U.S., Brazil expected to constrain ethanol output in coming months
22/06/2021 06:00
By Stephanie Kelly, Marcelo Teixeira and Mark Weinraub
NEW YORK, June 22 (Reuters) - The United States and Brazil,
the world's top two ethanol producers, are expected to hold down
production in coming months because of the surging cost of corn
and sugar.
Tight corn and sugar supplies are passing through to ethanol
costs, making producers reluctant to raise production, and
boosting gasoline prices as well. The United States and Brazil
are the linchpins of worldwide ethanol supply, accounting for
75% of global ethanol exports last year, according to S&P Global
Platts Analytics.
U.S. gasoline prices on average are above $3 per gallon for
the first time since 2014, American Automobile Association data
shows, while prices in Brazil are at 5.40 reais per liter ($4.06
per gallon) in June in Sao Paulo state, near all-time highs.
Ethanol usually helps lower gasoline prices, said Scott
Irwin, a professor at the University of Illinois, as it tends to
be an inexpensive source of needed octane for gasoline. However,
at current market prices, ethanol is actually adding to
gasoline's cost.
U.S. corn futures Cc1 recently reached highs not seen
since 2013, while ethanol prices 1ZEc1 hit their highest level
since 2014, according to Refinitiv Eikon data.
U.S. ethanol production has rebounded from a low of 537,000
barrels per day in April to roughly 1 million bpd, Energy
Information Administration data shows, but market signals
suggest further growth will be slow.
Cash bids for corn fell at ethanol plants across the U.S.
Midwest during May, and the prices that dealers were offering
for delivery in the summer months were even lower.
"We do expect ethanol production this summer to slightly lag
the output rates we saw during the summers of 2019 and 2018, and
high corn prices and regionally tight corn supplies are a major
reason for that," said Geoff Cooper, president of the Renewable
Fuels Association, a U.S. biofuels trade group.
Ethanol producers are expected to buy 5.2 billion bushels of
corn for the coming year, which would be the lowest in any
nonpandemic-affected year since 2013-2014, according to USDA
data.
High exports will likely keep corn supplies tight in coming
months, largely due to demand from China. U.S. corn supplies are
expected to fall to an eight-year low prior to the coming
harvest in September, the U.S. Agriculture Department said.
Margins to produce ethanol in the U.S. Corn Belt
ETH-CB-REF are relatively healthy at 13 cents per gallon,
Refinitiv Eikon data showed, as fuel demand returns after the
pandemic. But many producers still at reduced rates are unlikely
to ramp up output because of corn costs, Cooper said.
BRAZILIAN SWITCH
Brazilian mills, meanwhile, are dealing with a drought-hit
sugar cane crop. Ethanol prices at mills in Brazil are near
their highest ever at over 3.40 reais per liter ($2.55 per
gallon), according to the University of Sao Paulo (USP). Since
fuel distributors need to add 27% of ethanol to gasoline, that
has driven up prices.
Drivers are expected to use more gasoline with less
sugar-based ethanol available, as many automobiles there can
alternate fuels.
"Hydrous ethanol will lose share to gasoline," said Luiz
Gustavo Figueiredo, a director at Alta Mogiana mill in Brazil,
referring to the ethanol used by flex-fuel cars.
Brazil's sugar cane crop is expected to contract by 7% this
year due to droughts. With less cane, mills will favor sugar
over ethanol in their production mix, analysts say. urn:newsml:reuters.com:*:nL1N2MQ175
Fuel retailers have asked the government to cut ethanol
blending requirements to lower costs. urn:newsml:reuters.com:*:nL1N2N11YN
"Ethanol can be the one suffering the consequences of a
smaller crop," said Bruno Lima, sugar and ethanol head at broker
StoneX, which projects a 6% fall in biofuel production to 28.5
billion liters.
(Reporting by Stephanie Kelly and Marcelo Teixeira in New York
and Mark Weinraub in Chicago
Editing by Matthew Lewis)
((Stephanie.Kelly@thomsonreuters.com
+1 646-223-4471; Reuters Messaging:
stephanie.kelly.thomsonreuters.com@reuters.net))