High demand for ethanol in the US should rise in the coming months, during the summer vacation period, and could save Brazilian mills that were operating at negative levels

​Despite the 2021/22 sugarcane harvest in Brazil, which began in April, being smaller than the previous one, the demand for ethanol in Brazil should remain under pressure in 2021, still due to the isolation of the coronavirus pandemic, according to estimates by consultancy StoneX. However, with the lower internal consumption and the rise of corn in the North American market, there are opportunities to export biofuel Brazilian to the United States, currently the world's leading consumer of ethanol.

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According to the opinion of experts on the subject, even if the market follows the new cycle, there is strong entry information from the mills in the futures market in order to take advantage of the high prices practiced.

“As much as we can observe the more retracted demand, Brazilian producers can find a very favorable environment in exports. Firstly, because of our very devalued exchange rate, which encourages exports. Furthermore, we have observed that the US, world's leading consumer of ethanol, a situation of high prices due to corn”, highlights Rafaela Souza, market intelligence analyst for sugar and ethanol at StoneX.

“In terms of the market, there is a very positive price expectation, both for sugar and for ethanol. The expectation is that we have a continuity of the high exchange rate and attractive international prices, which contributes to keeping exports at high levels”, explains Fábio Costa, market analyst at Conab.

High demand for ethanol in the US can save Brazilian plants that were operating at negative levels

There is a situation that, although corn planting is just beginning in the US, there will be a scenario of tight cereal stocks, which is the main raw material used for distillation by North Americans, in addition to perspectives on the side of livestock and sustained ethanol in the country.

“The margin of the country's ethanol plants is under pressure, reaching operating at negative levels”, points out Rafaela, in an interview with Agricultural News.

According to Conab, even with the impacts of the pandemic, during 2020, the 2020/21 harvest had a positive balance of prices and production, especially for sugar. “The attractive prices on the international market and the high exchange rate ended up stimulating sugar exports in this crop, which jumped around 70% over the previous one”, he says.

However, last Monday, the StoneX reported that the sugarcane crushing forecast in the Center-South of Brazil had a drop of around 6% in the annual comparison.

Despite a positive scenario for exports, the supply of sugarcane for the production of sugar and ethanol will be more restricted. “It is clear that, probably, we will have a year of very sustained prices for ethanol in Brazil, especially if the demand for exports comes stronger”, concludes Rafaela.