Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Samsung Galaxy S20+ vs Galaxy S10+ Which One to Buy? - 26th Feb 20
Gold Is Taking on $1,700 amid Rising Coronavirus Fears - 26th Feb 20
Is This What Falling Through the Floor Looks Like in Stocks? - 26th Feb 20
Gold Minsky Moment Coming - 26th Feb 20
Why Every Student Should Study Economics - 26th Feb 20
Stock Market Correction Over? - 26th Feb 20
US Bond Market Yield Curve Patterns – What To Expect In 2020 - 25th Feb 20
Has Stock Market Waterfall Event Started Or A Buying Opportunity? - 25th Feb 20
Coronavirus IN Sheffield! Royal Hallamshire Hospital treating 2 infected Patients, UK - 25th Feb 20
Dow Short-term Trend Analysis - Coronavirus Trigger a Stocks Bear Market? - 24th Feb 20
Sustained Silver Rally Coming? - 24th Feb 20
Should Investors Worry about Repo Market and Buy Gold? - 24th Feb 20
Are FANG Technology Stocks Setting Up For A Market Crash? - 24th Feb 20
Gold Above $1,600 Amid FOMC Minutes and Coronavirus Impact - 24th Feb 20
CoronaVirus Pandemic Day 76 Trend Forecast Update - Infected 540k, Minus China 1715, Deaths 4920 - 23rd Feb 20 -
Ways to Find Startup Capital - 23rd Feb 20
Stock Market Deviation from Overall Outlook for 2020 - 22nd Feb 20
The Shanghai Composite and Coronavirus: A Revealing Perspective - 22nd Feb 20
Baltic Dry, Copper, Oil, Tech and China Continue Call for Stock Market Crash Soon - 22nd Feb 20
Gold Warning – This is Not a Buying Opportunity - 22nd Feb 20
Is The Technology Sector FANG Stocks Setting Up For A Market Crash? - 22nd Feb 20
Coronavirus China Infection Statistics Analysis, Probability Forecasts 1/2 Million Infected - 21st Feb 20
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Brazilian Ethanol – Not the Solution But Part of the Energy Solution

Commodities / Ethanol Oct 03, 2007 - 01:31 PM GMT

By: David_Urban

Commodities

Best Financial Markets Analysis ArticleWorldwide, the United States is the largest producer of ethanol with Brazil running in second place. Brazil is the largest exporter with significant land available to ramp up production.

Ethanol in Brazil started in 1975 when the military government started a program which gave consumers tax breaks if they purchased ethanol-powered cars and fixed prices and purchased farmers production. The government also invested in research which has improved the yields three-fold in the past 30 years.


Fast forward to 2003 and President Lula cut taxes on ethanol and gave tax breaks to makers of flex-fuel cars. Today, more than 12 percent of the cars on the road in Brazil can be powered by biofuel and more than 80% of all new car purchases are flex-fuel vehicles.

Significant foreign investors are getting involved as well. George Soros has purchased a stake in Adeco Agropecuaria SA, a Buenos Ares-based agriculture company producing ethanol in South America . According to Soros , Brazil can ramp up production to supply ethanol to the world as the country has an area the size of the UK free to plant sugar cane without competition from other crops.

Brazilian Renewable Energy Company Ltd. closed on a $151 million dollar private placement with prominent shareholders like US supermarket magnate Ron Burkle, AOL founder Steven Case, and former World Bank President James Wolfensohn. The company is headed by Philippe Reichstul, former CEO of Petroleos Brasileiro SA.

In terms of comparing the United States and corn to Brazil and sugarcane one first starts with crop yields where corn is planted and harvested every year whereas sugarcane provides five cuttings over six years before being replanted. 5 times the amount of sugarcane to corn in terms of weight (100 lbs. to 20 lbs.) is needed to produce one gallon of ethanol but in terms of crop yield per acre, sugarcane out yields corn by a factor of 8:1. This means that in the end an acre of sugarcane produces 650 gallons of ethanol while corn produces 400 gallons.

If the United States were to increase the acreage of corn it would come at the expense of other crops while Brazil has the available land to expand sugarcane acreage. Brazil can convert 250 million acres of degraded pastureland to sugarcane production along with 225 million acres of savannah. If all 475 million acres were converted it is estimated that Brazil will be able to produce enough ethanol than when converted to gasoline (ethanol has only about 67% of the energy of gasoline) will produce the equivalent energy of 205 billion gallons of gasoline. As a point of comparison, the United States consumes approximately 120 billion gallons of gasoline per year.

Harvesting sugarcane is a very labor intensive process which means that the process is open to future efficiency gains from process industrialization. During the ethanol creation process a fibrous waste material called bagasse is created. Burning the bagasse in the facility allows for the creation of electricity which powers the plant. By burning bagasse, the process becomes self-sufficient in energy whereas the corn in the United States is harvested by gasoline burning equipment.

Brazil exports 20% of their production with the United States accounting for one-third of the exports with Japan and India consuming most of the rest. The Netherlands , Japan and Sweden are interested in increasing their imports of Brazilian ethanol to meet Kyoto treaty requirements.

Brazil 's sugar cane based ethanol sells for as little as $1.14 per gallon making Brazil a low cost producer of ethanol on the global market. Brazil has no subsidies or import tariffs on ethanol while the United States has a $0.51 per gallon subsidy and $0.54 per gallon import tariff. The import tariff was established in 1980.

Ethanol barons have enlisted Lula to help finance an expansion in ethanol producing plants. Brazil 's National Bank for Economic and Social Development is reviewing a request for $3.5 billion in new loans at a preferred interest rate as low as 8.55% in contrast to the market rate of 11.25%. During the four year period from 2003 to 2006, the bank lent $2.34 billion to the sugarcane industry.

The US has goals of switching over to ethanol but there is not enough farmland in the US to produce the amount of corn required. The current protectionist tariff is hindering the transformation from oil to ethanol as Brazilian ethanol can help hold back any significant increase in demand.

The United States has significant disadvantages when compared to Brazil . First, while the amount of available cropland is significant our growing season is not year round. Second, the amount of gasoline consumption in the United States is far greater than Brazil which makes any complete switchover challenging. However, given the state of world affairs, our dependence on light sweet crude oil from Nigeria , the inability to significantly expand productive capacity, and our inability to control demand a switchover to fuels like diesel and biofuels is inevitable. Brazilian ethanol will not completely solve the problems of the United States or make us energy independent but it is a start.

The key takeaway is that while Brazilian ethanol is not the solution for the energy needs of the United States , increased exports to foreign countries like the Netherlands , Japan , and India whose oil dependence is far less can be very profitable for investors going forward. Brazil 's sugarcane industry is still highly fragmented with the largest player holding a market share of almost 9%, more than 3 times their nearest competitor. It is likely that one or two producers will create a wave of consolidation which will create global players capable of better serving the world's ethanol needs in the future. For smaller countries with less total demand ethanol can play a major part in reducing the countries energy needs. For larger countries with significant demand, ethanol can play a key role in shaping the countries energy future.

Sugarcane based ethanol is a low cost alternative with a bright future ahead.

Sources: ‘Energy Agriculture – Brazilian ethanol', Dan Hofstrand, AgDM newletter article, June 2007.

‘Ethanol Boom draws Prominent Investors,' International Herald Tribune, March 16, 2007 .

‘ Brazil Ethanol Boom Belied by Diseased Lungs Among Cane Workers,' Michael Smith and Carlos Caminada. September 28, 2007 , www.Bloomberg.com.

1Q08 Investor and Analyst Presentation, www.cosan.com .

By David Urban

http://blog.myspace.com/global112

Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This blog and the author is not responsible for typographic errors or other inaccuracies in the content. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided "AS IS" without any warranty of any kind. Past results are not indicative of future results.

PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile.

David Urban Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules