A difficult 2021-22 center-south sugar cane crop cycle has highlighted the resilience of Brazil's ethanol sector in the face of challenging economics and operating circumstances, beating worst-case scenario projections despite production losses.
But the sector may need to call on those qualities in the coming crop cycle, as the threats of Covid-19-induced demand and supply chain disruptions, combined with increasingly volatile weather conditions, show no signs of fading.
The center-south 2021-22 sugar cane harvest is proving to be one of the most challenging seasons on record. The first part of the year saw Covid-19 pandemic measures severely capping motor fuels demand. In the following months extreme weather condition severely reduced the amount of feedstock available for processing, raising fears of biofuel shortages and growing imports to offset the limited domestic supply.
On top of a prolonged drought — the worst in almost a century — the sugarcane crop was hurt by three waves of frost in July that constrained cane crushing in most of the country's main producing states. Several states also endured record-breaking wildfires in October.
Under normal conditions, center-south sugarcane processing typically ends in mid-November, but most mills in the country's main ethanol-producing region, ranging from Mato Grosso to Parana states, had already finished crushing activities by late October because of the smaller crop.
Still, the industry has built up enough inventory to meet anhydrous ethanol demand despite this season's truncated center-south sugarcane harvest.
Some mills shifted production to increase the share of anhydrous ethanol in the mix, to ensure sufficient domestic supply to honor contracts and the mandatory blend in gasoline. Others reprocessed hydrous ethanol into anhydrous by removing water so it can be blended into gasoline.
The impact on hydrous supply was offset by lower sales as drivers continued to prefer gasoline over pure ethanol at the pump. In Brazil, hydrous ethanol is used as a standalone biofuel, E100. Consumers with flex-fuel vehicles can fill their tanks with either gasoline, which has a mandatory blend of 27pc anhydrous ethanol, or hydrous.
Weather sparks concerns for 2022
Brazilian cane producers, turning to 2022, are faced with repeats of the previous challenges, but with the outcomes largely out of their hands.
The ongoing expectations for extreme weather conditions to become the new norm will continue to challenge feedstock availability. The continuing uncertainty of the length of the pandemic makes managing those climate risks effectively even harder from both a financial and domestic supply security perspective.
Nonetheless, producers' success in juggling the many supply shortage issues in 2021 gives further guarantees of a new balanced crop, even with sugarcane fields still under pressure from weather events.
SCA ethanol trading house expects mills in the center-south region to crush 547mn t of cane in the 2022-23 season, up 4pc from 525mn t in the current 2021-22 harvest. Ethanol production is seen reaching 28.78bn l (495,947 b/d), up 5pc from 27.52bn l.
But other projections are not so sweet. The harsh weather conditions and fires seen in 2021 have compromised planting activities and damaged sugar cane roots, possibly holding back yields in the 2022-23 crop season, according to industry group Unica.
A smaller crop suggests a difficult year for Brazilian cane producers, and the industry may have to choose between prioritizing sugar or ethanol.
Some market sources see the potential for mills to start prioritizing ethanol production over sugar next season after favoring the sweetener over the past two crops, reflecting higher oil prices, higher Indian sugar exports and a weaker local currency.
Corn-based ethanol could play a key role in offsetting declines in sugarcane-based production. Corn ethanol production in Brazil is poised to grow to 3.9bn l in the coming season, up 16pc from the 3.35bn l expected from the current harvest.
The corn-based biofuel has increased its share of the country's ethanol mix in recent years, mainly because of increased production capacity concentrated in the country's center-west, spread across Mato Grosso and Goias states.
