Mar 29, 2010
CME Group And Bovespa Cooperate To Make Ethanol A Commodity
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
American and Brazilian ethanol producers are working together to establish a common set of standards for the commercialization of ethanol in order to transform ethanol into a commodity that can be traded worldwide. As part of that process, the CME Group in Chicago is working with Bovespa in Sao Paulo to develop a unified platform for trading ethanol. The CME Group already trades corn-derived ethanol futures and the Bovespa trades sugarcane-derived ethanol futures. The two exchanges signed an agreement in February to develop an electronic platform to trade both exchanges.
The Brazilian government embarked on its biofuels program after the oil embargos of the 1970's. Today, more ethanol is consumed in light vehicles in Brazil than gasoline and the percentage continues to increase each year. Brazilian sugarcane producers are convinced that their country is capable of being the largest supplier of biofuels in the world. But, in order to achieve that goal, ethanol needs to be viewed as a commodity that can easily be traded on world markets.
In fact, according to professor Luis Cortez, Professor of Agricultural Engineering at Unicamp in Sao Paulo, by the year 2025 Brazil could be capable of producing enough ethanol to replace 5% to 10% of the world's gasoline consumption.
For those concerned that biofuels could take away land better suited for food production, Cortez points out that the 3.4 million hectares of sugarcane that is used for ethanol production occupies only 0.4% of Brazil land area. Additionally, the sugarcane acreage is much smaller than the acreage used for soybean production, 22 million hectares, or that of pastures, 200 million hectares. In fact, over the last decade, 77% of the expansion of sugarcane production in the state of Sao Paulo (Brazil's largest producer) came through the conversion of pastures to sugarcane. Brazil has the potential to expand sugarcane production while not infringing on their food production capabilities.
As an illustration of this conversion of pasture into sugarcane, the president of Brazilian Italian Oil met with the governor of Mato Grosso last week to explain their plans to invest R$ 3 billion in the construction of three new sugar/ethanol plants to be built in the state until the year 2016. To supply the plants with raw material, 180,000 hectares of sugarcane will be planted and all the sugarcane will be grown in former pastureland.