February 15, 2013

Increasing Ethanol Blend Raises Hopes of Brazilian Sugar Sector

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

With sugar prices at breakeven levels, the sugarcane producers in Brazil are hoping that the scheduled increase in the amount of ethanol blended into the country's gasoline supply will help to stimulate the Brazilian sugar/ethanol sector. The percentage of ethanol blended into gasoline is scheduled to increase from 20% to 25% in May. It had been lowered from 25% to 20% in October of 2011 as a way to extend limited ethanol supplies.

For the last two years, sugarcane producers and processors in Brazil have been operating either in the red or with very thin margins due to disappointing sugarcane production and low prices for sugar and ethanol. According to the president of the National Center for Sugar/Ethanol and Biofuels Industries, Antonio Eduardo, ethanol could lead the way forward for the Brazilian sugar sector. Brazil is the world's leading producer of sugar and second leading producer of ethanol and with sugar prices at breakeven levels, improved margins for ethanol producers is the only way the sector is going to return to profitability.

As a result, sugarcane processors will be devoting more of their sugarcane toward the production of ethanol than ever before. It is estimated that during the 2013/14 harvest season, which will begin in March or April, as much as 56% of the sugarcane will be used to produce ethanol and 44% for sugar production.

The sugar sector in Brazil is a significant part of the country's agricultural economy. Today in Brazil, there are 80,000 sugarcane producers, 450 sugar/ethanol mills, 4,000 companies that furnish equipment and logistics, as well as hundreds of thousands of workers involved in the industry.