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Exclusive - Sugar-squeezed Brazil buys US ethanol

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The scarcity of sugar products in Brazil, the top producer, has led the country to turn to the US for corn-based ethanol to replenish depleted supplies of its own cane-based alternative, Agrimoney.com has learned.

Brazil's North East region has, in an unusual if not unprecedented move, begun importing US ethanol to replenish supplies lost as soaring sugar prices encouraged mills to turn cane into sweeteners rather than biofuels.

The move defies typical industry dynamics which, as sugar ethanol is less energy-intensive to manufacture than America's corn-based biofuel, typically makes Brazil's version significantly more competitive.

"We have to convert our corn into sugar first," Don Roose, president of broker US Commodities said.

'Tight window'

However, the figures for Brazilian imports of US ethanol stacked up, even including a trade tariff of $0.54 a gallon, Mr Roose added.

And the trade was confirmed by a leading industry figure, who said that such imports had begun to make financial sense last month, and looked likely to continue to do so until April, when the country's own production resumes in earnest.

"A tight window is there to pull in some ethanol from the US," the source told Agrimoney.com, on condition of anonymity.

The imports were a sign of the unusual dynamics occurring within the sugar industry, whereby countries such as Argentina, Australia and South Africa, typically exporters, were seeking foreign supplies.

"People are finding they have oversold themselves, and so have to go outside to make up supplies. Strange things are taking place."

Ethanol vs sugar

The clamour for sugar has increased to 44.7%, from 42.9% in 2009-10, the proportion of cane converted into the sweetener rather than ethanol, the International Sugar Organization said earlier this week.

"In a nutshell, although the final figures for both cane production and industrial yields proved to be lower than previously expected, this has not affected sugar production as the decrease in cane availability has impacted ethanol rather than sugar output," the ISO said.

While sugar production is up by 15.1% this season, "the growth rate for ethanol output has been downgraded to 6.6% as against nearly 13% projected in November".

The financial incentive was evident in January when, for instance, Brazilian hydrous ethanol sold at the equivalent of 17.8 cents a pound, compared with 45.4 cents a pound for crystal sugar.

"The premium of sugar over ethanol prices throughout the season incentivised mills to allocate as much cane juice as possible towards sugar production," merchant Czarnikow said on Tuesday.

For the US, ethanol exports even to Brazil looked a supportive factor, showing there is a "world market out there" for the corn-based version, Mr Roose said.

'Sugar is tight'

However, expectations that Brazil might switch more cane into ethanol production, given higher oil prices, were attributed with sparking a 3.7% rise to 30.35 cents a pound in raw sugar, for May delivery, in late deals in New York.

White sugar for May closed up 3.7% at $760.50 a tonne in London.

"Sugar is tight, [and] will remain tight for the coming quarter until Brazil begins its harvest," Nick Penney at Sucden Financial said.

By Agrimoney.com

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