April 30, 2013

Sugarcane Production in Southern Brazil to Increase 10%

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

Sugarcane production in southern Brazil is expected to increase 10% during the 2013/14 harvest season that just started. According to the Union of Sugarcane Industries (Unica), 589 million tons of sugarcane should be processed this harvest season in southern Brazil as compared to 532 million tons harvested last season. Reasons for the optimistic forecast include: a 6.5% expansion in sugarcane acreage in southern Brazil, a reduction in the average age of the sugarcane due to more sugarcane being renovated and improved weather over the last several months that improved sugarcane growth.

The productivity per hectare is expected to increase 7.6% and that combined with the increased acreage is expected to result in a 14% increase in the amount of sugarcane available for processing. Not all the renovated sugarcane will be available for processing before December 15th, which is considered the end of the harvest season. Some of the renovated sugarcane will be carried over to the next harvest season. Generally, 1.5% of the sugarcane is carried over until the next harvest season, but that may increase to 3.5% this year.

The sugarcane harvest in southern Brazil has started slower than normal due to wet weather during March. Up until the middle of April, 8.8 million tons of sugarcane have been harvested compared to 27.7 million tons during the same period last year. The sugar/ethanol mills in southern Brazil are responsible for 50% of Brazil's sugarcane production and 60% of the ethanol production.

Farmers in the center-west and northern regions of Brazil would also like to plant more sugarcane, but legislation passed by the Brazilian Congress in 2009 prohibits sugarcane from being planted across huge swaths of central and northern Brazil. As a result, new legislation is being introduced that would remove some of those restrictions. Under existing legislation, producers cannot access credit to plant sugarcane in these exclusion zones and the construction of sugar/ethanol mills is prohibited.

The 2009 legislation prohibited any additional sugarcane production in the Amazon Lowland region, the Pantanal Wetlands, and the Alto Paraguai River Basin. These restrictions were put in place based on the belief that sugarcane would not be productive in those areas and also due to pressure from international environmental groups that don't want any of the Amazon Lowland regions being used for agricultural production.

What this original legislation failed to take into consideration is the fact that there are regions within these exclusion zones that are not tropical rainforest, but rather savanna type vegetation that could easily be converted to agricultural production without any detriment to the Amazon Rainforest. Additionally, there already exists other types of agriculture in these areas and prohibiting one type of agriculture (sugarcane production) from substituting for another type of agriculture (cattle ranching) does not make any sense especially when the world is concerned about food shortages and high food prices.

According to studies conducted by the University of Sao Paulo, 7% (9 million hectares in total) of the area in the state of Para is well suited for the production of sugarcane. The potential sugarcane yield on these 9 million hectares (7% of the state) is as high as in southern Brazil where the bulk of Brazil's sugarcane is grown. In this huge state that encompasses the eastern Amazon, rural poverty is very high and economic opportunities are limited. Land values and labor costs are much lower than in Sao Paulo and many local officials feel sugarcane production could bring much needed economic development to the region.