Report outlines export, domestic ethanol market opportunities

By Kris Bevill | March 09, 2012

The opportunity for U.S. ethanol producers to continue exporting significant quantities of corn ethanol to Brazil in 2012 will rely significantly on the outcome of Brazil’s latest sugarcane harvest, according to a report recently released from global financial services provider Rabobank. According to Andy Duff, manager of food and agribusiness research for Rabobank Brazil, projections for the new season of cane production in Brazil’s Center/South region range from 500 million metric tons to 560 million metric tons. If the actual amount of cane harvested is closer to the low end of the expectations, Rabobank expects ethanol prices there will remain firm and Brazil will continue to import U.S. ethanol to meet its domestic demand, he said. “[However,] if the crop were to come in at the upper end of expectations, there would be considerable scope to boost local ethanol production, prices would be lower than last season, and imports may not be required,” he said.

Last season’s cane harvest in that region of Brazil totaled 494 million metric tons. Sugarcane yields have been lower than average in the past few seasons in Brazil due in part to adverse weather conditions but also due to the age of the cane fields. Sugar mills cut back on replanting of cane a few years ago in response to the global financial crisis, Duff said, and it will likely take two to three years for the age profile of Brazil’s sugarcane fields to return to normal productivity.

Because of Brazil’s challenges in keeping up with its domestic ethanol demand, Duff doesn’t expect the recent expiration of the 54-cent per gallon U.S. import tariff on ethanol to have an immediate impact on Brazilian ethanol’s share of the U.S. market, although Rabobank does anticipate that it will offer significant opportunities for Brazil in the medium to long term.

Canada is currently the second largest importer of U.S. ethanol and Rabobank predicts that demand will stay strong in Canada this year due to the country’s 5 percent blending mandate. Additionally, the firm noted that Canada is also a net importer of corn and it is more economical for the nation to import ethanol than to build the capacity necessary to meet its domestic demands.

In the U.S., Rabobank found that blending margins will continue to be positive this year, even without the 45-cent per gallon Volumetric Ethanol Excise Tax Credit. The report’s authors also stated that U.S. ethanol producers who have implemented corn oil extraction systems will be able to produce at lower breakevens this year, adding as much as 10 cents per gallon to their margins.

E15 will continue to be a major focus of the U.S. ethanol industry throughout 2012, according to the report, as the industry works to extend the ethanol blend wall. Rabobank’s predictions fall in line with the general consensus that Midwest states will be the first to implement E15, but the report’s authors further state that E15 in the Midwest alone could successfully push back the blend wall. “We estimate that the 10 Midwestern states represent about 30 percent of U.S. gasoline demand, which is near 135 billion gallons per year,” they said in the report. “A simple calculation indicates that the national ethanol blend wall could rise to 15.5 billion gallons, which is above the 15 billion gallon mandate, even if just the Midwest adopts E15.”