Dec 14, 2009
Brazilian Ethanol Prices Expected To Increase Through January, Consumption Decrease
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
Ethanol prices are expected to keep rising through January in Brazil due to spot shortages of the fuel. Heavy rains during the September-November period disrupted the sugarcane harvest and lowered sugarcane yields. Ethanol production was also lowered when sugar mill operators adjusted their production to produce more sugar and less ethanol. As the prices increase, consumption of the fuel is also expected to decline slightly. Once the new sugarcane harvest resumes in February, the spot shortages are expected to disappear.
In the mean time, as ethanol prices continue to rise, more motorists are expected to choose gasoline as their fuel of choice because if ethanol costs more than 70% the price of gasoline, then it is cheaper to use gasoline. In the majority of Brazil, it is now cheaper to use gasoline than it is ethanol. In the major ethanol producing states, ethanol still has the advantage. Brazilian motorists can choose which fuel they consume because of the abundance of flex fuel vehicles. Approximately 94% of the new cars produced in Brazil in 2009 were flex fuel vehicles.
During 2009, ethanol accounted for 55% of all the fuel consumed by light vehicles in Brazil. Ethanol is consumed two ways in Brazilian vehicles. First, the gasoline sold in Brazil is a blend of 25% ethanol and 75% gasoline. Second, motorists in Brazil can buy 100% ethanol at any gas station in the country. Brazil can sell E100 (100% ethanol) because the warm climate allows cars to start without any problems using 100% ethanol. In the U.S., the maximum ethanol percentage is 85% (E85) because a small amount of gasoline is needed for ignition during the cold weather months.
In 2009, 55% of the fuel used in light vehicles in Brazil was ethanol (22.9 billion liters) and 45% was gasoline (18.9 billion liters). The ethanol percentage continues to increase while the gasoline percentage continues to decrease.