Nation & World

Brazil pushes into corn biofuel

Country expects to surpass 1 billion liters this season

Bloomberg

Tractors harvest corn in this aerial photograph taken over a farm in Bahia state, Brazil.
Bloomberg Tractors harvest corn in this aerial photograph taken over a farm in Bahia state, Brazil.

The processing plants peppering the agricultural heartland of Brazil attest to the country’s position as the world’s biggest sugar-cane producer and the undisputed king of ethanol made from the crop.

But debt has crippled the industry, paving the way for another biofuel to flourish.

Brazil’s production of corn-based ethanol is set to exceed the 1 billion liter mark for the first time ever this season, according to INTL FCstone.

While that’s still just a small fraction of the South American nation’s 31 billion liter biofuel market, output is on track to expand quickly in the next few years amid an investment spree with more than a dozen new plants being planned.

The drive into corn comes after farmers tripled output of the grain in Brazil’s central-west savannas over the past decade.

That’s providing agricultural processors including Cargill — which has facilities in Cedar Rapids — with abundant supplies of the ethanol-making ingredient at a time when prices for fossil fuels in Brazil have jumped to multi-year highs.

New legislation — the so-called Renovabio — also has set federal mandates for higher levels of biofuel use. That’s expected to boost domestic demand by 20 billion liters through the end of the next decade, according to government projections.

The foray into corn also could mean increased competition for the American ethanol industry, which makes most its biofuel from the grain.

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Brazil is the world’s largest ethanol consumer after the United States — largely because of the wide use of cars that can run on either the biofuel or conventional gasoline.

While most of the South American nation’s needs are met with domestic production, it does take in some imports, mostly from the United States.

Average ethanol prices in Brazil have fallen 9 percent this year to their lowest since October, according to the National Oil Agency. In contrast, gasoline prices have gained 8.3 percent.

Brazil’s “corn-ethanol producers have become very competitive,” said Ricardo Tomczyk, the head of industry group Unem.

Prices for the grain in Mato Grosso state, in the heart of the region where the new plants are being developed, have averaged $1.87 a bushel this year.

That’s well below the $3.30 average in key U.S. corn grower Iowa — a reflection of different production and logistics costs.

“We have the cheapest corn in the world,” Tomczyk said.

Corn-ethanol output could top 3 billion liters in five years and has the potential to reach 8 billion liters by 2030, Tomczyk estimated.

That would be enough for the fledgling industry to grab about 40 percent of the projected increase for domestic demand over the period, government data show.

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Corn-based ethanol likely will be primarily shipped to Brazil’s center and northern states — typical destinations for U.S. exports, Tomczyk said.

Brazil imported 1.7 billion liters of U.S. ethanol in the 2017-2018 season.

Even with the expansion, the vast majority of Brazil’s ethanol still will likely be made by sugar-cane millers for the foreseeable future. Those processors are typically more efficient and emit less carbon dioxide.

They also can produce more liters per hectare and generate their own energy by burning bagasse, or cane residue left over from the crushing process.

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