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International Competition

Rumor has it that Brazil's ethanol producers are getting ready to invade the U.S. market. Many will be willing to swallow the 54-cent tariff (which is expected to expire in 2009) imposed on their ethanol. Joao Val, CFO of Sao Martinho SA, one of Brazil's leading ethanol producers, believes "Brazil is going to be much more aggressive this summer to sell ethanol...in the U.S."

With U.S. corn ethanol currently selling at a high price of $2.48 per gallon, many Brazilian companies see a lucrative opportunity in exporting their cheap sugar-cane based alternative. Even with the tariff included, Americans currently get to purchase Brazilian ethanol at a bargain price of around $2.18 a gallon. This number is bound to go even lower with Brazil harvesting a record-breaking sugarcane crop of over 500 million metric tons.

This only spells trouble for the U.S.'s nascent ethanol industry, as U.S. producers are already struggling with high corn prices. Currently hovering around $6 a bushel, corn prices are expected to go even higher as the USDA recently announced an 8% expected drop in U.S. corn plantings.

As a result, several ethanol producers have already suspended production or even filed for bankruptcy, such as Kansas based Ethanex Energy. New Zealand's LanzaFuels announced late last year its plans to put local ethanol production on hold due to cheaper imports from Brazil. Brazil's cheap prices will only make it harder for these companies to grow.

Brazil will be especially eager to sell to the U.S. with recent developments in the European market. Brazil's hold on this market has become increasingly tenuous as Germany has decided to postpone its plans to introduce a mandatory 10% ethanol mix in gasoline and the UK has decided to do away with the credit line for its E85 program. With more focus put on the U.S. market, Brazil may be successfully maneuvering a checkmate to an already beaten down U.S. ethanol industry.