October 20, 2011

Sugar/ethanol Mills in Mato Grosso Ending Harvesting Operations

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

The sugarcane harvesting in Mato Grosso usually ends in late November or early December and resumes again in April, but many mills in the state are closing early this harvest season. Harvesting operations at some of the sugar/ethanol mills in Mato Grosso have already been shut down for the season and they will not resume operations until next April. The remaining mills in the state are expected to cease operations by mid-November. The reason for the early shut down is lack of sugarcane for processing.

Most mill operators in the state are reporting that sugarcane yields are down as much as 10% to 15% this harvest season. Extended periods of dry weather is one of the causes for the reduced production, but ageing sugarcane fields is also a principal cause for the lower production. Ageing sugarcane fields are a problem all over Brazil, not just in Mato Grosso.

Maximum productivity for sugarcane is only maintained until the crop is about six years old. Each year past the age of six, the sugarcane loses about 10% per year in productivity. Since the financial crisis in 2008, it has been difficult for producers to obtain credit for renovating their sugarcane fields and as a result, some of the sugarcane in Brazil is as much as 12 years old. Several mill operators in Mato Grosso have indicated that they will use their existing resources to renovate existing fields instead of expanding their sugarcane operations.

Even though production of ethanol and sugar is going to be lower than last year, they do not expect a shortage of ethanol in the state because recent price hikes in ethanol have already reduced the demand for the fuel. The consumption of E100 in the state in 2011 has fallen 20% compared to 2010 from 416 million liters to 350 million liters.

The sugar/ethanol sector in Brazil has been losing investments in recent years and only four new sugar/ethanol mills are expected to begin operations in 2011. Two of those new mills were recently inaugurated in southern Bahia where they will join two other mills in the region already in operation.

The mill owners said they chose southern Bahia due to the quality of cane that can be grown in the region, the available of labor, existing infrastructure and financial help from the state. The state government played a key role in bringing the new mills to the state because 70% of the ethanol consumed in the state must be imported from other regions of Brazil. With the addition of these two mills, it is hoped that the cost of ethanol will fall for consumers in the state.