Sugar millers in Brazil’s center south, the main growing region of the largest producer, will use more of this year’s crop to make ethanol than previously forecast because of unseasonal rain, Datagro Ltd. said.
Wet weather at the end of May and in June, usually the dry season, reduced the crop’s potential to yield sugar, Plinio Nastari, president of the Barueri, Brazil-based researcher, said in an interview yesterday. Millers will direct 53.8 percent of the cane harvested in the 2013-14 season that started there in April to making ethanol, up from a previous forecast of 52.6 percent, he said. Brazil makes both the sweetener and the biofuel from sugar cane. Nastari didn’t give a new estimate.
“The fact that it rained a lot at the end of May and in June is increasing the prospects that the mix will favor more ethanol than previously forecast,” Nastari said before Datagro’s and the Brazil government’s Sugar & Ethanol Summit in London today. “When it rains, the sucrose that was in the mature cane goes back to being glucose and fructose and you can’t crystallize as much as you want and millers are therefore forced to turn these sugars into ethanol.”
Millers in the center south will process a record 586.1 million metric tons of sugar cane in 2013-14 and make 35.3 million tons of sugar, Nastari said. Last year, sugar production was 34.1 million tons, data from Sao Paulo-based industry group Unica showed. Ethanol output in the area will be 25.5 billion liters, Datagro forecasts. That compares with 21.4 billion liters in 2012-13, according to Unica data.
While a slumping Brazilian real has made exports of the sweetener sold in dollars more attractive, millers won’t be able to take advantage of that in the short-term because of the rain, Nastari said. The Brazilian real fell 9.4 percent in the second quarter, making it the worst performer in a basket of 24 emerging market currencies tracked by Bloomberg. The lower real meant that ethanol was trading below sugar, Deutsche Bank AG said on May 25. Raw sugar fell 4.2 percent in the quarter.
A weaker local currency boosted the price difference between gasoline in the Brazilian and international markets and increased the chances that Latin America’s biggest economy will allow a second increase in fuel prices this year, Nastari said. Brazilian gasoline was 19 percent below the international level on June 18, compared with 13 percent a month earlier, he said.
The Brazilian government controls the price of fuel. Earlier this year, it allowed state-controlled oil company Petroleo Brasileiro SA, or Petobras, to lift prices of gasoline at refineries 6.6 percent. Higher gasoline prices increase the competitiveness of ethanol at the pump.
“The real devaluation makes the gasoline price discrepancy more acute,” Nastari said. “It becomes unsustainable to keep the subsidy policy on gasoline.”
Ethanol prices at the pump in Brazil are 62.3 percent to 63 percent that of gasoline, below the threshold of 65 percent that makes ethanol more advantageous for consumers, Nastari said. That means demand for the biofuel is set to rise, he said.
Brazil will export 4.1 billion liters (1.08 billion gallons) of ethanol to the U.S. in 2013-14, up from 3.03 billion liters a year earlier, according to Datagro. The U.S. will need Brazilian ethanol to meet its advanced biofuels mandate, Nastari said.
Imports of U.S. ethanol, made from corn, into Brazil will climb because the harvest in the South American country’s northeast region was smaller in 2012-13 and will probably fall further in 2013-14, Nastari said. Imports were estimated at 520 million liters from 213 million liters a year earlier, he said.