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November 18, 2014

Brazilian Gov. Promoting more Corn-Based Ethanol Production

The Brazilian government is actively promoting the construction of more corn-based ethanol facilities in regions of Brazil where there is an excess of corn production. The newspaper Folha de Sao Paulo reported last week that the National Development Bank (BNDES) will finance four new corn-based ethanol plants in the center-west region of Brazil. There are currently two corn-based ethanol plants in Mato Grosso and one under construction in neighboring Mato Grosso do Sul.

The Brazilian Minister of Agriculture indicated that the new plants are needed to help facilitate the commercialization of corn in the expanding production areas such as Mato Grosso and Mato Grosso do Sul. He also indicated that producing fuel from corn would not impact the food supply or hurt the environment because corn acreage can be expanded in Brazil by the conversion of pastureland to row crop production and not by the clearing of new land.

There are also several sugar mills in the region that have already been retrofitted to use corn to make ethanol during the several months when sugarcane is not available. Generally, the sugar mills close down during the rainy summer months of December, January, and February due to a lack of raw material. By retrofitting the plants to use corn during this period, the facilities can continue producing ethanol twelve months a year. The first flex-fuel sugar mill was built by Usimat in 2011/12 in the city of Campos de Julio in western Mato Grosso and since then two other sugar mills have been retrofitted to utilize corn between sugarcane harvests.

Even though it is profitable to produce ethanol from corn, there continues to be problems for ethanol producers in the state. Mato Grosso already producers more ethanol than it consumes so the excess production needs to be transported to neighboring states especially in northern Brazil. Additionally, there is legislation in Brazil that requires that ethanol must be sold to a distributor before being resold to the consuming public. This requirement adds significantly to the cost of the fuel.

For example, the ethanol produced in the flex-fuel plant in Campos de Julio must be trucked to the state capital of Cuiaba and back (a 610 kilometer round trip) before it can be sold to the local gas stations in the same city where it was produced. This is an absurd requirement that only benefits the transportation companies while hurting the producers and the consumers.

The sugar/ethanol sector in Brazil continues to face economic 'headwinds" after 3-4 years of poor weather and poor economics. The only way that corn-based ethanol production will be profitable in the center-west region of Brazil is if farmers in the region continue to overproduce corn and the domestic price of corn remains relatively low. Even with that stipulation, corn producers in Mato Grosso continue to push for anything that can increase the domestic consumption of corn in their state.