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February 12, 2018

1.5% of Brazil's Ethanol Production is from Corn and Growing

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

Brazil is famous for its extensive sugarcane fields used to produce sugar and ethanol, but things are changing in Brazil. An increase in corn production and the resulting low domestic corn prices, have encouraged sugar/ethanol mill operators to start utilizing more corn to produce ethanol.

Brazil's first corn-based ethanol facility started operating last June in Mato Grosso and other facilities are currently under construction. A number of sugar/ethanol mills have also been retrofitted to utilize corn (or grain sorghum) during the period when sugarcane is not available. These "flex" facilities utilize corn during the rainy season, which is usually December-January-February, when sugarcane cannot be harvested.

According to Union of Sugarcane Industries (Unica), corn now accounts for 1.5% of the ethanol production in Brazil and it is expanding rapidly in Brazil. From the start of the 2017/18 sugarcane harvest until February 1st, there were 391 million liters of ethanol made from corn which represented a 130% increase over the previous year. The increase is coming from both flex facilities and new facilities that utilize only corn to make ethanol.

The National Union of Corn Ethanol (UNEM) predicts that within five years, in the state of Mato Grosso alone, corn will be utilized to produce 3 to 4 billion liters of ethanol. This would represent an increase of 8 to 10 times over current production.

The ethanol produced in Mato Grosso will be utilized in northern and northeastern Brazil, which are currently ethanol deficit regions. It is cheaper to transport the ethanol from Mato Grosso to these regions than from southern Brazil.

Corn based ethanol production in Brazil is a win-win situation for everyone involved. The increased use of corn to make ethanol is expected to support corn prices in places like Mato Grosso when corn prices are generally pressured due to excess corn production. The mill operators are reporting very good results utilizing corn in their operations. Even American corn producers could benefit from this new trend because as more corn is utilized in ethanol production, it competes with corn that might go into the export market instead.

The losers in this scenario are the livestock producers in southern Brazil that depend on cheap corn from central Brazil to supplement their corn deficit region. Livestock producers in southern Brazil are already complaining that they must compete with exporters for their corn supplies and now they will need to compete with ethanol producers as well.

In fact, the state of Santa Catarina in southern Brazil has just completed an agreement with neighboring Paraguay and Argentina to start shipping corn from Paraguay across Argentina and into Santa Catarina to help supply corn for the hog producers of the state. Transporting corn from Paraguay is expected to reduce transportation cost by 70% compared to trucking in corn from Mato Grosso. It is 500 kilometers from the corn fields of Paraguay to Santa Catarina whereas it is 2000 kilometers from the corn fields of Mato Grosso and the only way to transport the corn to Santa Catarina is by truck.