Brazil is reducing its mandate for ethanol in motor fuel, a step that could reduce an outlet for excess production of ethanol in the United States.

Brazil’s Ministry of Mines and Energy announced that the ethanol blending rate will be cut from 25 percent to 20 percent of motor fuel on October 1.  The ministry said the cut is aimed at ensuring adequate supplies of ethanol, which in Brazil is made from sugarcane.  The sugarcane crop in Brazil has been hit hard by bad weather, with the harvest down about 6 percent from last year, the Bloomberg news agency said, citing Brazilian government estimates. More than half the crop usually goes into ethanol.

If Brazilian demand slumps, the U.S. ethanol industry could take a hit, since Brazil is one of its major export markets. Canada and Europe are also major buyers.  The U.S. ethanol industry exported 127.4 million gallons in July, topping the record of 120.1 million gallons set as recently as April.  U.S. ethanol exports in the first half of 2011 were greater than in all of 2009 and 2010 combined and were expected to hit 900 million gallons for the full year.

Canada was the biggest expert market in July, taking 33.8 million gallons of U.S. ethanol.  Brazil was second with 16.8 million gallons.

Ethanol refineries in the United States currently have capacity of more than 14 billion gallons per year, according to the Renewable Fuels Association.  However, the U.S. mandated market is only 12.6 billion gallons in 2011, rising to 13.2 billion gallons in 2012, leaving the industry more than a billion gallons to sell this year in the open domestic market or in export markets.

U.S. ethanol makers are struggling with the rising price of corn.  It is vital to them to keep the cost of ethanol below that of gasoline, since otherwise there is no incentive for fuel companies to buy more ethanol than required by the federal Renewable Fuel Standard.

“We’ve been doing OK so far this year, but if ethanol prices rise above unleaded gasoline, then we’ll lose our margins,” said Brian Jennings, executive vice president for the American Coalition for Ethanol, at the group’s national convention in Des Moines, Iowa.

 

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