US DEPARTMENT OF AGRICULTURE: BNDES FUNNELING MONEY INTO BRAZILIAN SUGAR AND ETHANOL INDUSTRY, MAY BE STOKING OVERCAPACITY

While most plants in Brazil can produce both sugar and ethanol, about 150 of the country’s 420 plants are ethanol-only operations (previous post). Most were set up during the ethanol fever that took hold of the industry post-2006, when oil prices were skyrocketing and the U.S. government embarked on an all-out to promote the use of ethanol.

Highlights on the expansion of Brazil’s sugar and ethanol industry, taken from the USDA’s recently-released report on the 2009-2010 outlook for the Brazilian sugar and ethanol industry:

Dropping sugar and ethanol prices during 2007 and 2008 and the global financial crisis in September 2008 became a major obstacle to new investments in 2009 and 2010, although investments in the sugar-ethanol sector had been growing steadily during the last few years. (Financing from the National Bank for Economic and Social Development - BNDES, the major federal bank funding new projects, increased from R$ 3.56 billion in 2007 to R$ 6.5 billion in 2008.) Credit has become scarce, to fund both sugar export operations and investments in new mills. The industry estimates that total credit to finance investments should drop from R$ 12 billion in 2008 to R$ 7 billion or less in 2009. Approximately 40 percent of the mills that were supposed to start running in 2009 (35 mills) have already postponed operations until 2010.

US DEPARTMENT OF AGRICULTURE FORECASTS BRAZIL TO MILL 605 MILLION TONNES SUGARCANE IN 2009-2010, ETHANOL EXPORTS DROP

Inquiring minds are looking at the United States Department of Agriculture's GAIN (Global Agriculture Information Network) report on the 2009-2010 outlook for the Brazilian sugar and ethanol industry.

The numbers put out by the USDA's Foreign Agricultural Service, which has an office in Sao Paulo, are in line with those published at the end of April by Conab (previous post), the agency within the Brazilian Ministry of Agriculture responsible for forecasting agricultural production in the country, and with the figures offered in early April by Plinio Nastari's Datagro (previous post), the leading sugar and ethanol consultancy in Brazil.

Highlights from the USDA's GAIN report:

"Sugarcane for crushing for MY 2009/10 is projected at 605 million metric tons (mmt), up 7 percent from the previous year, due to continuing area expansion. Sugar production is forecast to increase to 36.85 mmt, raw value. Sugar exports are forecast at 24.36 mmt, up 4.05 mmt from the previous year, due to expected lower supply from other producing countries such as India. Ethanol production for MY 2009/10 is forecast at 28.45 billion liters, while ethanol exports are expected to drop to 3.7 billion liters."

COMPARISON OF DIFFERENT PROJECTIONS
FOR CANE, ETHANOL AND SUGAR PRODUCTION
2009-2010 HARVEST YEAR - BRAZIL

	USDA	BRAZIL GOVERNMENT (CONAB)	DATAGRO
Total sugarcane for crushing (million tonnes)	605	622 – 634	598
Y-o-Y increase in sugarcane for crushing	7%	8.6% – 10.7%	5.72%
Sugar production (million tonnes)	36.85	36.42 – 37.91	35.2
Y-o-Y increase in sugar production	14%	Up to 17%	11.38%
Ethanol production (billion gallons)	7.53	7.35 – 7.57	7.38
Y-o-Y increase in ethanol production	4.6%	n/a	3.0%

Source: USDA, Datagro, Conab

BRAZILIAN 2009 ETHANOL EXPORTS TAKE A TUMBLE IN Q1

A local newspaper reports that the southern state of Parana, Brazil's second-largest producer of ethanol, exported 174 tonnes of ethanol in the first three months of 2009, representing sales of USD 87,646. Over the same period in 2008, exports reached over 75,000 tonnes, which brought in USD 39 million. The blow from this precipitous drop in exports, laid down to the global economic recession, was softened by higher prices for sugar. The data come from the federal government's Agency for International Trade, known as Secex.

The same agency reports that, of the ten products leading the state's exports, only three saw an increase in volumes over Q1 2008. Strong sugar sales to international customers helped make up for the loss of revenue from ethanol. In Q1 2009, sugar exports climbed from 299 thousand to 476 thousand tonnes, representing sales revenues of USD 137 million - a 71% increment over the same period for 2008.

CONAB: BRAZIL TO CRUSH MORE THAN 620 MILLION TONNES OF SUGARCANE IN 2009-2010

Conab, a Brazilian government agency that is part of the country’s Ministry of Agriculture, has just released its estimate for the production of sugarcane in the 2009-2010 harvest year.

This first assessment (the agency conducts a total of three throughout the year) projects that Brazil will crush between 622.03 and 633.72 million tonnes of sugarcane between now and the end of the harvest season, in Q2 2010. This volume sets a record and represents an increment of between 8.6% and 10.7% over the previous harvest season’s output, which saw production of 572.57 million tonnes.

According to the agency, one significant factor pushing up volumes is a total of 28 million tonnes of sugarcane left over from the 2008-2009 harvest season and that are expected to be milled this year. Area under sugarcane cultivation has also grown 9.9%, an expansion associated with 25 new plants coming on-stream.

Until last year, sugarcane plantations for sugar and ethanol production occupied 7.08 million hectares (17.49 million acres); this year, the figure is expected to jump to 7.79 million hectares (19.24 million acres).

Sugarcane for all uses (which includes the production of forage and spirits) grew from 9.4 million hectares (23.22 million acres) to 9.59 million hectares (23.69 million acres). This may bring the total of sugarcane produced in the country to 674.8 million tonnes. The head of Conab, Wagner Rossi, stated that, “this proves that the sugar and ethanol market remains strong, in spite of the economic crisis”.

It should be noted, however, that a part of the crop may not be processed, due to factors like precipitation, the availability of harvesting equipment, and issues related to infrastructure.

The states of Brazil’s Center-South region account for 90% of sugarcane processed, with the balance milled in the states of the North-East. In the Center-South, Sao Paulo state leads, with an expected production of between 360.41 and 367.69 million tonnes, or about 58% of all the sugarcane that will be processed.

Other states have seen significant progress: Goias state, also in the Center-South region, has an increment this year of 527.6 thousand hectares, or 31.3% over the previous total; Mato Grosso do Sul, further west, has an additional 335.1 thousand hectares, equal to 21.5% of the past year’s figure.

All the states of the Center-West region (Mato Grosso, Mato Grosso do Sul, and Goias) have witnessed combined growth of 20.5% in sugarcane area, reaching a total of 1.09 million hectares (2.69 million acres). Production follows a similar trajectory, with 30% added output (85.29 million to 87.01 million tonnes).

Plantations in the country’s South (which comprises the states of Parana, Santa Catarina, and Rio Grande do Sul) are expected to grow 18.3%, occupying 644.3 thousand hectares (1.74 million acres). The amount of cane used by sugar and ethanol makers is expected to reach between 53.24 and 54.31 million tonnes.

Parana state stands out in this expansion process – it is now the second-largest grower, producing an expected 53.1 million tonnes to 54.2 million tonnes – practically the entire output of the region. This figure places it behind Sao Paulo and ahead of Minas Gerais state, which will mill from 50.8 million and 51.8 million tonnes.

Sugar and ethanol mix changes

The amount of sugarcane marked for the production of sugar may grow by up to 17%, while that used for ethanol is expected to grow 7.7%. With this mix, Brazil will produce between 36.42 and 37.91 million tonnes of sugar and between 27.78 and 28.6 billion liters (7.35 million and 7.57 million gallons) of ethanol, with a breakdown between anhydrous (used for blending with gasoline) and hydrous (sold directly at the pump as E100) of 33% anhydrous to 67% hydrous.

Drivers that have spurred producers to favor sugar over ethanol include depressed prices for ethanol on the Brazilian domestic market, difficulties in exporting caused by tariffs and subsidies to inefficient agricultural systems in formerly-rich nanny states in North America and Europe, and a shortfall in production in countries around the Indian Ocean that was motivated by drought and that has made India a net importer of sugar. A strengthened dollar has also made international prices more attractive for sugar.

These projections were developed using satellite imagery from Canasat, a project sponsored by Brazil’s National Space Research Institute, by the University of Sao Paulo, through the Center for Advanced Studies in Applied Research, known as Cepea, by the Center for Sugarcane Technology, known as CTC, and by Unica.