The past two years, Brazil has compensated for its tight supply of ethanol in a high demand domestic market by importing increasing amounts of corn ethanol from the U.S. and exporting less cane ethanol to the U.S. In the second half of the year, however, Brazil ethanol started entering the U.S in increasing volumes. &ldquo;In the long-run, we expect Brazil to return to being a leading exporter of ethanol, but it&rsquo;s too early to say when that might occur and how much they&rsquo;ll export,&rdquo; says Geoff Cooper, vice president of research and analysis for the Renewable Fuels Association. &ldquo;While 2011 may prove to be the high water mark for U.S. ethanol exports, we believe exports will generally remain strong in 2012 and beyond.&rdquo;
In 2010, Brazil imported nearly 22 million gallons of U.S. ethanol. That was nothing compared to what happened in 2011, however. Looking at the latest figures available, showing movements through September, the country had already imported 202 million gallons of U.S. ethanol. In the meantime, Cooper says, Brazil exported virtually no ethanol to the U.S. in 2010 and through the first half of 2011. In July, shipments from Brazil began to pick up, adding up to about 26.5 million gallons of Brazilian ethanol brought in to the U.S. by the end of September.
Compared to the amount of U.S. ethanol typically imported to Brazil, the numbers are significant, admits Adhemar Altieri, corporate communications director for UNICA, the Brazilian Sugarcane Industry Association. Brazil has imported U.S. ethanol in the past, however. After all, ethanol is an agricultural commodity subject to weather patterns. &ldquo;You put it all together, you are talking about 3 percent of the market,&rdquo; he tells EPM. &ldquo;So we are not talking huge numbers&mdash;we&rsquo;re talking larger numbers than usual&mdash;but we are not talking really, really, big significant numbers. This is not an indication that Brazil will be an importer country for the long run. At least that&rsquo;s not the way we see it.&rdquo; Although more U.S. ethanol is currently going to Brazil than the other way around, overall the country is still a net exporter, Altieri points out. Through October, Brazil may have imported 699.5 million liters (184.7 million gallons) but it exported a total of 1.1 billion liters. Brazil exported ethanol to several countries in 2011. The U.S. is on the top of the list, receiving 28 percent of exported Brazilian ethanol. Next, at 22 percent, are the Caribbean countries as a group. &ldquo;Keep in mind that most of the ethanol headed for the Caribbean is probably being reprocessed and shipped to the U.S. to take advantage of their no-tariff status,&rdquo; he adds.
Looking ahead, the U.S. and Brazil are expected to continue to export ethanol to each other. That&rsquo;s because there&rsquo;s a demand for Brazilian sugarcane ethanol to fulfill the requirements of the renewable fuel standard (RFS), and, to a lesser extent, California&rsquo;s Low Carbon Fuel Standard, says Cooper. On the other side of the coin, that will provide continued opportunity for U.S. producers. &ldquo;It&rsquo;s likely that Brazil will &lsquo;back-fill&rsquo; those exported volumes with imports of lower-priced U.S. corn ethanol to meet their own market needs&mdash;at least in the near-term,&rdquo; he adds.
Altieri agreed with Cooper&rsquo;s assessment that U.S. and Brazilian ethanol would be passing each other in ships and why. &ldquo;It&rsquo;s led to a situation where you have ethanol going in both directions,&rdquo; he says, adding that the situation was expected. Notably, increasing numbers of Brazilian sugarcane mills are jumping through the hoops required by the U.S. EPA to export ethanol to the U.S. As of early October, UNICA reported that a total of 107 Brazilian sugarcane mills were registered with the U.S. EPA, more than double the amount that were registered in February. In addition, 44 Brazilian mills have registered to export ethanol to California.
All in all, UNICA considers the back and forth trade between the U.S. and Brazil as a good thing. &ldquo;We would like to see, obviously,&nbsp; a lot more countries involved in production and use of ethanol because that&rsquo;s where we want to go, which is to make ethanol a full blown, globally traded commodity,&rdquo; he says.
And overseas markets, including Brazil, have provided a valuable market for U.S. ethanol producers. That&rsquo;s especially true with the country&rsquo;s market for ethanol currently capped at 10 percent. On the other hand, it shows the need for the U.S. to expand the market for ethanol by moving to E15 and building out infrastructure for flex-fuel pumps. &ldquo;The goal of the renewable fuel standard is to reduce our dependence on foreign oil by producing domestically produced renewable fuels,&rdquo; says Tom Buis, CEO of Growth Energy.
But what does the situation mean environmentally? On a lifecycle basis, shipping U.S. ethanol to Brazil and Brazilian ethanol to the U.S. isn&rsquo;t an issue of concern, according to Helena Chum, a research fellow at the National Renewable Energy Laboratory. Transportation by ship is not the most energy consuming or emissions-releasing portion of the process. It&rsquo;s actually worse for the environment, she says, to transport biofuels via truck from the Midwest to California.
Chum also views the development of a global marketplace for ethanol as a positive thing. Because biofuel production can be affected by factors such as weather, it&rsquo;s good to see two large players exchanging commodities with one another. In addition, there are several examples of U.S. companies currently working on research in Brazil that can take what they learn and apply it in the U.S. &ldquo;It&rsquo;s a completely interconnected market,&rdquo; she says. Expansion Needed In early November, UNICA, in partnership with the Center for Sugarcane Technology, released its revised total for the&nbsp; 2011-&rsquo;12 season, decreasing its predictions from the previous forecast. Overall, it&rsquo;s expected that Brazil&rsquo;s total sugarcane crush will yield 488.5 million tons, a decrease of more than 12 percent from the previous harvest of 556.95 million tons. &ldquo;Major factors that explain the lower yields are the advanced age of the cane fields and unfavorable weather conditions for plant development, including prolonged droughts during the winter months that affected the last two harvests and the occurrence of frost and flowering at the beginning of the current harvest,&rdquo; the group says.
There is an overcapacity in the industry but a lack of raw materials, says Antonio de Padua Rodrigues, UNICA&rsquo;s technical director. The country needs to accelerate the renewal of aging sugarcane fields to increase ethanol and sugar production. "The variables mentioned, along with the expectation of only four new crushing mills launching next year, should result in a very slight increase in crop production for the 2012-&rsquo;13 harvest," he says.&nbsp;
Brazil&rsquo;s sugarcane mills produce both sugar and ethanol, depending on market conditions. For the current harvest season, UNICA estimates ethanol will take up 51.81 percent of all harvested sugarcane, leaving 48.19 percent for sugar production. In all, the country is projected to produce 20.39 billion liters of ethanol, nearly 20 percent less than was produced in the previous harvest. &ldquo;This year&rsquo;s projected ethanol output will be lower than in the 2007-&rsquo;08 harvest, a time when the fleet of flex-fuel vehicles amounted to less than half the current fleet,&rdquo; Rodrigues says, adding that extreme price and consumption pattern changes haven&rsquo;t as yet happened.
Needed expansions in the Brazilian industry won&rsquo;t happen overnight, Altieri says. From financing to completed construction of a new sugarcane mill takes three years. That includes acquiring land for sugarcane production or making arrangements with sugarcane growers. &ldquo;Brazil looks as though it is going to need some level of import for the next two or three years, until the industry gets on track here with expansion,&rdquo; he says, adding that he can&rsquo;t predict how much U.S. ethanol will be needed in Brazil. Trade Issues Ethanol tariffs are an issue&nbsp; the U.S. and Brazilian ethanol industries have not seen eye-to-eye on for a long time. Brazil announced in March 2010 it was temporarily eliminating its 20 percent ad valorem tariff on imported ethanol, saying it would remain at zero through the end of 2011. UNICA requested the elimination of the Brazilian tariff, Altieri says. Although the group is keeping a close watch on what will happen with the U.S. tariff, it&rsquo;s not a determining factor on what Brazil will do with its tariff. &ldquo;Our position is that it should remain zero,&rdquo; he says. &ldquo;We think countries like Brazil and the U.S. have to set the example.&rdquo;
The U.S. 54-cent tariff on ethanol is set to expire at the end of the year. In early December, however, a bill to extend the tariff through 2014 was introduced in the U.S. House of Representatives. RFA doesn&rsquo;t believe the U.S. tariff should be allowed to expire so it can be used as a bargaining chip at the negotiation table to discuss any trade barriers on both sides. &ldquo;What we are concerned with is, if it is allowed to just simply expire, USTR will not be able to use that to address recent trade distortions that have occurred,&rdquo; says Edward Hubbard Jr., legislative counsel for the RFA. &ldquo;To unilaterally disarm at this time, by walking away from a WTO compliant secondary tariff, would be a mistake.&rdquo;
In addition, the association is concerned that the Brazilian tariff could be reinstated immediately if the U.S. tariff is allowed to expire, Hubbard says. &ldquo;Brazil has made a lot of hay about suspending that tariff but what&rsquo;s not been articulated very clearly to the public is that that temporary suspension is scheduled to expire at the end of the year,&rdquo; he says.
That&rsquo;s simply not the case, Altieri says. Brazil has a list of items on a zero tariff list that is revised every six months and the tariff on ethanol has remained untouched. &ldquo;There&rsquo;s been three or four chances already to reinstate that tariff and it has not happened,&rdquo; he says. &ldquo;There is no timetable for it to come back.&rdquo;
What are the trade distortions RFA is concerned about? Hubbard points to Brazil&rsquo;s actions in lowering the 25 percent blend requirement for ethanol to 20 percent, 2 percent shy of the legal minimum of 18 percent. In late October, RFA sent a letter to Ron Kirk, an ambassador with the office of the U.S. Trade Representative, outlining its concerns on the issue. &ldquo;We really don&rsquo;t see any justification for reducing the blend volume other than to close the market for U.S. exports, so we have identified that as a significant trade distortion, a very recent trade distortion, on the part of Brazilian government,&rdquo; Hubbard tells EPM.
Again, UNICA and RFA are not on the same page. &ldquo;I can&rsquo;t see how they would get to that,&rdquo; he says. &ldquo;They have never sold as much ethanol as they have now to Brazil&mdash;there is nothing concrete that could possibly support a statement like that.&rdquo;
Brazil has been blending 25 percent ethanol in its gasoline since the 1970s. The trend is that the blend level will revert to that 25 percent maximum level. &ldquo;That&rsquo;s what the country has been doing for decades,&rdquo; he says, adding that the decision will be made based on what happens in the next harvest season and how quickly the Brazilian industry can expand. Author: Holly Jessen Associate Editor, Ethanol Producer Magazine (701) 738-4946 hjessen@bbiinternational.com

2011/12/13237226228807.jpg

A look back at a year of booming U.S.imports to Brazil and ahead 
to increased U.S.-Brazil ethanol exchanges

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Upcoming Events

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North American SAF Conference & Expo

2025 International Biomass Conference & Expo

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