Dec 01, 2009
High Ethanol Prices In Brazil Discourage Consumption
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
Ethanol prices continue to rise in Brazil, albeit at a slower pace than in recent weeks. The average price of ethanol in Brazil during the third week of November was R$ 1.693 per liter or US$ 3.78 per gallon. It is currently more economical to use ethanol as compared to gasoline in only some of the largest ethanol-producing states in Brazil - Sao Paulo, Parana, Goias, Mato Grosso, and Tocantins. In the remainder of Brazil, it is now more economical to burn gasoline in your vehicle. The high price of ethanol is blamed on spot shortages caused by a reduced sugarcane harvest. Heavy rains in Sao Paulo caused delays in the sugarcane harvest and it resulted in lower sugarcane production. These spot shortages are expected to ease as soon as the new harvest resumes in early 2010.
In Sao Paulo, during the third week of November, a liter of ethanol was selling for an average of R$ 1.693 (US$ 3.78 a gallon) and a liter of gasoline was selling for R$ 2.431 (US$ 5.43 a gallon). Under that price scenario, ethanol was priced at 64% the price of gasoline. Anytime the price of ethanol is 70% or less the price of gasoline, it is more economical to use ethanol in your vehicle as compared to gasoline.
The cheapest ethanol in Brazil is found in the state of Mato Grosso where it was selling for an average of R$ 1.457 per liter (US$ 3.25 per gallon) during the third week of November. Ethanol in Mato Grosso was selling for 52% of the price of gasoline making it certainly more economical to use than gasoline.
With a temporary spike in ethanol prices, in the majority of Brazil right now, it is more economical to use gasoline to power your vehicle. The ever-increasing use of flex fuel vehicles in Brazil allows consumers to easily switch between ethanol and gasoline depending on the price of the fuel. For the last several years, approximately 92% of new vehicles manufactured in Brazil were equipped with flex fuel engines. In the not too distant future, nearly all the automobiles in Brazil will have flex fuel engines allowing Brazilians to easily switch between fuels.
As the U.S. Congress debates the merits of increasing our ethanol blend from 10% to possibility 15%, it is good to remember that the ethanol blend in Brazil is already at 25% and over 90% of new cars in Brazil can use 100% ethanol if the price is right.