Jan 14, 2010
Brazil Lowers Ethanol Percentage In Gasoline From 25% To 20% For 90 Days
Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.
In an effort to ease spot shortages of ethanol that have resulted in surging ethanol prices, the Brazilian government announced that the percentage of ethanol in gasoline will be reduced from 25% to 20% starting February 1st. The reduction is to last for a maximum of 90 days and the percentage will revert to 25% on May 1st.
Ethanol prices usually move higher in Brazil between the sugarcane harvests. The sugarcane harvest usually ends in December and the harvest resumes in February or March. During this period of time, ethanol prices usually move higher, but the price increase this year was much higher than normal. The shortage of ethanol is more acute this year because the heavy rains that fell late in 2009 disrupted the sugarcane harvest and lowered the sucrose content of the sugarcane. To compound the situation, sugar mill operators also adjusted their processing facilities to produce 5% more sugar and less ethanol to take advantage of high international sugar prices.
In the Federal District where Brasilia is located, ethanol prices have increased twice in the last two weeks for a total of 12%. At one of the larger gas station chains in the Federal District, ethanol (E100) is now selling for R$ 2.23 per liter or approximately US$ 4.98 a gallon. Gasoline is selling for R$ 2.78 per liter or approximately US$ 6.21 a gallon. Currently, the price of ethanol is 80% the price of gasoline which means it is more economical to use gasoline than it is to use ethanol. Any time the price of ethanol exceeds 70% the price of gasoline, it is more economical to use gasoline.
Rising international sugar prices are primarily the result of two years in a row of disappointing sugarcane production in India. India is the world's largest consumer of sugar and currently the largest sugar importer. India needs 23 million tons of sugar to meet the domestic demand, but they are expected to produce only 16 million tons during the sugarcane crop year ending September 30th. The most recent monsoon in India was the worst in 37 years, which has dashed any hopes for any immediate increase in India's sugar production. As a result, the Indian government has extended duty-free imports of white sugar for nine more months until December 31st in an attempt to cover the shortfall. India is struggling with high food inflation, which is hovering around 20%. As a result, the Secretary General of the Bombay Sugar Merchants Association has said that importers may wait for a dip in international prices before making large purchases even though the imports will be duty-free.
The Brazilian Secretary of Agriculture, Reinhold Stephanes, is pressing the Brazilian Congress to approve plans for increasing the storage capacity of the ethanol industry in Brazil as a way to even out the seasonal declines in ethanol production. He has proposed a series of low interest loans as a way to jump start construction of more storage facilities.