March 21, 2011

Sugarcane Production in Mato Grosso Expected to Increase 6%

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

Compared to the state of Sao Paulo, Mato Grosso is a very small sugarcane producing state accounting for just a few percent of Brazil's total production, but sugarcane production in the state is increasing. According to the Mato Grosso Syndicate of Sugar Industries (Sindalcool-MT) sugarcane production in the state is expected to increase 6% in 2011/12 from 14.1 million tons to 15.0 million. Currently, there are 10 sugar/ethanol mills operating in the state and there is a possibility of 6 more mills opening up in the state over the next few years. Three of the new mills are slated to be built near the city of Tangara da Serra in western Mato Grosso and three are slated to be built near the city of Barra do Garcas in eastern Mato Grosso.

The new sugarcane production will be occupying areas that were formerly in pasture. In recent years, the government has been pushing for the conversion of degraded pastureland into new crop production such as soybeans, sugarcane, or palm oil in order to reduce the amount of deforestation in Brazil. The state of Mato Grosso has 2.5 million hectares of land classified as degraded pastures, which are pastures that have a very low carrying capacity for cattle ranching. Nationwide, the carrying capacity of Brazil's pastureland is 0.9 head per hectare and it is even lower for degraded pastures. Mato Grosso has 27 million hectares of pastureland so there is ample land for sugarcane expansion without the necessity of clearing new land.

It is estimated that the sugar/ethanol mills in Mato Grosso will produce approximately 1 billion liters of ethanol in 2011, which is more than enough to meet the internal demand of the state estimated to be 450 million liters in 2011. The excess ethanol is shipped to neighboring states across northern Brazil.

One of the big advantages of processing sugarcane in Brazil is the fact that sugar/ethanol mills in Brazil burn the sugarcane residue to produce electricity to run the plant. They actually produce more electricity than what is needed to run the mill and the excess is sold back into the electrical grid. Approximately 3% of Brazil's electrical needs are met by excess electrical production at the country's 430 sugar/ethanol mills.

The sugarcane harvest in Mato Grosso starts in April and runs through December. During the period between harvests, ethanol prices generally rise in Brazil due to a supply shortage. During the last two months, ethanol prices have been above R$ 2.00 per liter (US$ 4.50 a gallon), but they are expected to decline to R$ 1.60 per liter once the harvest resumes (US$ 3.60 a gallon).

When ethanol prices are more than 70% the price of gasoline, it is more economical to use gasoline in flex fuel vehicles and that has been the case in many parts of Brazil during the last few months. When the new sugarcane harvest begins, ethanol supplies are expected to increase and prices are expected to once again fall below the 70% level.