May 15, 2014

Sugarcane Producers want Brazil Gov. to Increase Price of Gasoline

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

Sugarcane producers in Brazil continue to be frustrated by the federal government desire to artificially hold down the price of gasoline in an effort to control inflation at the expense of the sugarcane sector. As a result, more sugar/ethanol mills are expected to close their doors at the end of the 2014 harvest season. According to the Union of Sugarcane Industries (Unica), ten more sugar mills are expected to close their doors before the end of 2014 and another 30 mills are expected to go into managed bankruptcy by the end of the year.

The problem is that ethanol demand and ethanol prices are tied directly to the price of gasoline in Brazil. Brazilian motorists who have flex fuel vehicles can choose to fill their tanks with gasoline that contains 25% ethanol (E25) or with pure ethanol (E100). Since ethanol contains 70% of the energy contained in gasoline, if the price of ethanol is more than 70% the price of gasoline, it is more economical to purchase gasoline (E25). Conversely, if ethanol is less than 70% the price of gasoline, it is more economical to use pure ethanol (E100).

In recent years the federal government has been artificially holding down the price of gasoline in an effort to control rising inflation in Brazil. By holding down the price of gasoline, the government is also holding down the price of ethanol and the demand for ethanol as well. As a result, many of the more inefficient sugar mills have had to close their doors and many others are operating in the red.

Sugarcane producers and processors have pleaded with the federal government in recent years to adjust their gasoline price control policies, but to little avail. President Rousseff is up for reelection later this year and growers are hoping that after the presidential elections the government will relax its policy of artificially holding down the price of gasoline. If the price of gasoline is allowed to rise, then it would lift demand for ethanol and hopefully ethanol prices.

New practice adopted of sugarcane/soybean crop rotation.

In the meantime, producers continue to try to improve their sugarcane production practices. One of the newest trends in sugarcane production has been a short term rotation with soybeans when the sugarcane is being renovated. A field of sugarcane needs to be replanted every 5 or 6 years in order to maintain the crop’s productivity. In previous years, the normal practice was to plow up the field after the last harvest, prepare the soil and then to plant a new crop of sugarcane. During this process there could be large amounts of soil erosion and a general loss of fertility of the soil.

In order to combat both of these problems, some producers are now planting a no-till crop of soybeans directly into the sugarcane stubble. This helps to control erosion by keeping the soil covered with residue, it maintains the fertility of the soil by retaining organic matter, it increases water infiltration, and the soybeans add nitrogen back to the soil for the next sugarcane crop. In addition, the soybean crop provides revenue that helps to defray the cost of renovating the sugarcane.

The one thing farmers must be careful about is to insure good seed-soil contact so that there is a high level of germination. This practice of rotating sugarcane and soybeans has caught on quickly and it is being adopted by many sugarcane producers across Brazil.