June 4, 2012
More Flex-fuel Vehicles in Brazil, Sugarcane Harvest Starts Slow
Car makers in Brazil continue to increase the number of models that utilize flex-fuel engines. According to the National Automobile Manufacturers Association (Anfavea), nine years after flex-fuel technology was introduced into Brazil, there are 13 car companies in Brazil that are selling flex-fuel vehicles and 85.7% of the total car sales in Brazil in April of 2012 were flex-fuel vehicles compared to 83.3% in April of 2011. More than 50% of the cars on the road in Brazil today are flex-fuel and that will continue to increase as older gasoline models are taken out of service.
Most of the early models that had flex-fuel engines were in the moderate or lower price ranges, but now many of the luxury models also as sold with flex-fuel engines. Toyota, Hyundai, and KIA are all introducing top of the line flex fuel vehicles for 2012. The prices of these new models are in the range of R$ 88,000 to R$ 114,000 (US$ 44,000 to US$ 57,000).
Every gas station in Brazil is mandated by law to offer E100 as well as E20 to E25 to the consuming public. When ethanol supplies are tight and ethanol prices are strong, the government has lowered the percentage of ethanol blended into gasoline as a way to extend the tight supplies, but most of the time, the gasoline in Brazil is blended with 25% ethanol (E25). Owners of flex-fuel vehicles can choose between E100 and E25 every time they fill up their vehicle. If the price of E100 is 70% or less than the price of E25, then it is more economical to purchase E100.
Unfortunately, the last two years have been disappointing for sugarcane producers and as MSa result, ethanol supplies have been tight and prices have been high and many motorists have switched back to E25 from E100.
Sugarcane producers are hoping for a rebound this year, but thus far the weather has not been breaking their way. The sugarcane harvest in southern Brazil got off to a slower than normal start this year. As of May 15th, there were many sugar/ethanol mills in southern Brazil that had not even started the 2012/13 harvest. As of the middle of May, 235 sugar/ethanol mills in southern Brazil were operating compared to 273 mills last year at the same time. The mills not operating represent 63 million tons of sugarcane or 13% of the total sugarcane that was processed last year.
The main reason for the slower than normal start to the harvest season has been the excessive rainfall, primarily in the state of Sao Paulo. April rainfall in Sao Paulo was 25% above the long-term average and May's totals will probably be even higher. Not only does wet weather keep the harvesters out of the field, too much rainfall also results in a lower concentration of sucrose in the sugarcane resulting in lower sugar production.
The Union of Sugarcane Industries (UNICA) has indicated that the sugarcane harvest thus far has been a little under original estimates. In southern Brazil, through the middle of May, there have been 35 million tons of sugarcane processed, which represents a reduction of 38% compared to the 57 million tons that were processed by mid-May of 2011. Currently, 57.4% of the sugarcane has been used to produce ethanol, whereas a year ago, 54.8% was used for ethanol production.
The heavier than normal rainfall during the month of May also resulted in a lower quality of sugarcane. During the first 15 days of May, UNICA estimated that the Total Recoverable Sugars averaged 113.6 kg/ton, which is 0.5% less than the 114.2 kg/ton recorded last year in early May. While the Total Recoverable Sugars dipped in May, it is still running ahead of last year. The sugarcane harvest in southern Brazil usually starts in March or April and concludes in November or December.