Ethanol Export Trends and Prospects
AgMRC Renewable Energy Newsletter
Dr. Robert Wisner
University Professor Emeritus and Biofuels Economist
Ag Marketing Resource Center
Iowa State University
While domestic use is the mainstay of the U.S. fuel ethanol industry, ethanol exports also are important to the industry due to demand constraints from the “Blend Wall.” Export demand offers a way to more fully utilize production capacity and can be a factor preventing the buildup of excessive stocks as well as helping to maintain the industry’s profitability. In this article, we examine trends in U.S. ethanol exports by destination, key foreign markets, factors that may affect future growth, and current and potential competition.
Ethanol Export History and Trends
U.S. ethanol exports go to more than two dozen different countries, although the largest destinations since 2010 have been Canada and Brazil. (i) The Netherlands and Mexico also have been regular importers of U.S. ethanol, although in much smaller volumes than Canada and Brazil, as shown in Figure 1. Small quantities exported to more than twenty other nations add up to a large additional market for the American ethanol. As the chart indicates, U.S. ethanol exports fluctuate substantially from month to month as inventories in importing nations are built up and then reduced. U.S. ethanol exports reached a peak in December 2011 with large exports to Brazil, Canada, and Europe. In 2012 and the first three months of 2013, drought–reduced U.S. corn supplies and record-high corn prices increased the cost of ethanol and led to sharply reduced exports. In the 2013-15 period, with much larger corn production and lower ethanol production costs, U.S. exports increased modestly but remained well below the earlier peak. At the 2014-15 annual export rate, ethanol exports create demand for an additional 440 million bushels of corn to be converted into ethanol and DDGS. With USDA’s September forecast of a U.S. average corn yield at 167.5 bushels per acre, these exports create demand for the corn from 2.6 million acres. The net corn acreage impact after adjusting for DDGs substitution for corn is an increase of approximately 2 million acres.
In addition to countries shown in Figure 1, U.S. ethanol is shipped to wide range of nations including China, Japan, several other European and other Latin American countries, Asia and Oceania, the Middle East, and Africa. The motive for purchases by Middle Eastern nations may be puzzling at first glance. However, possible reasons for ethanol demand in that region include clean air benefits and as a cost-effective method for increasing octane levels in gasoline.
Figure 2 gives a perspective on the trend in U.S. ethanol exports to various destinations for the July-June period of the last four years, including 2014-15. In this 4-year time period, exports increased to Asia and Oceania, the Middle East and the other countries that as a group are significant markets for U.S. ethanol. Exports to Brazil were variable, depending partly on the size of its sugar crop. They declined sharply after 2011-12. Canada has been a large and relatively stable export market for U.S. ethanol. While Mexico is a much smaller ethanol import market than Canada, its U.S. imports have remained in a relatively narrow range.
By far, the largest source of competition for U.S. ethanol is Brazil, although some Caribbean nations also export ethanol. Brazil is the world’s largest producer of sugar and the second largest producer of fuel ethanol, after the U.S. Its ethanol is produced almost entirely from sugar, although a few corn-based ethanol plants have been developed there in the last two to three years. Brazil’s government fuel programs have aggressively encouraged use of high percentages of ethanol in gasoline, partly by means of government controlled gasoline prices and mandates.
Figure 3 shows annual Brazilian denatured ethanol exports since 2006 and the annual rate so far this year. The trend has been sharply downward, reflecting increased domestic use, its sugar supply situation, and changes in Brazilian ethanol and sugar industry policies.
Seasonality of Brazil Ethanol Exports
Brazil’s ethanol exports have a seasonal pattern that is influenced by the timing of the start of the new sugar crop harvesting season, which begins in late March or early April. As Figure 4 indicates, on-average, Brazil’s ethanol exports reach a low point in March and April as old-crop supplies tighten. From May through July they tend to increase strongly due to more plentiful new-crop supplies. From August through the next March the seasonal trend is downward.
In the last two years, the Brazilian government-controlled oil company, Petrobras, has increased gasoline prices at the same time that ethanol prices have declined. Its policies maintain Brazil’s gasoline prices well above world market levels. A national gasoline tax increase of 83 Brazilian cents per gallon ($0.265 U.S. per gallon) on February 1 also has encouraged increased ethanol use. (ii) The mandated minimum ethanol blend in gasoline was increased from 20% to 22%, and later to 25% last year. On March 16, 2015 it was raised to 27%. (iii) That action alone was expected to increase Brazil’s domestic ethanol consumption by about 320 million gallons. Recent international petroleum industry sources indicate the actual average blend has been about 29%. In one of the more populated states, ethanol taxes have been reduced this year, thus widening the spread between ethanol and gasoline prices. These policy changes encourage increased fuel ethanol use and have helped limit Brazil’s ethanol exports. A sharp decline in the exchange rate of the Brazilian currency, the real, against the dollar (see Figure 5) has increased the cost of imported petroleum, thus leading to higher Brazilian gasoline prices. It also has tended to enhance Brazil’s ability to export ethanol to the U.S. and other countries but strong domestic demand has been an offsetting factor. A late September report from Brazil (iv) indicates that ethanol’s price advantage over gasoline is the highest in five years. Hydrous ethanol (which can be used at very high levels in Brazil’s flex-fuel vehicles) was priced at 61.2% of gasoline in September in Sao Paulo. A 70% ratio is considered to equalize cost per mile for ethanol versus gasoline. (v)
Brazil’s Sugar Crop
Sugar cane is a perennial crop that needs to be re-planted only every 6 or 7 years. Reports indicate with the a severe 2014 drought, depressed sugar prices, and competition from other crops, the nation’s sugar crop is aging. Significant acreage needs to be replanted. (vi) The 2016 crop is forecast to be up slightly from last season because of improved weather, but increased ethanol production is expected to absorb an increased percentage of the crop. (vii)
What is Ahead for U.S. Ethanol Exports?
Current indicators suggest the outlook for the 2015-16 U.S. corn and ethanol marketing years is for steady to slightly higher ethanol exports. Exports from April onward in 2016 will be influenced by the size of Brazil’s 2016 sugar crop, the 2016 U.S. corn growing season, and corn prices – which are a major influence on U.S. ethanol prices. World petroleum supplies appear likely to remain plentiful, barring serious political and military worsening of the Mid-East situation. Other variables that could influence U.S. 2015 exports include final U.S. government biofuels mandates and gradually increasing demand for ethanol in current foreign markets for U.S. ethanol.
i Based on data from, U.S. Energy Information Administration, “Fuel Ethanol Exports by Destination”, http://www.eia.gov/dnav/pet/pet_move_expc_a_epooxe_eex_mbbl_m.htm
ii Sergio Barros, “Biofuels Brazil Raises Federal Taxes and Blend Mandate”, Foreign Agriculture Service, USDA, GAIN Report 15001, April 16, 2015
iv Estadão Conteúdo, “Vantagem do etanol sobre gasolina em SP atinge maior nível em 5 anos”, Scot Consultoria, 24 de setembro de 2015 and data from National Agency of Petroleum, Natural Gas and Biofuels (Brazil)
vi Leslie Josephs, “More Pain for Brazil’s Sugar Industry in 2015”, Money Beat, Commodities
Wall Street Journal, Dec 18, 2014
vii USDA, Foreign Agricultural Service, “Declining Global Production Matches Rising Consumption”,
Sugar: World Markets and Trade, May 2015.