September 1, 2011

Brazil Lowers Ethanol Blend from E25 to E20 to Extend Supplies

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

The Brazilian Minister of Mines and Energy recently announced that starting October 1, 2011 the amount of ethanol blended into Brazilian gasoline will decline from 25% to 20%. The measure is being taken to extend the reduced supplies of ethanol expected to be produced during the 2011/12 harvest season. Ethanol prices in Brazil have already started to spike even though producers are still in the midst of harvesting and processing their sugarcane.

In their latest evaluation of the 2011/12 sugarcane crop in Brazil, Conab estimates that 588.9 million tons of sugarcane will be processed compared to 623.9 million tons last season or a reduction of 5.6%. Conab attributes the reduction to a prolonged dry season in 2010, a lack of rain in May of 2011, a lack of investments in renovating the sugarcane, and freezing temperatures at the end of June in Sao Paulo, Mato Grosso do Sul, and Parana.

Of all the sugarcane that will be processed in 2011/12, 51% will be directed toward the production of ethanol and 49% will be used for the production of sugar. During the 2010/11 harvest season 46% of the sugarcane was used for sugar production. Total sugar production in 2011/12 is estimated at 37 million tons or 3% less than the 38.1 million tons produced last season. From April through June Brazil exported 8.4 million tons of sugar which is 4.5% less than during the same period in 2010.

Total ethanol production is estimated at 23.6 billion liters or 14% less than last harvest season. Brazilian sugar/ethanol mills will produce 14.5 billion liters of hydrous ethanol, which is used in E100 (a reduction of 25% compared to last year) and 9.1 billion liters of anhydrous ethanol used in E25 (an increase of 14% compared to last year.

The sugarcane acreage totaled 8.43 million hectares, which is an increase of 4.7% compared to last year. Sao Paulo is the number one sugarcane producing state with 52.6% of the total acreage followed by Minas Gerais, Goias, Parana, and Mato Grosso do Sul.

The Minister of Mines and Energy does not expect the ethanol supply to increase significantly next harvest season and he took this action to guarantee that there will be enough ethanol to meet domestic supplies for the next two years.