Jan 08, 2010
Ethanol Prices Soar In Brazil, Government May Reduce Percentage Of Ethanol In Gasoline
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
During the last five months of 2009, ethanol prices in Brazil increased 21%, which was much faster than the increase in gasoline prices. According to ANP (The National Agency for Petroleum, Natural Gas and Biofuels) the most expensive ethanol in Brazil is in the state of Roraima where it costs R$ 2.15 per liter or US$ 4.80 a gallon. The cheapest ethanol in Brazil is in the state of Mato Grosso where it costs R$ 1.60 per liter or US$ 3.57 a gallon. The largest ethanol producing state in Brazil is Sao Paulo and ethanol in that state costs R$ 1.67 per liter or US$ 3.73 per gallon.
If the price of ethanol is more than 70% the price of gasoline, it is more economical to use gasoline. At the end of October, it was more economical to use gasoline in 10 of Brazil's 26 states. By the time the calendar had turned to January 1st, it was more economical to use gasoline in 19 of Brazil's states.
As a temporary fix for the spot shortages of ethanol, the federal government is contemplating lowering the percentage of ethanol in Brazil's gasoline supply from 25% to 20%. This would only be a temporary measure, which would be in place until the main sugarcane harvest resumes in March. A final decision on lowering the percentage may be made next week.
The supply/demand for ethanol started to get out of kilter starting last July. Heavy rains in the state of Sao Paulo during the second half of 2009 disrupted the sugarcane harvest and the harvest machines were stopped for 20 days longer than normal due to the saturated conditions. The sucrose content of the sugarcane was also lower than normal resulting in 1.8 billion liters less ethanol production than what had been anticipated. That is the equivalent of one month's consumption of ethanol in Brazil. At the same time, some of the sugar mills in Brazil adjusted their processing to produce more sugar and less ethanol to take advantage of the high sugar prices. And lastly, over 90% of the new cars sold in Brazil are flex fuel, which drove up the demand for ethanol.
The supply/demand won't get back to equilibrium until the month of March at the earliest when the sugarcane harvest resumes in Brazil. As much as 50 million tons of sugarcane was left in the field at the end of December and that sugarcane will be the first cane cut when the harvest resumes.