Mar 11, 2010
Ethanol Prices In Brazil Expected To Ease In 2010
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
Brazilian motorist should start to see some relief at the ethanol pump (E100) as the sugarcane harvest in Brazil resumes this month. Ethanol prices in Brazil spiked in late 2009 and early 2010 due to tight supplies and high demand. In 2009, consumption of ethanol in Brazil rose 16% while at the same time ethanol production in 2009 was less than expected. The combination of these two factors led to tight supplies and higher prices.
The nationwide ethanol price in Brazil now stands at R$ 1.90 per liter or approximately US$ 4.00 a gallon. For regular gasoline, which now contains 20% ethanol, the nationwide price is R$ 2.60 per liter or approximately US$ 5.50 per gallon. During the first trimester of 2010 there has already been a slight decline in pump prices and prices are expected to slide much more during the second and third trimester of 2010 as the ethanol supply increases.
As a way to extend ethanol supplies, at least temporarily, the Brazilian government in February mandated a reduction in the amount of ethanol in gasoline from 25% to 20% for a 90-day period. It was hoped that it would bridge the gap in supply until the new sugarcane harvest began.
While the high prices are painful for motorists, the high sugar and ethanol prices have been very beneficial for the sugarcane producers and processors. The average price paid for a ton of sugarcane during the last harvest was R$ 62 per ton compared to R$ 45 per ton the prior year.
Sugarcane producers also received two pieces of good news when the Japanese Automobile Manufactures Association recently took steps to standardize the specifications for ethanol, which should help it to be traded as a standardized commodity. The U.S. EPA also announced that ethanol derived from sugarcane significantly cuts down on total carbon dioxide emissions.
In an effort to avoid a repeat of the ethanol shortages experienced over the last six months, the Brazilian government has taken steps to develop a strategic reserve of ethanol to bridge the gap between harvests. They have initiated a program of subsidized loans for the construction of additional storage space throughout the sugarcane-producing regions of Brazil.
The recent spot shortages are not expected to derail Brazil's efforts to become the major exporter of ethanol in the world. They have agricultural land available for increased sugarcane production, a suitable tropical climate favorable for sugarcane growth, and years of technical expertise in producing and processing sugarcane.