Last September, I found out a Brazilian effort to make ethanol—from corn. As local corn prices dropped below $2 per bushel, and as the Brazilian government launched a series of price-subsidized auctions to help get rid of some of the stocks and provide some kind of support to producers, a group of farmers decided to try making motor fuel from it.
Local prices now are closer to $5 per bushel, and support for the corn ethanol effort has waned.
Brazil, meanwhile, is the world's second-largest ethanol producer. They make theirs from sugarcane, which one industry group here has touted as the sweeter alternative to the stuff from corn. Which makes it sound like the Brazilians have the ethanol thing pretty much figured out, and that, with the recent vote in the U.S. Senate, Americans are soon to dog-paddling desperately in a sea of imported sugarcane ethanol.
But it's just hard to imagine a U.S. president who previously served as a senator from Illinois—you know, where ADM is based—actually signing a bill to get rid of all support for ethanol. That said, let's get beyond the pesky political details and talk of dreams—the Brazilians' dreams, that is. The dreams behind the "Sweeter Alternative" campaign launched in the U.S. recently by a Brazilian sugarcane group to promote the use of that country's ethanol – and the dropping of the $.54 per gallon import tariff.
Here's the thing: Brazil, the world's second-largest ethanol producer, imports ethanol from the United States just about every year. They even recently had to broaden the minimum range of the mandatory nationwide ethanol blend. It used to be that 20 to 25% of all gasoline, at every pump in Brazil, was ethanol. That was stretched not long ago to an 18 to 25% range. Ethanol prices at the pump bounce wildly according to the season, as the country just doesn't have the storage to keep a relatively even supply on the market. To help reduce this effect, Brazil occasionally imports the corn alternative from the good old U.S.A. And that amount should increase next year.
One reason is Brazilian distilleries should produce almost four percent less ethanol than they did last crop year, due to problems including weather challenges and a lack of outside money for investment with the onset of the world economic crisis.
That's not to say the administration here isn't addressing the problems. A line of credit for improving sugarcane land will be part of the new Ag Plan unveiled by President Rousseff recently. And efforts have been made to make it easier for distilleries to obtain interest-subsidized loans to build storage. But, until then, I would just recommend to the guys experimenting with corn ethanol up in Mato Grosso to not put their machinery in mothballs just yet.
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