuff to make up for ever-falling yields in their sugarcane fields), that’s one of those things that make you go hmmm.

There are likely at least two factors at work behind the sudden change from “we ain’t got enough!” to “use all you want; we’ll make more!”

The biggest issue, by far, is the strengthening U.S. dollar against Brazil’s real. Today, one U.S. greenback buys around 3.25 Brazilian reals. But just six months ago, that same dollar got you more like 2.36 reals. That’s something like a 72% increase in buying power, and it makes Brazilian sugarcane ethanol much more attractive to buyers in the U.S.

By the same token, every time the dollar gets more expensive, the Brazilians have that much less incentive to bring in U.S. ethanol.

More ethanol, less sugar

The other factor behind Brazil’s choice to increase the blend has to do with demand for sugar. After all, a sugarcane crusher finds himself in an “either/or” situation each day as he gazes out his window. The sugarcane in the trucks he sees lined up at the entrance of the plant can be turned into either sugar or ethanol. With world sugar prices relatively high in recent years, a lot of Brazilian sugarcane has gone to making the sweet stuff.

But now, Brazilian sugarcane crushers have stepped up their ethanol game. They’re making more ethanol and less sugar from each acre of sugarcane grown in Brazil. By last August, the crushing mix climbed to 54.7% of all cane going to ethanol production, compared with just 51.3% for the same month of the 2013-14 season.

Related: More Corn Ethanol Plants on the Horizon in Brazil

All this time, the Brazilian ethanol industry has been reassuring the public it can keep up with a new, higher, blend rate. That said, high temperatures and short rainfall have combined to lower production projections for Brazil’s 2014-15 cane crop by close to 10% (between lower yields and a somewhat smaller planted area.)

Only time will tell if Brazil’s new and higher minimum ethanol blend rate will mean more imports of U.S. corn ethanol. But for now, cane growers are glad to see more booze in the tank.

The opinions of James Thompson are not necessarily those of Farm Futures or the Penton Farm Progress Group.

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