Bloomberg News

Brazil to Become Net Importer of U.S. Ethanol, Czarnikow Says

November 22, 2011

Nov. 22 (Bloomberg) -- Brazil will become a net importer of U.S. corn-based ethanol as high sugar costs create a shortage of the biofuel in the South American country, boosting the price link between the crops, C. Czarnikow Sugar Futures Ltd. said.

Brazil has imported 500 million liters (132 million gallons) of ethanol from the U.S. since 2010, equal to 800,000 metric tons of sugar or 1.2 million tons of corn, Czarnikow said in a report today. Millers in Brazil are using more sugar cane to produce sweeteners instead of ethanol, the broker said.

Cars in Brazil can run on either 100 percent ethanol or a mix of gasoline and the biofuel. The government has cut the mandatory amount of ethanol to be blended into gasoline to 20 percent from 25 percent this year because of a shortage.

“If the blend goes back to 25 percent, Brazil will need to implement a large import program,” Henry Toller, an ethanol analyst at Czarnikow, said by phone from London.

Sugar prices that almost tripled in three years through 2010 on ICE Futures U.S. in New York resulted in declining ethanol production as earnings “are effectively capped,” Czarnikow said in the report.

“Given the underlying growth in the Brazilian fuel market and ethanol supply falling short, Brazil is now likely to end up as a net importer of ethanol as U.S. corn ethanol has been imported to help alleviate supply problems,” it said.

Crop Correlation

Brazil, the world’s largest sugar producer, makes ethanol from cane, while U.S. companies use corn. Increasing imports of U.S. ethanol to Brazil will help boost the correlation between the crops, Czarnikow said. The U.S. is the world’s largest producer of corn and ethanol.

Ethanol demand has more than tripled since 2004 to about 100 billion liters, equivalent to global sugar consumption of 153 million tons or more than 100 million tons of corn, which is bigger than the volume of the global trade of the grain.

“As the markets for ethanol and sweeteners become more efficient and potentially less constrained by policy, the opportunity for arbitrage between corn and sugar will increase,” Czarnikow said. “We expect to see greater interaction between prices.”

--Editors: Dan Weeks, Sharon Lindores.

To contact the reporter on this story: Tony C. Dreibus in London at tdreibus@bloomberg.net.

To contact the editor responsible for this story: John Deane at jdeane3@bloomberg.net.


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