South America Calling
Alastair Stewart South America Correspondent

Thursday 02/06/14

Brazil's Corn Surplus and Ethanol

Brazil has made great strides in the production of corn as a second crop after soybeans.

Output has grown fourfold over the last 10 years and is expected to reach 41 million metric tons (mmt) in 2013-14

However, this growth has put a strain on Brazil's overstretched infrastructure, causing freight prices to rise sharply and local corn prices to slump post-harvest in Mato Grosso, where productive regions are far from port.

One solution to the logistics problem is the conversion of corn to ethanol

Currently, there are two corn ethanol plants in Mato Grosso -- Usimat and Libra -- but investors are looking at building others.

If ethanol production from corn does grow in the region, it will further stimulate second-crop corn and also reduce availability for export.

But how economically viable is producing ethanol from corn in Brazil, which already produces vast quantities of the biofuel from sugarcane?

The answer, according to an FC Stone study reported in Valor Economico, a local business daily, is that it is in Mato Grosso and neighboring regions.

The consultancy estimates it costs R$241 million ($100 million) to build a corn ethanol plant with a capacity of 580,000 tons per year from scratch in Mato Grosso but the project would have a return on investment of 28% per year, based on a corn price of R$14.70 per 60-kilogram bag ($2.60 per bushel) -- an average of recent seasons.

However, the closer you get to the southeast, home to ports, large-scale meat production and sugarcane ethanol plants, the returns on investment for corn ethanol start to shrink. In Goias state, which has major protein production and a significant number of sugarcane-fed distilleries, the return on investment is just 5.4% per year, estimates FC Stone.

If all surplus corn in Mato Grosso, Goias and Mato Grosso do Sul states were converted into ethanol this season, it would produce some 2.6 billion liters, or 10% of total Brazilian production. Production on this scale isn't going to happen anytime soon, but incremental growth is a possibility in the coming years.

(AG)

Posted at 4:19PM CST 02/06/14 by Alastair Stewart
Comments (1)
28% return? When can I own shares in that project?
Posted by Roger Cooper at 7:06PM CST 02/06/14
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