June 24, 2011

Brazil Sugar and Ethanol Production Estimates Continue to Decline

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

Brazilian sugarcane producers continue to be frustrated by recurring problems in their sugarcane fields. As a result, estimates of Brazil's 2011/12 sugar and ethanol production have been lowered and estimates of the amount of ethanol Brazil will need to import in 2011/12 have been increased.

According to a report released by the sugar and ethanol consulting firm Datagro, 600 million tons of sugarcane will be processed in Brazil in 2011/12. If realized, this would represent a 3% reduction from their May estimate and 3.3% less than what was processed in 2010/11. The Union of Sugarcane Industries (Unica), which represents the sugarcane producers in southeastern Brazil, is estimating that its members will process 536 million tons of sugarcane this season, which is also down 3.3% from their prior estimate.

According to Datagro, the sugar/ethanol mills in Brazil should process 33.7 million tons of sugar in 2011/12, which is 2.9% less than last year. Ethanol production in Brazil is expected to fall 3.7% compared to last year from 24.2 billion liters to 23.3 billion. They have also lowered their estimate of Brazil's sugar exports to 24.2 million tons down from their May estimate of 25.2 million. One of the reasons for the reduced ethanol production is the fact that 52.1% of the sugarcane will be processed for ethanol compared to 54.2% that was used for ethanol production in 2010/11.

As a result of the lower ethanol production and increased internal demand, Datagro is estimating that the Brazilian imports of ethanol may surge to 770 million liters in 2011/12 compared to 455 million liters imported in 2010/11.

The Brazilian ethanol sector has been encountering short supplies and higher prices for the last two intra-harvest periods, which generally runs from December and March. The problem has been that not enough ethanol had been stored during the harvest season to sustain the demand during the intra-harvest period. The recently released 2011/12 Harvest Plan tries to address the problem by offering extended lines of credit for increase sugarcane production. The government is also debating new regulations that would force producers and distributors to set aside enough ethanol to meet the year-round demand.

The three mediocre years in a row of sugarcane production can be attributed to the recent weather in Brazil as well as the long growing cycle of sugarcane. Once sugarcane is planted, it is generally harvested every year and a half or so for five to six years. The average growing cycle for sugarcane in Brazil is currently running at 5.5 years before the crop is replanted. If adverse weather occurs during any part of its growth cycle, the affects can be felt for several years. That is exactly what is happening in Brazil.

The current problems started in late 2009 when heavy rains in southeastern Brazil interrupted the last two months of the sugarcane harvest. In their haste to harvest as much as possible, producers attempted to harvest when they probably should not have. The heavy machinery used in mechanical harvesting resulted in severe soil compaction which slowed the regrowth of the sugarcane. Subsequently in 2010, the same region suffered under one of the longest dry seasons in recent memory. The prolonged dry weather caused some of the plants to go dormant and it slowed their development. Some of the sugarcane that was harvested during the dry weather did not start to regrow for several months, thus setting back the crop even further. The production of sugarcane in future years will likely increase after the problem areas are replanted and if no additional adverse weather is encountered.