Sep 25, 2018

Tough Times continue for Brazilian Sugarcane Producers

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

Soybeans are the number one crop in Brazil and while much attention has been focused on Brazilian soybean producers and the potential benefit they may receive from the trade dispute between the United States and China, another big sector of Brazilian agriculture continues to struggle with tough time - sugarcane producers.

Low sugar prices have forced dozens of sugar/ethanol mills to close their doors in recent years and the trend is expected to continue. The investment bank, Itau BBA, recently examined the financial health of 75 sugar/ethanol mills in south-central Brazil and concluded that 18 mills were not generating enough income to maintain operations. Another 22 mills probably will not be able to service their debt and still cover the expense of replanting their sugarcane.

Sugarcane is harvested annually and must be replanted after 5 or 6 harvests when the yields start to decline. Replanting is an expensive operation and the newly planted field does not generate any income for the first year. Some mills that are in financial distress try to extend the length of time between replanting, which results in even lower yields and further financial problems.

In recent years, some innovative mill operators have tried planting soybeans for one year between the sugarcane being replanted and they have reported good financial results. Additionally, some of the shuttered mills have converted their previous sugarcane fields to soybean production.

At one point, there were more than 400 sugar/ethanol mills in Brazil, but dozens of the smaller and inefficient mills have closed in recent years.

One sugar/ethanol mill that has actually expanded in recent years is the Sao Martinho mill in the state of Sao Paulo, which is the world's largest sugar mill with a capacity to process 10 million tons of sugarcane annually.

The mill processes the sugarcane produced on 135,000 hectares (333,400 acres), divided between the mill's own sugarcane and sugarcane provided by suppliers. Since producing and processing sugarcane is a complicated process, mill owners generally like to control all aspects of production from planting to processing. The mill rents land from neighboring farmers and the mill handles all aspects of production.

The Sao Martinho mill is so large in fact, they have partnered with Cash IH in developing new and more efficient mechanical harvesters. The mill in fact, utilizes 68 harvesters on a daily basis during the 240 days of harvest. In order to keep the mill operating efficiently, a truck carrying sugarcane must arrive at the mill every two minutes.

Nearly all the sugarcane in Brazil is now mechanically harvested. The change from hand harvesting to mechanical harvesting was mandated due to environmental concerns. When the sugarcane was hand harvested, the dry leaves had to be burned off prior to the workers entering the field. The resulting smoke left a blue haze in the atmosphere for months on end resulting in respiratory problems for nearby residents.

Mechanical harvesting leaves approximately 15 to 20 tons of dry material per hectare on the soil instead of being burned off, which actually helps to improve the soil fertility over time.