Apr 07, 2010
Domestic Prices Falling For Both Sugar And Ethanol In Brazil
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
In early January, world sugar prices were approximately US$ 650 per ton, which was the highest price in the last 30 years. Since then, sugar prices have fallen almost 50% to US$ 350 per ton. Even with this precipitous drop in prices, domestic sugar prices in Brazil are still approximately 20% above what they were two years ago.
Domestic ethanol prices in Brazil have also started to decline now that the new sugarcane harvest has begun. Ethanol prices at the pump reached historic levels in January and February due to high demand and tight supplies. In the city of Belo Horizonte, the third largest city in Brazil, during the month of January, the average pump price for 100% ethanol (E100) was R$ 2.05 per liter or approximately US$ 4.32 per gallon. Last week, the price had fallen to an average of R$ 1.851 per liter or approximately US$ 3.90 per gallon. The wholesale price of ethanol is declining twice as fast as the retail price, so the price at the pump is expected to continue declining through 2010.
In the city of Sao Paulo ethanol prices have declined 19% over the last six weeks and the average price for E100 in the city is now R$ 1.526 per liter or US$ 3.22 per gallon.
Many gas station owners reported that ethanol sales slumped as prices reached record levels. If the price of ethanol is 70% or more the price of gasoline, the consumer is better off using gasoline verses ethanol. The advantage of flex-fuel vehicles is that they allow the consumer to make the choice between ethanol and gasoline. In Brazil, more than 90% of the new cars are flex-fuel and it has been that way for a number of years. Currently, 41% of the cars traveling down Brazilian highways are flex-fuel vehicles and it is expected that by March 2011 50% of Brazilian cars will be flex-fuel.
With the increased supply of ethanol now coming onto the market, the ethanol producers have asked the Brazilian government to increase the mixture of ethanol in gasoline from 20% back up to 25%. In February, the government temporarily reduced the percentage of ethanol in gasoline from 25% to 20% as a way to extend the short supply of ethanol. The reduction was decreed for only a 90-day period and it is set to automatically go back to 25% on May 1st, but the ethanol producers would like to see the 25% reinstated before May 1st.