Sep 20, 2010
Extended Dry Season Impacting Sugarcane Crop in Southern Brazil
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
The extended dry season in Brazil is not only delaying the start of planting the 2010/11 summer crops, it is also impacting the sugarcane crop in southern Brazil as well. The sugarcane tonnage in southern Brazil is expected to be less than anticipated for the second year in a row.
The sugarcane harvest in Brazil generally starts in March and runs through November or early December. In 2009, heavy rains in southern Brazil during October, November, and December kept the sugarcane harvesters out of the fields and lowered the sucrose content of the sugarcane as well. The result was a decline in sugarcane tonnage and a decline in sugar and alcohol production.
This year the adverse weather is just the opposite. Extremely dry weather since April has resulted in a decline in sugarcane tonnage, but it has allowed the harvest to progress at a faster pace than last year. Approximately 20% more sugarcane has been processed in Sao Paulo, Minas Gerais, Goias, and Mato Grosso do Sul than during an equal period in 2009. One benefit of the dry weather is also that it tends to increase the sucrose level in the sugarcane. It is anticipated that a ton of sugarcane in 2010 will produce the equivalent of 138.3 kilograms of sugar, which is 5.5% greater than last year.
The reduced sugarcane production could result in elevated alcohol prices in Brazil during the intra-harvest period between December and March. If this occurs, it will be the second year in a row that domestic alcohol prices increased significantly during the intra-harvest period. Between January and July of 2010, alcohol prices soared to record levels and as a result, domestic alcohol consumption in Brazil declined by 14% during the period while gasoline sales increased by 19% compared to the year before.
A big part of the problem of volatile alcohol prices in Brazil is the lack of adequate storage capacity to stockpile enough alcohol to supply the domestic market during the intra-harvest period. The government has set aside funds to provide low interest loans for the construction of storage facilities, but it could be several years before these storage facilities are built.
In the mean time, owners of flex fuel vehicles can choose between E100 alcohol or gasoline depending on the price at the pump. If alcohol prices are more than 70% the price of gasoline, it is more economical to use gasoline.