Last week, we looked at one of the big reasons the world's number-two sugarcane producer is importing record amounts of corn ethanol from the United States. But another reason is a shortage of stocks. Pump prices ease while the crop is being harvested, but rise between crops - in periods like December through April.
The uncertainty such price swings bring is not only a problem for consumers, but also for the administration here. Public enemy for Brazilians - as for most Latin Americans - is inflation. Back when I studied here in the mid-1980s, monthly inflation reached 80%. The government issued periodic price tables. The poor suffered the most from this, as nothing could be bought over time. You either had all the money to buy, say, that refrigerator, or you went without. And since fuel ethanol is a major inflation benchmark, Brazilian presidents do what they can to keep ethanol prices low, or at least stable.
They did so last October, when the mandatory national ethanol blend was cut to 20%, from 25%. And like they did this past year, when Brazil became the top destination for U.S.-produced corn ethanol.
So late last month Brazil's National Monetary Council opened up a $2.4 billion line of credit for distillers to build stocks, and this put a damper on seasonal price volatility for ethanol by establishing storage for some billion gallons of the sugarcane-based alternative fuel. Under the administration's plan, that should be enough for at least three months' consumption between sugarcane crops each year. The interest rate on loans for building storage facilities will be a mere 8.7%, which is low for Brazil.
It is estimated Brazil can store no more than 1.5 billion gallons of ethanol, while total Brazilian ethanol consumption - sold both neat or already blended into gasoline - is estimated to be just over six billion gallons this year.
Ethanol producers haven't availed themselves of past stocks-building programs as the paperwork was said to be extremely demanding, and the government response slow.
We'll see if it's different this time around. It has to be if ethanol is to make the transition from locally-mandated fuel to commodity.
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