August 25, 2011

Sugar/Ethanol Mills in Brazil to Close Early for Lack of Sugarcane

As the U.S. growing season starts to approach its end, we will now be writing more articles about the South American growing season that is set to start in a few weeks. With estimates for the U.S. corn crop continuing to decline, I have decided to more closely track the sugarcane production in Brazil, which can have a direct impact on the amount of U.S. corn used for ethanol production. The United States is already exporting significant amounts of ethanol to Brazil and as sugarcane production in Brazil declines, U.S. exports of ethanol to Brazil are expected to increase further.

Sugarcane production in Brazil has declined for the third consecutive year in a row and as a result, the country has not been able to meet the increasing domestic demand for ethanol. Brazil imported a significant amount of ethanol from the U.S. in 2010 and that is expected to increase even further in 2012. The increasing demand for ethanol exports to Brazil should help support the U.S. corn demand and thus the reason why I am going to write more about Brazilian ethanol production.

Due to a lack of sugarcane to harvest, many sugar/ethanol mills in southern Brazil are anticipating that they will shut down their processing operations a month earlier than normally. Generally sugarcane processing continues until early or mid-December, but this year they plan on shutting down in mid-November. They generally resume operations in March or April.

In the state of Parana for example, sugarcane production is expected decline 9.8% to 42.5 million tons. This is the second year in a row of declines after four consecutive years of increases. The sugarcane is of lower quality this year as well and total sugar production in the state is expected to be 3.1 million tons, 80% of which will be exported. The total ethanol production in the state is expected to be 1.46 billion liters, which will not be enough to meet domestic demand in the state.

According to the latest estimate from the Union of Sugarcane Producers (Unica), the sugarcane crop in southern Brazil is now estimated at 510 million tons, which is a decline of 9% compared to last year. Archer Consulting, a private analysis firm, estimates that the sugarcane crop will be even lower at 485 million tons. Just to meet the growth in the domestic demand for ethanol, the sugarcane tonnage in 2011/12 should have been 620 million tons. Southern Brazil is responsible for 90% of all the sugarcane produced in the country.

The declining sugarcane production in Brazil is the result of three years of poor weather and a lack of investments in renovating existing sugarcane fields and investments in new sugarcane production. In its recent Annual Harvest Plan, the Brazilian government greatly increased the amount of credit available for sugarcane producers. In prior years the borrowing limit for loans to expand sugarcane production was R$ 200,000 per grower, but that has now been increased to R$ 1 million per grower. There are approximately 430 sugar/ethanol mills in Brazil and only 4 new mills are scheduled to open in 2011. Dozens if new mills are needed in the next few years just to meet the expanding domestic demand for ethanol.