Brazil ethanol tax cut may cause sugar production shift to ethanol production
Raw sugar prices have dropped 6.8 percent on ICE Futures U.S. in New York this year, after falling 39 percent the past two years because of surpluses. A third annual decline would be the longest slump since 1992. Prices jumped 4.7 percent in the week ended March 8 on speculation of ethanol tax cuts.
Brazil is preparing tax breaks on ethanol which include lower payments and the possibility of converting the amount paid into credit, two people with knowledge of the plan told Bloomberg in a story March 1. The changes may be announced before sugar cane starts getting to mills in April, one of the people said. Tax cuts may make the biofuel more competitive, encouraging mills to divert more cane to ethanol, according to Patricia Luis-Manso, an analyst at Lausanne, Switzerland-based researcher Kingsman SA, owned by The McGraw-Hill Cos.
Going forward, I believe the ethanol import from Brazil will increase over time due to their sugar excess, so they are shifting to ethanol production and their tax cut gives even more incentive to make ethanol. This will depress the ethanol prices in the U.S. at a time that corn prices are high and Valero is restarting more ethanol productions too. It will be triple injuries to other U.S. ethanol players. The increasing Brazil ethanol import is a new challenge for this industry. It will have the biggest long-term impact. When it is in full force eventually, we may just see this industry killed by imports just like many other industries in the U.S. There are good reasons both CEO and Chairman are selling this stock. They know the best days are over for the industry.
Just some dumb buyers who did not know what was going on. But the stock came off the high and was sliding down into the close after I posted the news that the ethanol price dropped today and Brazil may shift sugar production to ethanol production.