June 16, 2011

High Corn Prices Squash Idea of Corn-based Ethanol in Brazil

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

Brazilian ethanol producers are watching with interest the debate in the U.S. Senate concerning modifying or ending subsidies for corn-based ethanol production and the potential elimination of the import tariff on ethanol. Brazilian producers have long felt that the playing field was not level due to the subsidies the U.S. government was willing to spend to kick-start and maintain the biofuel industry.

All the ethanol produced in Brazil is derived from sugarcane and Brazilian sugar/ethanol mills are expected to process more than 600 million tons of sugarcane this harvest season. Even though all the ethanol in Brazil is sugarcane-based, some farmers and politicians from Mato Grosso were actually considering a few years ago to start making ethanol from corn. It went as far as the governor of Mato Grosso touring ethanol plants in the Midwest.

At the time, corn prices in the state were low and there was such a surplus of corn in Mato Grosso that it had to be piled on the ground due to a lack of storage space. The idea was that it would be more economical to process the corn into a value added product such as ethanol rather than to pay the extremely high transportation cost needed to move the corn to livestock producers or exporters in southern Brazil. The idea was to use ethanol as a way of disposing of the excess corn. Everyone knew that corn-based ethanol production could never compete with sugarcane-based ethanol.

That short-lived idea has now been put to rest due to the improved corn prices. Currently corn prices in Rondonopolis, Mato Grosso are as high as R$ 21 per sack of 60 kilograms, but only twelve months ago, that same sack was selling for as little as R$ 8 per sack. As long as corn prices remain strong, the idea of corn-based ethanol production in Mato Grosso will not be resurrected.

According to Jorge dos Santos, director of the Syndicate of Sugarcane Industries of Mato Grosso (Sindalcool), it costs approximately 2.5 times more to produce ethanol from corn in Mato Grosso than it would cost to produce the ethanol from sugarcane. He feels that corn-based ethanol is successful in the United States because of the infrastructure and logistics specifically designed for ethanol production and the "monstrous" government subsidies provided to the ethanol sector.