March 29, 2011

Mill Operators in Brazil Starting to Process New Sugarcane

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

Sugarcane processors in south-central Brazil are anxious to get their operations up and running and to start processing the new sugarcane harvest. Thirty sugar/ethanol mills in south-central Brazil have announced that they will now start processing new sugarcane. These thirty mills represent 12% of the sugarcane processing capacity in the south-central region of Brazil. For the entire harvesting season, which will continue until December, these thirty mills are expected to process 65 million tons of sugarcane out of the total of 557 million tons that is expected to be harvested in the south-central region. The vast majority of the sugarcane in Brazil is produced in the south-central region.

The mill operators want to get an early start on the processing to take advantage of the current high price of ethanol in Brazil. Ethanol supplies have been tight since the harvest ended last December and as a result, ethanol prices have spiked in Brazil. In many regions of Brazil E100 ethanol prices have surpassed the R$ 2.00 per liter level or approximately US$ 4.60 a gallon. When ethanol prices are over R$ 2.00 per liter, it is more economical to purchase gasoline, which is exactly what owners of flex fuel vehicles have been doing in Brazil over the last few months.

Once the processing of the new crop gets under way, ethanol supplies will increase and ethanol prices are expected to decline to more normal levels. When the domestic market is fully supplied with ethanol, prices in Brazil are generally in the range of R$ 1.60 per liter for E100 or approximately US$ 3.65 a gallon. At those levels, it will once again be more economical to use ethanol in flex fuel vehicles and that is exactly what Brazilian drivers are expected to do.