June 10, 2011

Ethanol Summit in Brazil Discusses Need for more Ethanol Prod.

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

During a recent "Ethanol Summit" held in Sao Paulo, government officials and industry representatives discussed the level of investments needed in the ethanol sector to insure that enough ethanol is available in Brazil to meet the increased domestic demand in future years.

The rapid increase in domestic demand has caught the ethanol industry flat-footed. Since the introduction of flex fuel cars in Brazil in 2003, more than 90% of all new car sales have been flex fuel vehicles. Within four years, the number of flex fuel vehicles on Brazilian highways is expected to reach 35.8 million, or approximately ten times more than what is currently on the road. These vehicles can use E100 or the E25 that is currently sold in Brazil.

According to the president of the National Petroleum, Natural Gas, and Biofuels Agency (ANP), Haroldo Lima, the current level of investments in the biofuels sector is not high enough to meet the expected future demand for ethanol in Brazil especially during the intra-harvest period. Ethanol supplies were very tight during the most recent intra-harvest period (January to April) and as a result, ethanol prices reached record levels in April. The situation would have been even worse if it wasn't for a large amount of ethanol that was imported from the United States.

Some of the options discussed at the meeting included: increasing the amount of ethanol in storage prior to the end of the sugarcane harvest, forward contracting of ethanol, financial incentives to build additional storage capacity, and the urgent need to increase the number of sugar/ethanol mills in Brazil.

The president of the National Development Bank (BNDES) affirmed to the group that the bank has committed R$ 35 billion for the expansion of ethanol production over the next three years. Projects financed by the bank include: renovating and expanding sugarcane production, increasing the crushing capacity of existing mills and building new sugar/ethanol mills, and improvements in infrastructure and logistics.

The ethanol industry is concerned that if the ethanol production is not increased quickly, Brazilian consumers may develop a negative attitude toward ethanol and biofuels in general. If that were to happen, years of hard work developing and promoting the industry to the Brazilian consumer could be in jeopardy.