Sugaronline Editorial - The good ole’ switcheroo By Meghan Sapp
Published: 10/27/2017, 11:43:00 AM
Brazilian mills are switching to ethanol in a major way, but are they jumping the gun on RenovaBio?
No one is really surprised when Brazil focuses on ethanol production at the beginning of the crush: with wet weather still around, it makes more sense to produce ethanol than sugar, and besides, the inter-harvest season wears down stocks and forces imports from the US. But when the switch turns heavily towards ethanol in early October, something else entirely is going on.
This week’s UNICA data showed 56% of cane crushed during the first half of October went towards ethanol production, up from 53% the fortnight prior and 50% the year before. The country needs ethanol—pure and simple. With the new 30% import tariffs lobbed on ethanol imports after a 600 million litre duty-free quota has been reached, the Brazilian government has forced the hands of its mills to produce more ethanol.
Not that the world sugar market really minds Brazil directing more cane towards ethanol rather than sugar, as it will help to boost prices that were starting to look rather bearish. The spike above 14 cents following UNICA’s data release was short-lived, but it showed the market was willing to react if there was reason to. Now eyes will be on the next report in another fortnight to see if the trend remained steady or if even more cane goes towards ethanol production.
Technically, there is a limit as to how much ethanol can be produced, but beyond that, now there’s competition in the market. ICM, the Kansas-based maize ethanol plant building superstar, has commissioned its first maize-only dry mill ethanol plant in Brazil. That’s right, maize only rather than using maize or sorghum as a supplement during the cane inter-harvest season. This new US$115 million distillery will produce more than 227 million litres of ethanol annually, and ICM is looking to do more of these kinds of plants.
That would have been all fine and good had RenovaBio been released three months ago as planned, or if it wasn’t now stuck on the president’s desk indefinitely after requesting impact studies be undertaken before sending the bill to parliament for approval. That policy is seen as the shot in the arm the sugarcane industry needs to truly build out its ethanol demand on a long-term basis and reduce its dependency on the world market as a price taker, but now nothing is as sure as it seemed a few months ago.
Demand for ethanol to fulfill the current 27% blend and supply hydrous ethanol for flex-fuel vehicles, demand that could possibly increase again thanks to Toyota’s introduction of its new ethanol-hybrid passenger vehicle, will remain at the whim of domestically-controlled gasoline prices for the near term, at least. That translates to potential support for global sugar prices, but again only for the short term. With India’s crush ready to ramp up from November 1, if its crush is as much as a come back as it expects then the prospects of a bull run may be even shorter.