November 16, 2017

Brazil's "Flex Fuel" Sugar/Ethanol Mills operate Year Round

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

Operators of Brazil's sugar/ethanol mills are closely monitoring the success of "flex-fuel" mills that have been retrofitted to utilize corn to make ethanol during the period of the year when sugarcane is not available. Brazil now has 6 "flex-fuel" mills that can utilize both sugarcane and corn with an additional 3 more to be built in Mato Grosso.

The advantage of these facilities is that they do not need to shut down when sugarcane is not available. In the main sugarcane region of Brazil, the sugarcane is harvested between April and mid-December. Between mid-December and early April, which is the rainy season in Brazil, the mechanical harvesters cannot get into the fields due to wet soil conditions. Traditionally during this three month period, the mills would shut down to conduct annual maintenance

In contrast, the "flex fuel" mills generally keep producing ethanol year round by switching over to corn instead of sugarcane. They may still close down for a short period of time (15 days) to conduct maintenance, but generally they operate year round.

The first "flex fuel" mill in Brazil opened in 2012 and the mill operators are reporting very favorable results especially in areas where there is a surplus of corn such as in the states of Mato Grosso, Mato Grosso do Sul, and Goias.

Some mill owners are still wary of the investment needed to retrofit their mills due to the uncertainty of future ethanol demand. The demand for ethanol in Brazil has been volatile in recent years due to the price of gasoline. Ethanol must compete directly with gasoline at the pump because nearly all new cars in Brazil are "flex-fuel" vehicles that can use either 100% ethanol or gasoline mixed with ethanol and every gas station in Brazil has 100% ethanol pumps. Ethanol contains about 70% of the energy of gasoline, so there is an advantage to use 100% ethanol whenever the price of ethanol is 70% or less compared to the price of gasoline.

Ethanol and biodiesel producers in Brazil have been pressuring the federal government to move more quickly in adopting policies that will increase the demand for both fuels. Brazil's biodiesel industry has excess capacity that could easily meet an increased demand for the fuel. Additionally, dozens of sugar/ethanol mills have closed down in recent years due to low ethanol prices caused by low oil prices. Ethanol producers would love to see an increase in oil prices which would allow them to pass along higher ethanol prices.