Hit by the collapse of biofuel prices and record domestic corn prices, Brazil's growing ethanol sector is releasing some of its corn stocks to meet strong domestic demand, hoping that the imminent off-season corn harvest will allow it to recover, market sources said.
The move could bring relief to smoldering domestic prices, with some regions seeing consistently high prices as stocks have been depleted - despite Brazil harvesting a record harvest of 100 million tonnes of corn last year.
“Taking into account the drop in ethanol prices around the world, especially affecting major US facilities, we hear that some Brazilian ethanol plants are selling up to BRL50/kg of corn in cash, to take advantage of high prices amid narrow margins due to oil Victor Martins, from Agrinvest in Paraná, told Agricensus.
The move comes as measures across the world to curb the spread of the Covid-19 coronavirus have led to the imposition of lockdowns that expect demand for road fuels to collapse as huge sections of the global population are told to stay at home.
“I heard some guys here saying that corn offers are starting to appear – guys who bought corn for ethanol production and are now selling the product because it’s a better deal,” said Geraldo Isoldi, from H. Commcor Dvtm, to Agricensus.
“This strategy makes sense because industries can resell their stocks back to the market for a price higher than BRL39 per bag and repurchase that amount in the near future for a better and lower price,” said Martins, with ethanol installations lasting up to 70 days supply in stock.
“Taking into account that ethanol facilities will face less fierce competition from exports, due to the slow commitment to exports, the plant presents less risk of recovering soon,” said Martins, although there are fears about how robust the second harvest will be. of corn in the country can be .
With corn later planted in many states, the country is unlikely to replicate last year's performance, although Mato Grosso, the largest corn-producing state in which many of the new facilities are being built, will likely deliver a record harvest of 34 million of tons.
However, supply fears have seen domestic prices set consistent new highs in recent weeks after the country's huge corn harvest fueled a massive export program, while rising meat demand has boosted the country's feed consumption.
This appears to have depleted corn stocks in Brazil and fueled a favorable outlook.
Sao Paulo university's agricultural unit, Cepea, quoted its corn index at BRL59.49 per 60kg bag overnight, which equates to about US$$199/mt and just slightly below the record set on Tuesday BRL59.55 / bag.
Domestic prices are even higher, with the CIF Campinas market, located about 100 kilometers north of São Paulo, at an all-time high of BRL63/bag.
Expectations surrounding the expansion of Brazil's corn-based ethanol sector in the coming months have helped fuel stronger domestic pricing, as Brazil faces growing domestic demand for food and energy.
Brazil is expected to produce 35.5 billion liters of ethanol in 2019/20, an increase of 7.2% on the previous year, with the volume – around 33.5 billion liters – coming from the sugar sector and long-established ethanol.
While sugarcane-based ethanol is expected to grow by 4.6%, it is the corn-based ethanol sector that is growing rapidly, with its contribution of 1.69 billion liters, an increase of 114% from the previous year, according to the source of the market.
Source: Agricensus
