Brazil ethanol buoyed by gasoline, currency trends

The outlook for Brazil's 2018-19 center-south sugar cane crop is improving as global petroleum prices rise and the Brazilian real depreciates.

Since the harvest officially began on 1 April, Brazilian state-controlled Petrobras has raised wholesale gasoline prices by over 11pc.

As a result, hydrous ethanol has gained competitiveness with gasoline in Sao Paulo, Goias, Minas Gerais and Mato Grosso states, according to oil regulator ANP.

Hydrous ethanol is currently nearly 34pc less expensive than gasoline in Sao Paulo, which is the largest consumer market.

Hydrous ethanol competes directly with gasoline at the pump among drivers of Brazil's flex fuel cars, which make up most of the light-vehicle fleet. To be competitive with gasoline, the ethanol price needs to be less than 70pc of the retail gasoline price.

The weakening of the local currency in comparison to the US dollar has also pushed up local gasoline prices, which fluctuate in line with international market prices.

Since 1 April, the real has weakened 7pc against the dollar, which has also prompted Petrobras to raise local fuel prices.

Mills in the center-south are responding to strengthening demand for ethanol by shifting their production mix as much as possible toward the biofuel.

Local commodities specialist Archer Consulting said mills in the region are expected to direct as much as 60pc of their crop to ethanol this season. Over the past two seasons, mills in the center-south have allocated roughly 53pc of their cane to production of the biofuel, according to sugar and ethanol industry association Unica.

The 2018-19 center-south crop is seen reaching 577mn- 583mn t, down from the 2017-18 crop of 596mn t.

The increase in ethanol output will come at the expense of sugar production, which is seen falling by nearly 17pc this season. International sugar prices sunk to a multi-year low of $0.1112/lb on 24 April, but have since recovered to $0.1194/lb.