Brazil's ethanol prices jump on harvest delays, strong demand

Brazilian ethanol prices jumped as much as 15 percent in the last week, the largest weekly gains since 2010, as strong demand by fuel distributors ahead of a national holiday met reduced offers by mills struggling to kick off harvesting of the new cane crop.
According to Cepea/Esalq, an agricultural research center at the University of Sao Paulo, average prices for hydrous ethanol last week in Sao Paulo state, Brazil's largest fuel market, were at 1.896 reais ($0.4860) per liter (paid to producer, before taxes), 15.07 percent more than in the previous week.
Hydrous ethanol competes directly with gasoline at pumps in Brazil, where most cars can run on either fuel.
"Ethanol supply was low, due to rains in the state, while fuel distributors were active buyers ahead of the Easter holiday," Cepea said in a note.
Rains over most cane producing regions in the last weeks hampered harvesting, reducing production at the start of the new season. There were also cases of mills waiting for better cane development before starting processing.
Plinio Nastari, chief analyst at Datagro consultancy, told Reuters that ethanol stocks in Brazil's center-south region, which were high during the December-March period between harvests, vanished quickly due to high demand for cheaper ethanol as gasoline prices continue to rise.
"There was a squeeze. Even with many mills operating 24 hours, they could not cope with the demand increase," he said.
João Paulo Botelho, a sugar and ethanol analyst at INTL FCStone, said gasoline prices jumped 15 percent in a month at refineries, further increasing the price gap to ethanol.
He expects the situation to persist since he believes Brazil's state-controlled oil company, Petrobras, still has some price increases for gasoline in the pipeline. Nastari said the situation is likely to lead mills to sharply favor ethanol over sugar when defining production strategy at the outset of harvest.
Mills have some flexibility to switch production to sugar or ethanol, depending on prices. They allocated a record-low 35 percent of cane to sugar production in the last crop, due to low global prices for the sweetener.
Datagro estimates that on April 15, for example, ethanol was giving mills a return on sales equivalent to sugar priced at 15.32 cents per pound, far above current New York futures that closed on Tuesday at 12.51 cents per pound.