Why Brazil’s sugar addiction is fantastic news for Canadian corn producers

Brazil continues to expand its sugar production, and that’s good news for Canadian corn producers. More Brazilian sugar means more Brazilian imports of ethanol from the United States and that means higher prices for Canadian corn.

Sugarcane production falls; sugar production rises

The USDA expects Brazil to produce 39.7m tonnes of processed sugar this marketing year (MY). That’s up 1.3% from last year and its highest level of output recorded to date.

The USDA also forecasts 5% year-over-year growth in Brazilian sugar exports (to 29.1m tonnes) in the 2017-18 MY. As world demand for sugar continues to grow, Brazil – the world’s largest sugar producer and exporter – has no apparent shortage of markets. Their exports aren’t dominated by any large players; instead they’re demand-driven from numerous markets (Figure 1).

Brazil will likely face irregular weather in several regions this year. The country’s recent financial upheaval has also reduced investment to fix aging sugarcane fields. Those two factors combined have produced a USDA forecast of a 1% fall in their sugarcane crop.

Falling sugarcane production typically doesn’t lead to higher sugar production and exports. But with sugar’s increased profitability, Brazil is using more of its sugarcane in the production of sugar instead of ethanol.

Why Brazil’s sugar production matters to Canadian corn producers

Current corn prices are low by historical standards, but the story would likely be worse if Brazil was devoting more sugarcane to ethanol production. As Brazil has shifted some of its sugarcane production to sugar rather than to ethanol, it has opened a wider market for US corn-based ethanol. In fact, since Brazil’s shift from ethanol to sugar production, it has dramatically increased its ethanol imports. According to the US Energy Information Administration, year-over-year ethanol exports from the United States to Brazil were up almost 600% (to 1.1 million barrels) in April 2017 (the most recent data available).

The USDA expects US ethanol production to remain high and corn production to fall 5.9% in 2017-18. Ethanol and its byproducts utilized 36.0% of US corn production in 2016-17, expected to rise to 38.6% in 2017-18.

The takeaway here is that the global economic conditions favouring Brazil’s increased sugar production are also helping to tighten the North American corn supply. This market opportunity for US corn-based ethanol, along with any realized weather-related impacts to this year’s harvest, will help drive down US corn stocks-to-use ratios in 2017-18. And that’s good news for corn producers and Canadian agriculture.

Blair Baillargeon, FCC Ag Economics student intern