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June 26, 2020

Depressed Ethanol Sales in Brazil show Signs of Recovery

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

Since the start of the Brazilian sugarcane harvest in April, the reduced demand for fuel due to the Covid-19 pandemic has resulted in lower ethanol sales, but the situation in Brazil is showing signs of improvement.

According to the Union of Sugarcane Industries (Unica), total ethanol sales in Brazil during the first half of June totaled 1.17 billion liters, which was down 10.5% compared to the same period last year. This is an improvement compared to May when sales were down 27% compared to a year earlier. Domestic ethanol sales fell 17% during the first half of June compared to a year earlier, but that too was an improvement compared to May when domestic sales fell 30% compared to a year earlier.

In contrast to domestic ethanol sales, exports of Brazilian ethanol have been surprising strong. Brazilian ethanol exports sales during the first half of June were 122 million liters, which was three times higher than a year earlier. Since the start of the harvest season in April, Brazilian ethanol export sales have increased 50% to 350 million liters.

For the past nine years, the California Air Quality Board has considered Brazilian ethanol as a low carbon fuel that qualifies for carbon credits in California. Once an ethanol producer passes the process for certification as a low carbon producer, its ethanol production is eligible for premiums and carbon credits. If the Brazilian currency is trading at 5 Brazilian reals per U.S. dollar, California's carbon credit is worth approximately R$ 1 per liter. In comparison, the carbon credit for the same ethanol in Brazil is worth R$ 0.15 to R$ 0.20 per liter. For the past nine years, the California Air Quality Board has considered Brazilian ethanol as a low carbon fuel that qualifies for carbon credits in California. Once an ethanol producer passes the process for certification as a low carbon producer, its ethanol production is eligible for premiums and carbon credits. If the Brazilian currency is trading at 5 Brazilian reals per U.S. dollar, California's carbon credit is worth approximately R$ 1 per liter. In comparison, the carbon credit for the same ethanol in Brazil is worth R$ 0.15 to R$ 0.20 per liter.

Since the export market is much small than the domestic ethanol market, the improved export market can only compensate somewhat for the depressed domestic market. Considering the total ethanol sales volume for both the domestic and export markets since the start of the harvest season, Unica registered sales of 5.15 billion liters, which is a decline of 25% compared to a year earlier.

While ethanol sales have been depressed, the sugar market has actually done quite well. Many sugar mills adjusted their production to produce less ethanol and more sugar and since the start of the harvest season, Brazil has exported 4.88 million tons of sugar which is an increase of 60% compared to last year.

Since the start of the 2020/21 harvest season until June 16th, Brazil has produced 10.57 million tons of sugar, which is up 57% compared to last year. During the same period, Brazil has produced 8 billion liters of ethanol, which is down 3.7% compared to a year earlier. The increased demand for sugar both domestically and internationally has helped to compensate somewhat for the reduced ethanol demand.

The quality of the sugarcane harvested thus far since the start of the harvest has been good. According to data from Unica, the Total Recoverable Sugars (ATR) since the harvest started in April has averaged 128.75 kilograms per ton of sugarcane, which is an increase of 6.17% compared to last year.