Last year, the Brazilian government announced a tariff rate quota for ethanol imports, where imports in excess of 600 million liters (roughly 158.5 million gallons) are subject to a 20% tariff. Many analysts in the industry feared this would adversely impact U.S. ethanol demand. However, U.S. ethanol has been priced so low that it is still an economical alternative in Brazil. Currently, ethanol is running around $1.50 per gallon at the Gulf Coast Ports in the U.S., while ethanol in Brazil is just over +$2.30 per gallon. Demand for ethanol in Brazil is robust because of widespread use of flex-fuel vehicles and a mandate requiring a minimum of a 27% ethanol blend in gasoline. Due to price competitiveness and strong demand, Brazil, the second largest global ethanol producer, is also the largest overseas buyer of U.S. ethanol. An interesting insight is the internal distribution of ethanol in Brazil. Keep in mind tha most ethanol mills are located in the sugar producing areas of southern Brazil because, as you know most of Brazil’s ethanol is sugar-based, not corn based like U.S. ethanol. Because of infrastructure constraints, it is cheaper to ship ethanol by boat from the U.S. to the northern regions of Brazil than by conventional overland transport through Brazil. It’s worth noting that some new ethanol mills have been built recently in Brazil’s northern corn-producing regions. With Brazil looking to expand their corn ethanol production, there are some arguing it will eventually cause U.S. ethanol supplies to become less and less competitive. As with everything, time will tell… (Source: USDA, Feed Outlook)
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