Brazil ethanol imports likely to be much larger this year

By Susanne Retka Schill | May 06, 2013

Brazilian ethanol imports in 2013 are larger than earlier forecast at 600 million gallons, compared to 400 million gallons, according to University of Illinois economists Scott Irwin and Darrel Good. With that likely to require 400 million fewer gallons of domestic ethanol production, that would in turn require 145 million fewer bushels of corn consumption and a faster drawdown in ethanol blending credits. The two wrote the analysis in the university’s FarmDocDaily

“With the wide swings in relative blending margins, an import forecast cannot be made with much confidence,” they cautioned however. “Expectations near 600 million gallons appear to be common among market analysts. Blending margins and weekly EIA import estimates will have to be monitored closely for clues as to the ultimate magnitude of Brazilian ethanol imports this year. In addition, the monthly estimates of biomass-based biodiesel production will provide clues as to whether production will exceed the minimum of 1.28 billion gallons and reduce the need for Brazilian ethanol imports.”

Both biodiesel and Brazilian ethanol show negative blending margins, they point out, and earlier in the year favored the use of biodiesel to meet the advanced biofuels requirement in the renewable fuels standard, although that has changed. “This recent (March) flipping of relative blending margins is due to increasing biodiesel prices and the increase in U.S. ethanol prices relative to Brazilian ethanol prices. This latter change in pricing relationships has lowered the opportunity cost of blending Brazilian ethanol almost to zero in recent weeks,” they write in the post, supported by multiple charts. “The implication is that Brazilian ethanol imports in 2013 will likely be larger than our earlier expectations if current blending margin relationships persist.”

Increased Brazilian ethanol imports will add to the pressure on the U.S. ethanol blend wall, and underscores the importance of increasing the rate of growth in E85 use.