Apr 12, 2010
Brazil Sugar Mills To Produce Less Sugar And More Ethanol
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
As international sugar prices fall, it is expected that Brazilian sugar/ethanol mills will adjust their operations to produce less sugar and more ethanol in 2010-11. The old adage that high prices cure high prices is playing out once again in the sugar market. After reaching the highest level in nearly 30 years, sugar prices have retreated significantly over the last few months. Since Brazil is the world's largest sugar producer, the question is now what will Brazil do with its expanding sugar/ethanol production capacity in light of the lower sugar prices.
The answer to that question appears to be that the mill operators will produce less sugar and more ethanol in 2010-11. Ninety percent of the sugarcane production in Brazil is in the center-south region of the country, especially in the state of Sao Paulo. It is now anticipated that the sugar/ethanol mills operating in southern Brazil will adjust their facilities to produce less sugar and more ethanol. During the 2010-11 growing season, it is anticipated that 58% of the sugarcane will be used to produce ethanol and 42% will be used to produce sugar. If that does turn out to be the case, it would be the highest percentage ever used to produce ethanol in Brazil.
In late 2009 and early 2010, ethanol supplies were very tight in Brazil because of two factors. Heavy rains late last year prevented approximately 50 million tons of sugarcane from being harvested and the sugarcane that was harvested had lower sucrose content. Additionally, mill operators opted to produce more sugar because of the very high world sugar prices. The result was that ethanol supplies became very tight and ethanol prices reached record levels in January and February of this year.
Before the recent run up in prices, Brazil was consuming 50 million liters of ethanol per day. When prices reached all-time highs in early 2010, the consumption fell to 20 million liters per day. Domestic ethanol prices have been declining in Brazil and it is expected that domestic consumption in Brazil will increase to 60 million liters per day during the peak of the sugarcane harvest when ethanol prices are generally the lowest. The increased demand for ethanol is expected to keep ethanol prices firm during the 2010-11 sugarcane harvest.
Currently, about 41% of Brazil's automobile fleet is flex-fuel and that is expected to reach 50% in mid-2011. With an ever-expanding fleet of flex fuel vehicles, ethanol consumption is expected to continue increasing in Brazil.