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Brazil's corn ethanol output could double over next two years


Brazil’s corn ethanol output will more than double if all the projects planned for the next two years complete, US officials say, saying that investors are “optimistic” despite the dent from Covid-19 to fuel demand.


At least seven further corn ethanol plants are in the pipeline for Brazil 2021 and 2022, some of which are already being build, the US Department of Agriculture’s Brasilia bureau said.


These would add to the 16 plants currently manufacturing ethanol from corn, although most of which operate on a flex-fuel basis, using sugar cane as their main feedstock, and switching to the grain only around the December-to-March period when wetness prompts cane-only plants to shut.


In output terms, the new projects could increase ethanol capacity to more than 5.5bn litres a year, from the 2.5bn litres expected for 2020-21, in turn nearly twice the 1.33bn litres produced last season.


That would swallow “more than 13m tonnes of corn annually”, up from an estimated 6m tonnes this year – although remaining well behind of the US industry, which is expected in 2020-21 to use 130m tonnes of corn for making the biofuel.


‘Optimistic that the market will rebound’

The expected growth in Brazil’s industry comes despite the hit from Covid-19 to demand for conventional gasoline and bioethanol, which is produced in the country in the main from sugar cane.


In the key Centre South region, Brazilian cane mills have cut ethanol output by 7.5% to 23.45m litres so far in 2020-21, as starts in April, converting more of the crop to making sugar instead, data from Unica show.


Corn ethanol producers, meanwhile, lacking the same flexibility to switch outputs, have raised ethanol volumes by 90% to 1.15bn litres, reflecting extra capacity.


However, Brazil’s fuel-market downturn has not deterred interest in the new plants, the USDA bureau said.


“Even though Brazilian ethanol demand has dropped in 2020, due to the Covid-19 pandemic, investors are optimistic that the market will rebound by the time construction on the plants is completed in 18-24 months.”


Stockpile selldown

In fact, corn ethanol producers have not been unresponsive to the fuel market downturn, in selling off some of their large stockpiles of the grain at prices which have in Brazil hit record highs, spurred by firm demand and weakness in the real.


“Several corn ethanol plants in Mato Grosso sold off a portion of their corn stocks earlier this year when ethanol use dropped in response to the pandemic.


“They were able to improve profitability by curbing ethanol production in line with market demand while also taking advantage of record-high corn prices due to surging internal demand from the livestock and poultry sector.”


The industry also has the advantage of lacking the debt burden carried by the cane ethanol industry, much of which was built on borrowings taken out on assumptions ruined by a subsequent collapse in sugar prices.


“Roughly speaking, only about one-third of sugarcane-based ethanol plants are financially healthy, whereas corn-only ethanol plants are more likely to have low debts due to higher levels of outside investment,” the bureau said.


‘One major limitation…’

In fact, it listed the major test to Brazil’s corn ethanol industry, besides profitability, as logistics, with the biofuel made in the main in corn-growing states, notably Mato Grosso, while demand is centred largely further east and south,


“One major limitation for growth of the corn ethanol sector is the low population density of the region, which corresponds to little fuel demand in general.


“Moreover, the options to transport ethanol out of the region are limited, with most ethanol needing to travel 1,000 kilometres or more by truck before potentially being placed on barges or larger ocean-going vessels.”


There are plans to extend to Rondonopolis in Mato Grosso, from Uberaba in Minas Gerais an ethanol pipeline which feeds Sao Paulo and Rio de Janeiro.


Corn ethanol producers are also attempting to encourage local markets for byproducts such as corn oil, which can be used by biodiesel or cooking oil manufacturers, and distillers grains (DDGs), a high protein feed ingredient.


“The major producers have invested time and resources to market DDGs to livestock and poultry producers who have had little familiarity with the feedstock.”

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