Analysis: Brazil Ethanol Returns to US as Biofuel Rules Pave Way
by Reese Ewing (Reuters) Brazilian ethanol is rushing back into the United States after a three-year ebb, drawn less by the severe drought that has inflated corn costs than by biofuel regulations that could more than triple next year’s shipments.
Even as corn prices shot to record highs above $8 a bushel while sugar futures languished at near two-year lows of 19 cents per lb, Brazil’s sugar-based ethanol production was still more costly than U.S. corn-based domestic supply, traders say.
Brazilian ethanol is competitive in the U.S. market, thanks only to credits from the U.S. Environmental Protection Agency, which requires that fuel companies use 500 million gallons (1.9 billion liters) of so-called advanced biofuels to blend into gasoline this year. The EPA recognized Brazilian ethanol as advanced in February 2010.
… Without that subsidy, Brazilian ethanol now arriving in New York Harbor at $2.98 per gallon would not compete with U.S. corn-based ethanol at $2.60 per gallon, traders say.
The cost of U.S. corn-based ethanol will need to rise further to make Brazilian ethanol competitive if RINs weaken.
…Brazil cannot fully meet its domestic demand at present due to drought and poor investment in its cane belt. The government reduced the blend of anhydrous ethanol in gasoline almost a year ago from 25 percent to the current 20 percent. And officials are keen to raise the blend again as soon as they deem supplies sufficient to support local demand without stoking inflation.
Moreover, the country imported 1.2 billion liters (320,000 gallons) of U.S. corn-based ethanol in 2011 to supplement domestic demand for the fuel, but that trade dried up after the drought ravaged the North American corn crop. READ MORE