It's easy to make money with corn at $2.11 per bushel—if you're making ethanol out of it. And that's just what some ethanol producers in Brazil's Mato Grosso state are doing right now. And it's not that different from the phenomenon we're seeing in the U.S. right now, with ethanol production at near capacity while corn prices tank. But wait—isn't all of Brazil's ethanol made from sugar cane?
Well, not quite all. Just as there are more than three million "flex-fuel" cars on the road in Brazil (flex-fuel means you can put any ethanol blend you like, opting for a greater or smaller ethanol blend depending on current prices) there are now at least a couple of ethanol producers up in Brazil's Mato Grosso state who can make ethanol from either sugarcane or corn.
And with the about 8.5 million metric tonnes, or 48% of the state's projected 2013-14 second-crop corn now harvested, producers are looking for new demand. Mato Grosso's Ag Economics Institute says producers there are growing corn—even on those fields with minimum inputs—at a loss, and the flex-fuel ethanol plants are eating it up.
And the advantages for the plant go beyond just cheaper feedstock. A plant director says Usimat operates 340 days per year, compared to the about 210 days a year for the typical sugarcane-only plant. That's crucial at a time when Brazil's sugarcane ethanol sector is facing hard times: it is reported some 58 ethanol distilleries have padlocked their doors since 2007, 12 of them in just the past year, due to low prices and high costs.
But here's the thing: Brazilian producers are going to keep on producing second-crop corn despite low costs because they can get the rotation they need in a single year. They may apply fewer inputs, but the Brazilian second-crop corn area is already larger than that of main-crop corn. (It's estimated the current season's main-crop corn production came to 32 million tonnes, while the second 2013-14 second crop will come in at 46.2 million tonnes.)
At the same time, world demand for sugar is projected by the U.N. Organization for Economic Cooperation and Development to increase in the short term and level off at a higher price as world stocks dry up.
As a result, those Brazilian distilleries that are currently dedication around 48% of their harvest to sugar production, may ratchet that proportion to something more like 50/50, further tightening the ethanol supply at a time when industry experts have predicted the country will need up to 100 new distilleries by 2020 just to keep up the with demand of a developing country that's growing both in population, and in the part of that population that owns a car.
And experts said at a recent conference that converting a standing sugarcane-only ethanol plant to a flex-fuel plant costs only about half as much as building a new facility.
The opinions of James Thompson are not necessarily those of Farm Futures or the Penton Farm Progress Group.