South America Calling

Signals that the Brazilian government will let fuel prices rise have encouraged cane ethanol producers in recent months.

In February, Brasilia allowed gas prices to rise R$0.22 per liter (2 cents per gallon), breaking with the strict controls of fuel prices to cap inflation. As ethanol is both a 27% gasoline fuel additive and a rival fuel, this has a direct impact on prices for the biofuel.

But the benefits of this will be offset by the continuing pressure on the price of sugar, the other main product derived from cane.

Meanwhile, the continued economic uncertainty, caused by the country's dire economic situation, means Brazilian cane processors are not investing just yet.

According to the Brazilian Sugarcane Industry Association (UNICA), replanting over the past year has not been sufficient to maintain yields of the five-year cycle crop. Only 14.5% of the crop will be first cut cane in 2015-16, which yields best, compared with 17.6% last year.

However, production will still likely bounce back from the drought-hit 2014-15 harvest. The top-producing center-south region is expected rise 3.3% to 590 million metric tons in the current 2015-16 season, Unica forecast last week.

The slight improvement in the outlook will certainly not be sufficient to pull the debt-ridden sector out of the doldrums. Some 80 cane processors have gone out of business over the last six years and another 10 could go to the wall this year.

The financial issues have led to an increase in the industry stake of multinationals, which have deeper pockets.

In 2014-15, multinationals processed 24% of the center-south crop, up from 16% five years before, according to research by Valor Economico, a local business daily.

Brazil is one of the biggest exporters and importers to and from the U.S. Exports have been well below demand in recent years, simply because of a lack of product.

(CZ)

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