brazil to start corn based ethanol

[Hopperbin]

A ground breaking ceremony took place last week in the city of Chapadao do Sul in the state of Mato Grosso do Sul for the first corn-based ethanol production facility in Brazil. The project is a joint venture between POET and BioUrja Trading LLC (BioUrja do Brasil Agroindustrial). The first phase of construction is expected to cost US$ 150 million dollars and the Governor of Mato Grosso do Sul, Andre Puccinelli, and the CEO of BioUrja, Amit Bhandari, took part in the ceremony.Construction of the first phase will begin during the first semester of 2015 and initially the facility is expected to utilize 350,000 tons of corn annually in the production of 50 million liters of ethanol and dry distillers grain which will be sold locally for animal rations. The facility will create 150 jobs directly and 600 jobs indirectly. The proposed facility will be built on a 50 hectare site (123 acres). In addition to this facility, the company is interested in three other sites in the state for construction of three more corn-based ethanol production facilities.The corn crop in Mato Grosso and Mato Grosso do Sul is almost exclusively grown as a second crop following soybeans and farmers in the states have been so successful in adapting corn into their crop rotations that it is estimated that corn production in the state of Mato Grosso alone could hit 35 million tons within ten years. During the 2013/14 growing season, farmers in Mato Grosso and Mato Grosso do Sul produced 18.0 and 8.0 million tons of corn respectively.This excess of corn has led to a glut in the market and very low domestic corn prices. The domestic consumption of corn in Mato Grosso is only about 3 million tons, which means that a tremendous amount of corn must be transported out of the state to livestock producers or exporters in southern Brazil at very high transportation costs, which sometimes can exceed the price of the corn itself.There are two ways to increase domestic corn consumption in the center-west region of Brazil - increase livestock production that utilizes corn or use the corn to make ethanol. There are already several sugar mills in the center-west region of Brazil that have been retrofitted to utilize corn during the 3-4 months when sugarcane is not available, but the amount of corn utilized in this manner is very small. A much greater use of corn would be from corn-based ethanol production facilities.A study conducted by Celeres Consultoria looking at the viability of producing ethanol from corn in Mato Grosso indicated that a corn-based ethanol facility that costs US$ 69 million to build would pay for itself in five and a half years with a return on investment in the range of 10% to 25% depending on corn prices and ethanol prices. A study financed by the Mato Grosso Soybean and Corn Producers Association (Aprosoja), indicated that corn-based ethanol facilities could pay for themselves in six years with an annual return of 27%.

[Hopperbin]

Producing ethanol from corn is not the problem, it can be done cheaply and efficiently. The problem is the government's attitude toward the price of gasoline and the inefficient distribution system for ethanol in Brazil.Since ethanol contains 70% of the energy of gasoline, if the price of ethanol (E100) is more than 70% the price of gasoline (E25), it is more economical to use gasoline. Currently, the Brazilian government is very concerned about inflation and gasoline is a significant component of the inflation index. Therefore, the federal government has been artificially holding down the price of gasoline, which in turn holds down the price of ethanol. Additionally, this is a presidential election year in Brazil and the Brazilian president has put a heavy emphasis on controlling inflation especially after the government overspent for the World Cup. If the price of gasoline is not allowed to increase, then the price of ethanol cannot increase either.The state of Mato Grosso currently produces about one billion liters of ethanol per year from sugarcane and 60% of the ethanol is sold within the state and 40% is sold primarily in other states in northern Brazilian. The current market for ethanol is saturated and the way to increase ethanol consumption is to increase the price differential between ethanol and gasoline. If gasoline prices would increase, that would increase the ethanol prices as well and stimulate ethanol production.The other problem with ethanol production in Brazil is the inefficient manner in which it is distributed to consumers. Ethanol producers are not allowed to sell directly to consumers. Instead, they are required to sell to distributors who then in turn sell to consumers. This inefficient distribution system is one of the main drivers behind the cost of ethanol.Take for example the way in which ethanol is distributed within the state of Mato Grosso. The cost of producing sugarcane-based ethanol in Mato Grosso is approximately R$ 0.40 per liter. After all the taxes are included, the price of ethanol sold to the distributors is in the range of R$ 1.40 to 1.60 per liter. By the time the ethanol is sold to the consumer at the local gas stations, the prices have risen to R$ 2.05 to 2.45 per liter.In other words, the cost of distributing the ethanol is more than twice as much as it costs to produce the ethanol. In the production and marketing of ethanol, the biggest margins are realized by the distributors and transporters and not by the manufactures. The inefficiencies in distributing the ethanol is based on the requirement that ethanol can only be sold through distributors.A typical sugar mill in the interior of the state of Mato Grosso is obliged to sell their ethanol to a distributor who then transports the ethanol to the state capital of Cuiaba. At the capital, the ethanol is then sent right back to the town where it was produced. The expense of this "round trip" from the manufacturer to the capital and back again to the interior has only two benefactors - the distributor and the transporter who book profits going both directions.Hurdles for corn based ethanol in brazil. Again copy rite soybean and corn adviso