Reduced Brazilian mandate could mean fewer US ethanol imports
U.S. ethanol exports accounted for a record 127.4 million gallons in July, according to data from the U.S. DOE Energy Information Administration, topping the previous monthly record of 120.1 million gallons in April. Based on export data compiled from the first half of this year, the U.S. ethanol industry has already exported more of its product in 2011 than in the two previous years combined and is on pace to export a total of up to 900 million gallons of ethanol by the end of the year.
Geoff Cooper, vice president of the Renewable Fuels Association, attributes the boom in U.S. exports to increasing demand for ethanol worldwide. “Unfortunately, domestic ethanol producers are forced to look at export markets as special interests and some policymakers are working overtime to prevent America from using more of its own renewable fuels,” he said in a statement. “American ethanol producers are the most efficient, cost effective suppliers of ethanol in the world. If this nation doesn’t want to harness its own renewable resources, it is evident that other nations will.”
Much of the demand for U.S. ethanol stems from Canada, which received 33.8 million gallons of U.S. ethanol in July. Brazil was the second largest consumer of U.S. ethanol in July, accounting for 16.8 million gallons of U.S. exports. Overall this year, Brazil and Canada have been equal in their demand for U.S. ethanol, but recent changes to Brazilian policy could reduce its appetite for outside ethanol for the remainder of the year. Starting Oct. 1, Brazil’s 25 percent ethanol blend mandate will be reduced to 20 percent and will likely remain at that level until the next sugarcane harvest begins in the spring. Adhemar Altieri, communications director for UNICA, the Brazilian Sugarcane Industry Association, said the reduced mandate could mean fewer ethanol imports, many of which were already booked to arrive over the winter months from the U.S. “We’re not saying flat out that imports are going to go down, we’re saying that they may,” he said. “It also depends on consumption [and] how the market behaves.” Brazil has maintained economic growth this year, so demand for fuels has continued to rise, Altieri said. However, the reduced blending mandate also means that more of Brazil’s own anhydrous ethanol will be available for domestic use.
Brazil has reduced its blending mandate in the past in order to meet domestic supply constraints, and this year’s sugarcane harvest has been less than expected, but it is still unclear why the government decided to reduce the mandate so soon. UNICA lobbied against the reduction, claiming that the industry had secured enough ethanol to meet demand through a combination of domestic production and imports. “We understood that if the change was made, it wouldn’t happen until Nov. 1,” Altieri said. “So then they backed it up a month. We don’t know why. Our opinion was that it wasn’t necessary.”
Three years of difficult sugarcane growing conditions have taken their toll on Brazil’s ability to produce enough ethanol to meet rising demand for the fuel both domestically and internationally, and the U.S. is expected to remain the world’s top exporter of ethanol for some time while Brazil expands its industry. Altieri said it will take two to three years for Brazilian producers to ramp up their operations adequately. Issues confronting those who seek to grow Brazil’s ethanol industry include stiff pricing competition due to government-controlled gasoline prices and a need for expanded sugarcane acreage, more mills and better financing options for producers to store ethanol during peak production months. High sugar prices, which are often blamed for Brazil’s ethanol shortfall, are actually not a factor in the equation, according to Altieri. “The concept that Brazil is producing all sugar is simply false,” he said. “Mills have to make ethanol. It’s a technical thing. If your mill is set up to produce both, you simply can’t go to 100 percent of one and none of the other. You can tweak it to go a little more one or the other, but you can’t do probably more than 60-40.”
Approximately 54 percent of this year's cane crop to date was used for ethanol production, according to UNICA. The nation produced about 1.1 billion gallons of anhydrous ethanol between April and mid-August, an increase of approximately 165 million gallons compared to 2010 production numbers. Total sugar production since the start of the most recent harvest is down 10 percent compared to the same harvest period last year.