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March 26, 2020

Brazilian Producers Bullish on Future of Corn Ethanol Production

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

April 1st, will mark the official start of the 2020/21 sugarcane harvest season in Brazil which will continue until later in December. Brazil is the world's largest sugarcane producer, but the sugar/ethanol sector in Brazil is undergoing a seismic shift with the introduction of ethanol made from corn.

The Union of Sugarcane Industries (UNICA) reported that as of March 16th, there were 32 sugar/ethanol mills in Brazil that had started processing sugarcane and 11 sugar/ethanol mills that were utilizing corn to make ethanol. Of the 11 utilizing corn, 8 were "flex" mills that can utilize corn during the time of the year when sugarcane is not available and three were "full" mills that utilize corn exclusively. A year earlier, there were 25 mills utilizing sugarcane and 6 utilizing corn.

The National Union of Corn Ethanol (Unem) indicated that their members are committed to continued investment in the sector and increasing corn ethanol production. Unem indicated that there are three new corn ethanol facilities scheduled to begin operations by the end of 2020 with many more in the final planning phase.

In spite of the current low oil prices and the reduced demand for fuel due to the coronavirus crisis, Unem members are bullish on the future of corn ethanol in Brazil because ethanol will be Brazil's main fuel in the future. Almost all of the vehicles in Brazil are capable of utilizing 100% ethanol, 100% gasoline, or any combination of the two fuels.

In contrast, ethanol in the United States is a secondary fuel used as a mixture with gasoline. Another big difference in the United States is that the oil industry pushes very hard to limit the amount of ethanol they are required to blend into gasoline. As a result, ethanol production in the United States is struggeling to maintain market share, whereas ethanol production in Brazil continues to expand.

The demand for corn to produce ethanol has helped to maintain very strong domestic corn prices in Brazil. As a result, farmers in the state of Mato Grosso for example, have already forward contracted 65% of their anticipated 2019/20 corn production compared to 42% last year at this time.

UNICA emphasized that they are coordinating with health officials to maximize the health and safety of their employees in order to keep their facilities operating. The industry employees 700,000 workers with 7,000 producers supplying the raw materials needed to produce sugar, ethanol, and bioelectricity.

UNICA members have also retrofitted some of their facilities in order to donate more than a million liters of 70% alcohol for the public health system.