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September 24, 2014

Ground Breaking for First Corn-Based Ethanol Plant in Brazil

A ground breaking ceremony took place last week in the city of Chapadao do Sul in the state of Mato Grosso do Sul for the first corn-based ethanol production facility in Brazil. The project is a joint venture between POET and BioUrja Trading LLC (BioUrja do Brasil Agroindustrial). The first phase of construction is expected to cost US$ 150 million dollars and the Governor of Mato Grosso do Sul, Andre Puccinelli, and the CEO of BioUrja, Amit Bhandari, took part in the ceremony.

Construction of the first phase will begin during the first semester of 2015 and initially the facility is expected to utilize 350,000 tons of corn annually in the production of 50 million liters of ethanol and dry distillers grain which will be sold locally for animal rations. The facility will create 150 jobs directly and 600 jobs indirectly. The proposed facility will be built on a 50 hectare site (123 acres). In addition to this facility, the company is interested in three other sites in the state for construction of three more corn-based ethanol production facilities.

The corn crop in Mato Grosso and Mato Grosso do Sul is almost exclusively grown as a second crop following soybeans and farmers in the states have been so successful in adapting corn into their crop rotations that it is estimated that corn production in the state of Mato Grosso alone could hit 35 million tons within ten years. During the 2013/14 growing season, farmers in Mato Grosso and Mato Grosso do Sul produced 18.0 and 8.0 million tons of corn respectively.

This excess of corn has led to a glut in the market and very low domestic corn prices. The domestic consumption of corn in Mato Grosso is only about 3 million tons, which means that a tremendous amount of corn must be transported out of the state to livestock producers or exporters in southern Brazil at very high transportation costs, which sometimes can exceed the price of the corn itself.

There are two ways to increase domestic corn consumption in the center-west region of Brazil - increase livestock production that utilizes corn or use the corn to make ethanol. There are already several sugar mills in the center-west region of Brazil that have been retrofitted to utilize corn during the 3-4 months when sugarcane is not available, but the amount of corn utilized in this manner is very small. A much greater use of corn would be from corn-based ethanol production facilities.

A study conducted by Celeres Consultoria looking at the viability of producing ethanol from corn in Mato Grosso indicated that a corn-based ethanol facility that costs US$ 69 million to build would pay for itself in five and a half years with a return on investment in the range of 10% to 25% depending on corn prices and ethanol prices. A study financed by the Mato Grosso Soybean and Corn Producers Association (Aprosoja), indicated that corn-based ethanol facilities could pay for themselves in six years with an annual return of 27%.