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March 30, 2012

Sugarcane Estimates in Brazil Continue to Decline

As sugarcane producers in southern Brazil prepare to start harvesting their 2012/13 crop, estimates for the Brazilian sugarcane crop continue to decline. Initially, hopes were running high that 2012/13 might be a rebound year after a dismal harvest in 2011/12 that saw sugarcane tonnage decline approximately 10%. Some of the more optimistic officials thought that the 2012/13 crop might be 7% to 9% higher than last year. Those higher estimates have faded and most producers now feel that this year's crop might only be a slight improvement over last year.

The problem once again has been adverse weather in the form of dryer than normal conditions during the critical summer months. In northwestern Sao Paulo for example, rainfall since December has been running at just 70% of the long term average. As a result, the sugarcane has undergone periods of moisture stress resulting in the lower leaves dying, a smaller stalk diameter, and a short stature crop.

The reduced rate of growth of the sugarcane has also resulted in a delay of the start of the harvest. Most producers feel the 2012/13 harvest will begin during the first half of April, which is at least two weeks later than normal.

If additional rainfall is received during April and May, the sugarcane can still recuperate somewhat, but significant rainfall during these two months is not very common in southern Brazil. When the calendar turns to June, rainy weather is not good for sugarcane crop. Too much rainfall during June-July-August results in a lower sucrose content of the cane and reduced sugar or ethanol production.

A containing problem in Brazil is the advanced age of the sugarcane. If a sugarcane field is more than 5-6 years old, it starts to decline in productivity at the rate of 10% per year. Over the last several years, producers have lacked the available credit to replant their fields at a rate fast enough to keep the average age from creeping higher.

In February, the federal government announced a line of credit and low interest loans for the renovation of existing sugarcane fields and the overall expansion of sugarcane acreage. In Mato Grosso do Sul for example there is an urgent need to replant 30% of the 200,000 hectares of sugarcane in the state. Replanting approximately 20% of the sugarcane per year would keep the average age of the sugarcane stable. The fact that 30% needs to be replanted indicates that the sugarcane is getting too old for optimum production.

For the last two years, disappointing sugarcane crops have resulted in declining ethanol production and higher pump prices for ethanol. As a result, owners of flex fuel vehicles have been increasing their use of gasoline at the expense of ethanol (E100). In some states, gasoline has reemerged as the preferred fuel after losing that title to ethanol several years ago.