Oct 23, 2014

Corn-Based Ethanol on the Increase in the Center-West of Brazil

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

An emerging trend in recent years in Brazilian agriculture is the increased use of corn to make ethanol. Corn-based ethanol is still in its infancy in Brazil compared to the over 400 sugar/ethanol mills in Brazil that utilize sugarcane, but it has the potential for significant growth. In fact, the production of corn-based ethanol was one of the topics of discussion at Datagro's 14th Annual Sugar and Ethanol Conference recently held recently in Sao Paulo.

Corn-based ethanol production in Brazil is only going to work where there is an oversupply of corn resulting in low corn prices. That is exactly the situation in the center-west region of Brazil encompassing the states of Mato Grosso, Mato Grosso do Sul, and Goias. Farmers in the region have greatly increased their production of safrinha corn which is grown as a second crop following soybeans. The resulting oversupply of corn has led to low domestic corn prices in the region which have been below the cost of production for two growing seasons in a row.

In these areas of low domestic corn prices, ethanol producers saw an opportunity to add value to the corn by producing ethanol instead of paying the high transportation cost to move the corn to export markets. There are already two corn-based ethanol facilities in operation in Mato Grosso and three more are expected to start operations in 2015. In Mato Grosso do Sul, one facility is under construction and at least three more are planned. In addition, several traditional sugar mills in the region have been retrofitted to utilize corn to make ethanol during the rainy summer months when sugarcane is not available.

Using corn to make ethanol in Brazil offers some advantages over sugarcane. The biggest advantage for corn is that it can be grown over a wider area and corn can easily be stored for later use in making ethanol. Sugarcane must be grown close to the sugar mill and it must be used immediately after harvest. Sugarcane though offers its own advantages. It is cheaper to make ethanol from sugarcane and the residue from the sugarcane is used to make the electricity needed to operate the mill with the excess electricity sold back into the electrical grid.

Farm organizations in the center-west region of Brazil have been asking the federal government to take a more active role in promoting corn to make ethanol. They are appreciative of the fact that the government has spent hundreds of millions of reals on Pepro auctions where the price of corn is subsidized by the government, but with the right policies toward corn-based ethanol, the increased domestic demand for corn could support the corn prices thus eliminating the need for the subsidies. They cite the United States where 40% of the corn is used to produce the biofuel.

Another way to increase corn consumption would be through the growth of the livestock industry. But even with more meat production, there is still the problem of the high transportation costs getting the meat products to export facilities. On the other hand, the ethanol produced from corn would be utilized in the region and in neighboring states, thus limiting some of the transportation costs.