Brazil's important ethanol market to 'stay tight'

Brazil's ethanol market is to stay "tight" next year, potentially limiting the country's important sugar exports, besides paving the way for a further wave of ethanol imports and providing a fillip to US biofuels groups.

Rabobank acknowledged in a report that its forecast last week of a 2012 cane harvest from Brazil's key Centre South region "slightly lower than" 500m tonnes wa below estimates from many other observers.

In general, analysts were expecting an increase of 6-7% from this year's 490m-tonne figure, implying a cane harvest of 519m-524m tonnes, the bank said in a sugar update, although the spread of estimates is large, based largely on estimates for the average age of the region's cane crop, a big determinant of its productivity.

Sugar giant Cosan, partner in an ethanol joint venture with Shell, has estimated the rise in Centre South cane output at 10%, taking the harvest nearly to 590m tonnes, while consultancy Canaplan has warned that yields could face a further year of decline before starting a recovery in 2013.

Canaplan's analysis is based on a belief that next season, the proportion of cane at its first, second or third cuts, the most productive, will drop to 41% next season before recovering to 54% by 2015.

Key price level

However, the report added that "under all scenarios the Brazilian ethanol market is expected to remain tight," as it has been this year, when elevated sugar prices prompted mills to increase the proportion of a reduced cane harvest turned into the sweetener, putting a double squeeze on ethanol output.

The share of cane allocated to sugar is expected in the 2011-12 season, which began in October, to reach 48%, up from 46% the previous season and 41% in 2008-09, according to the International Sugar Organization.

Rabobank said the tightness of ethanol supplies next year will feed through into Brazil's sugar output and hence on its exports, the world's biggest, and prices too.

The bank last week forecast that there would be "strong support for the international sugar price at levels that encourage ethanol production over sugar production" in Brazil, estimating the cut-off at about 22 cents a pound.

Imports to stay high

Separately, PotashCorp forecast the squeeze resulting in Brazilian ethanol imports for 2012 not far short of the record 1bn gallons imported this year.

"While import demand is expected to decline in 2012, it is still expected to surpass historical levels," the fertilizer group said.

The company added that "strong import demand from Brazil should be supportive to US exports", which are expected to approach 4m litres this year, more than double those in 2010, and fall back only modestly, to some 3.5m litres, in 2012.

Firm exports would represent a fillip to a US ethanol industry facing the expiry of tax credits for blenders of the biofuel with gasoline.

Jeff Broin, chief executive of US ethanol giant Poet, on Tuesday said that the biofuel was "now able to compete with gasoline" without the perk.

PotashCorp estimated that producers' margins, widened by weak corn prices and a relatively firm energy market, had reached nearly $0.80 a gallon, twice the three-year average.

source: agrimoney