Brazil's ethanol sector unleashes corn stocks in safrinha gamble

Hit by collapsing biofuel prices and facing record domestic corn prices, Brazil’s burgeoning ethanol sector is releasing some of its corn stocks to meet strong domestic demand, hoping that the imminent safrinha corn harvest will enable it to replenish itself, market sources have said.

The move could bring relief to steamy domestic prices, with some regions reporting all-time high prices as stocks have been exhausted – despite Brazil harvesting a record 100 million mt corn crop last year.

“Taking into account the dip in ethanol prices all over the world, specially hurting major US facilities, we have heard that some Brazillian ethanol plants are selling up to BRL50/kg bag spot corn, to enjoy the high prices amidst narrow margins due to oil prices,” Victor Martins of Parana-based Agrinvest told Agricensus.

The move comes as worldwide measures to contain the spread of the Covid-19 coronavirus have led to the imposition of lockdowns that are expected to see demand for road fuels collapse as huge sections of the global population are instructed to stay at home.

“I heard around here that some guys saying that corn offers are starting to show up – guys who bought corn for ethanol production and are now selling the product because it's a better deal,” Geraldo Isoldi of H. Commcor Dvtm told Agricensus.

“This strategy makes sense because industries can resell their inventories back to the market for a price over BRL39 a bag and repurchase this amount in the near future for a better and lower price,” Martins said, with ethanol facilities typically holding up to 70 days supply in stock.

“Taking into account that ethanol facilities will face less fierce competition from exports, due to the slow export commitment, the plant carries less risk from rebuying soon,” Martins said, although there are some fears over how robust the country’s second corn crop could be.

With corn planted later in many states, the country is unlikely to replicate last year’s performance, although Mato Grosso, the biggest corn-producing state where many of the new facilities are being built, is likely to deliver a record 34 million mt crop.

Nonetheless, fears about supply have seen domestic prices establish consistent new highs over the last few weeks after the country’s huge corn harvest fostered a massive export programme while surging meat demand increased the country’s feed consumption.

That appears to have exhausted Brazil’s corn stocks and fed into a supportive outlook.

The agriculture unit of Sao Paulo university, Cepea, quoted its corn index at BRL59.49 per 60kg bag overnight, equating to around $199/mt and only slightly down from the record high set on Tuesday of BRL59.55/bag.

Inland prices are even higher, with the CIF Campinas market, located about 100 kilometres north of Sao Paulo, at an all-time high of BRL63/bag.

Expectations around the expansion of Brazil’s corn-based ethanol sector in the months ahead have helped feed into the stronger domestic price, as Brazil contends with booming domestic feed and energy demand.

Brazil is expected to produce 35.5 billion litres of ethanol in 2019/20, a 7.2% increase on the previous year, with the bulk – some 33.5 billion litres – coming from the country’s long-established sugar ethanol sector.

While sugarcane-based ethanol is expected to grow 4.6%, it is the corn-based ethanol sector that is growing rapidly, with its 1.69 billion litre contribution a 114% increase on the previous year according to the market source.