Monday, November 1, 2010

Same Weight, Two Measures: Low U.S. Dollar Allows the U.S. to Export More Ethanol Than Brazil!

Remember all the protectionist measures and campaigns in the U.S. against Brazilian Ethanol? Now we know what they were for.

The unthinkable is happening: Due to the very low U.S. dollar, and the correspondingly high Brazilian Real, the U.S. is now exporting more Ethanol than Brazil. It is even exporting to Brazil! What is worse, is that the U.S. ethanol comes from corn, one of the worst possible and most ineffcient foods to use, unlike Brazil's sugar cane.
Newspaper O Estado de Sao Paulo reports that Brazil's sales of Ethanol  were overrun in the first half of 2010 by the United States. Analysts have already pointed out that U.S. manufacturing is increasingly competitive and ready to compete in the international market with Brazil. The very weak dollar, large investments, and proteccionists measures have begun to pay dividends for the U.S.. If it were another country doing it to the U.S. it would be a big scandal. Imagine if it were China.

The World Congress of Ethanol is discussing the scenarios for the coming years in Geneva, where some of the key players in the sector will meet. In Brazil, the Union of Sugar Cane Industry (UNICA) has signaled that he may resort to the World Trade Organization (WTO) to ensure the export of ethanol to the United States and Europe. The fear is that rules for imports of biofuels in these countries could affect the competitiveness of Brazilian ethanol.

Organizers estimate that the ethanol production will grow by 12% in 2010 after two years of deep crisis. But the big news this year is that the U.S.  has already exported the same volume that is sold around the year 2009. Through September, sales had reached more than 700 million liters to other countries. The country was already the largest producer of ethanol, however, it consumed much of the production.

In February, the U.S. gave the first signs of what could become a leader in the industry. That month, it exported they 151 million liters of fuel, according to data from FO Licht's. That same month, Brazilian sales abroad had fallen to 120 million liters.

What seemed like a momentary situation was repeated in subsequent months, with Americans exporting over 200 million gallons of corn ethanol per month. Part of this expansion was due to heavy investment. In late 2006, U.S. production capacity was 4.7 billion gallons per year. In 2009 the volume had reached 13.8 billion gallons, equivalent to 52.1 billion liters.

The U.S. production cost is now one of the lowest, after the record harvest of corn in 2007 and 2008. Two years ago, the only cost to the corn to produce one gallon (3.78 liters) of ethanol in the U.S. was $ 1.29. From January to May, that fell to just $ 0.87 per gallon. The total production cost for a gallon of ethanol has dropped from over $ 2.00 in 2008 to just $ 1.30 this year. The result was a greater export competitiveness.

According to F.O. Licht, another factor was: the devaluation of the U.S. dollar. The trend ended up helping U.S. exporters to gain market share. Today, 32% of U.S. exports go to Europe, up from 18% to 15% Canada and Japan to Brazil is the sixth largest importer of U.S. ethanol, consuming 5% of the total volume sold by the Americans.
What's troubling is that if the Americans continue the expansion rate to stagnate and Brazil with 1.2 billion liters, as seems to be the case until 2013, Americans could definitively overcome Brazilian's export.
Same weight, two measures indeed.

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