July 11, 2011

Brazilian Sugar/Ethanol Mills Opt for more Sugar Production

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

Recent high prices for sugar has encouraged mill operators in Brazil to adjust their production practices to produce a little more sugar and a little less ethanol. This trend has been evident in the state of Minas Gerais, which is the second leading sugarcane producing state in Brazil after the state of Sao Paulo.

In southwestern Minas Gerais in an area called the Triangulo Mineiro (Minas Triangle), over the last year there has been four sugar/ethanol mills that previously produced only ethanol, but have now been modified to start producing sugar as well. During the last harvest season, the state produced 2.6 billion liters of ethanol, which was an increase of 13%, but sugar production in the state increased 20% last year to 3.2 million tons.

Sugarcane producers in Minas Gerais are expected to harvest 57 million tons of sugarcane in 2001/12, which is 2 million tons more than in 2010/11. High sugar prices and strong international interest in sugar has encouraged producers in the state to invest in renovating their sugarcane fields. They have also invested heavily in new machinery and 95% of the sugarcane in southwestern Minas Gerais is now harvested mechanically. Producers in the region are being paid R$ 55 per ton of sugarcane which is R$ 15 more than last year.

As a result of the increased emphasis on sugar production as well as increased sales of flex fuel vehicles, ethanol supplies in Brazil have tightened and prices have surged. As recently as April 2011, ethanol prices in Brazil hit a new record. Mediocre sugarcane production in Brazil over the last three years has also contributed to the tight ethanol supply.

Sugar/ethanol mill operators make no excuses for their increased emphasis on sugar production which they attest to market forces. They say that owners of flex fuel vehicles can easily switch back to gasoline temporarily if ethanol prices become uncompetitive. Sugarcane producers in Brazil do not want the federal government to interfere with the domestic ethanol market, which they feel is just responding to market forces.