by Staff Writers
New York NY (SPX) Mar 08, 2012
A new report from Rabobank's global Food and Agribusiness Research and Advisory department on the future of ethanol provides a look at recent developments and current situations in both the Brazilian and United States markets, and perspectives for 2012 and beyond.
Although these developments improve Brazil's access to the U.S. ethanol market in 2012, the reality is that the Brazilian cane industry may struggle to fully satisfy even its own domestic demand in 2012 owing to a sharp downturn in cane production and an uncertain outlook for output growth. Brazil became the leading importer of ethanol from the U.S. in 2011, a situation many would have considered unthinkable only a few years ago.
+ U.S. ethanol production above the 15 billion gallon mandate level will face volatile economics related to the spread between oil and corn prices. And, if corn prices increase sharply, U.S. lawmakers may scale back the mandate during periods of low corn stocks-to-use.
David C. Nelson, Global Strategist for Grains and Oilseeds with Rabobank's Food and Agribusiness Research and Advisory group, says, "Despite the expiration of the tax credit and currently negative margins, we expect U.S. ethanol production to increase slightly in 2012 as an increase in mandated levels of production offsets what we expect to be a decline in exports.
The outlook for exports is heavily dependent upon what happens with the sugar crop in Brazil, the U.S.'s biggest export competitor. Rabobank's outlook for higher U.S. ethanol production is also predicated on regulatory approval for E15. If E15 is adopted by just 10 Midwest states, that will alleviate current blend wall restrictions."
+ The most important short and medium term challenge for the Brazilian cane industry is bringing field productivity back to normal levels.
+ Using 2011/12 output as a base, the Brazilian cane industry has scope to boost cane production and processing by close to 130 million tonnes in order to maximize utilization of current installed capacity, while brown field expansion in the coming years could add anywhere between 62 and 125 million additional tonnes of capacity.
Andy Duff, Global Strategist for Sugar and Head of Rabobank's Food and Agribusiness Research and Advisory Group in Brazil, says, "Rabobank believes that the abolition of the US import tariff on ethanol represents a significant opportunity for the Brazilian cane sector in the medium to long term. However, in the next few years the focus of the Brazilian industry is likely to be keeping up with the growth of potential consumption in the domestic market, which will continue to rise as a result of expansion of the flex-fuel fleet."
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