May 14, 2010
Can Brazil's Sugarcane Production Keep up with Ethanol Demand
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
With the ever-increasing use of flex fuel vehicles in Brazil, market analysts are questioning if Brazilian ethanol production can increase fast enough to keep up with the projected increase in domestic demand for ethanol.
More than 90% of all light vehicles being produced in Brazil have flex fuel engines capable of using ethanol or gasoline. If ethanol prices are 70% or less than the cost of gasoline, it is more economical to use ethanol. Currently, there are 12 million flex fuel vehicles traveling on Brazilian highways and that number is expected to increase to 23 million in 2014. As a result, domestic demand for ethanol is expected to increase from 22 billion liters in 2010 to 40 billion liters in 2014. To meet that increased demand, sugarcane production would need to increase 11% per year from the 653 million tons produced in 2010-11 to 904 million tons in 2013-14.
According to the director of Archer Consulting, Amaldo Luiz Correa, US$ 33 billion of investments would be needed in the Brazilian sugar/ethanol sector to insure enough ethanol is produced to meet both the domestic demand and still have ethanol available for export. The problem is that the current international price of ethanol is below the cost of production and until that changes, investors will be cautious with their money.
To further complicate the situation, the productivity of Brazil's sugarcane fields could actually fall over the next several years. The reason for the potential lower productivity is because sugarcane producers have lost money over the last few years and as a result, they have been slow to renovate their existing sugarcane crops, which means that the average age of the sugarcane plants has gotten older. The longer a sugarcane field is kept in continuous production, the lower the eventual yields. Sugarcane productivity increases each 5-6 years when the fields are replanted with new and higher yielding sugarcane varieties.
The acceptance of flex-fuel vehicles in Brazil has surpassed even the most optimistic projections and Brazilian drivers already use more ethanol than gasoline. The trend is expected to continue or even accelerate in the next few years.