U.S. ethanol industry finds deals in Brazil

Ethanol plants and traders in the United State are rushing to sell biofuel to Brazil as tightening supplies and logistics in the South American market give the world's top producer a rare opportunity to ship south during the peak sugar cane harvest.

U.S. ethanol plants are pumping out a record 1 million barrels per day, taking advantage of cheap and plentiful corn feedstock, pushing domestic prices to three-month lows.

But they are finding unexpected demand in rival Brazil, where production is falling short of expectations as skyrocketing sugar prices have spurred mills to crush more cane into sweetener rather than make ethanol.

That has opened an arbitrage window at an unusual time of the year, highlighting the diverging market conditions between the world's two top ethanol producing nations.

'U.S. corn prices are cheap and the dollar has weakened creating a window of opportunity for ethanol shipments to Brazil's Northeast,” said Tarcilo Rodrigues, the lead ethanol specialist at Bio Agencia brokerage and consultants.

Rodrigues said mills in the main center-south cane region, which is in the peak of harvesting, typically ship ethanol to the northeast, which is unable to produce sufficient biofuel for demand in the region.

But tank capacity at the main southern ports is occupied by diesel imports by the state-run oil company Petrobras, blocking intercoastal shipments of ethanol, he said.

Brazil's northeast cane crushing season is some weeks off from ramping up its own ethanol mills, which accounts for only 10 percent of Brazil's cane output, as the region winds down its interharvest period leaving biofuel supplies tight.

Raizen, the world's largest sugar and ethanol producer, has booked 14.5 million gallons of biofuel from U.S. origin to Brazil to set sail in late July-early August, according to three U.S. traders.

That amount alone is the highest for any July-August period since 2012, according to U.S. Department of Agriculture data.