Brazilian ethanol is rushing back into the United States after a three-year ebb, drawn less by the severe drought that has inflated corn costs than by biofuel regulations that could more than triple next year's shipments.
Even as corn prices shot to record highs above $8 a bushel while sugar futures languished at near two-year lows of 19 cents per lb, Brazil's sugar-based ethanol production was still more costly than U.S. corn-based domestic supply, traders say.
Brazilian ethanol is competitive in the U.S. market, thanks only to credits from the U.S. Environmental Protection Agency, which requires that fuel companies use 500 million gallons (1.9 billion liters) of so-called advanced biofuels to blend into gasoline this year. The EPA recognized Brazilian ethanol as advanced in February 2010.
Brazil has the only ethanol industry with the scale to meet the current U.S. advanced fuel mandate. The question is whether it can ramp up capacity for next year, when the EPA is expected to triple the requirement to 1.75 billion gallons.