February 1, 2012

Brazil Hopes for Improved Sugarcane Production in 2012/13

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

The wet weather that has been common in south-central Brazil since early January appears to be easing and that is good news for the sugarcane crop in the region. The soil moisture is now completely recharged and the return of sunny skies would help to increase photosynethic activity. The lack of sunshine over the last several weeks had been delaying the development of the crop, but producers now hope the weather continues to improve moving forward.

As far as sugarcane production is concerned, the south-central region of Brazil, which encompasses the states of Sao Paulo, Minas Gerais, Goias, Parana, and Mato Grosso do Sul, is responsible for 90% of Brazil's total sugarcane production.

During the 2011/12 harvest season, the region produced 492 million tons of sugarcane, which was the first year-to-year decline in production in a decade. The sugarcane tonnage in 2012/13 is expected to increase 10% or more to 540 to 550 million tons. Producers are also hoping for better quality sugarcane this harvest season with higher sucrose content. The sugarcane crop that was harvested in 2011/12 was not only a disappointment in total tonnage; it was also of inferior quality as well. The 2012/13 sugarcane harvest will start in March and conclude in December.

Brazilian consumers are still paying the price at the pump for last year's poor sugarcane crop. Ethanol production in Brazil fell 17% last year, which has resulted in higher domestic ethanol prices. Currently in Brazil, it is more economical to use gasoline in your automobile than it is to use ethanol in all the states except for two, Sao Paulo and Goias.

According to the National Petroleum, Natural Gas, and Biofuel Agency (ANP), the national average for ethanol last week in Brazil was R$ 2.024 per liter (approximately US$ 4.40 per gallon), which was down 0.5% from the previous week. The state of Roraima, which is located on the border with Venezuela, had the highest statewide average price of ethanol at R$ 2.518 per liter (US$ 5.50 a gallon). The highest absolute price for ethanol last week in Brazil was found in the state of Maranhao where ethanol was selling for R$ 2.99 per liter (approximately US$ 6.50 a gallon).

The breakeven point for consumers to determine if they should use ethanol or gasoline is 70%. When the price of ethanol is less than 70% the price of gasoline, it is more economical to use ethanol. When the price is 70% the cost of gasoline, it is a toss-up between ethanol and gasoline. When it is greater than 70% the price of gasoline, it is more economical to use gasoline. Consumers in Brazil can make that choice because slightly more than half of the light vehicles on the road have flex fuel engines that can use either gasoline or ethanol or any combination of the two.

In the state of Sao Paulo the price of ethanol is currently 70.9% the price of gasoline and in Goias it is 70.5% the price of gasoline. These high ethanol prices are not expected to decline until the new harvest begins in March or April.