Weak dollar opens slight U.S. ethanol export window

SAO PAULO/CHICAGO (Reuters) - The weak dollar and tight Brazilian cane-ethanol supplies may open the door for exports of U.S. corn-ethanol into markets such as Europe or even northern Brazil, but volumes would likely be minimal.

Thirty-year highs for sugar prices -- which induce Brazilian cane mills to favor sugar rather than ethanol production -- excess rain during harvest and strong demand from the local flex-fuel car fleet have taken the world's largest exporter of the biofuel off the seaborne market for the next few months.

Brazilian ethanol prices have risen nearly 40 percent since August and typically continue to rise as the main crop enters the interharvest period that runs from December to March.

"Our prices are not viable for exports. We have neither ethanol available nor competitiveness on the global market," said Julio Maria Borges, director at Job Economia, who actually sees imports in the next few months more likely than exports.

The 36 percent appreciation of the Brazilian real against the dollar since January 1 has helped keep the cane-based biofuel from flowing to the ports.

"At least until the end of the season (March 2010), we'll see hardly any new sales," he added.

The absence of Brazilian exports may leave a fledgling global biofuel markets wanting and give the United States, the world's largest producer of ethanol from corn, a window of opportunity to ship to Europe or Asia, especially with the weak dollar that makes U.S. exports more competitive abroad.

On Tuesday, analyst Jonathan Kingsman said Brazilian ethanol exports were forecast to drop by around a third year-on-year to 2.8 billion to 3.0 billion liters in marketing year 2009/10.

Ethanol output in the center-south, which accounts for 90 percent of Brazil's cane crop, should total 23.8 billion liters, down from 25.1 billion liters in 2008/09, the Cane Industry Association said in its latest review of the season.

US EXPORTS?

But if the United States carves out any of the seaborne market share held by Brazil, it will likely be small and fleeting due to U.S. corn prices and softer international demand for the biofuel than in 2008.

U.S. ethanol makers' profits are tied largely to corn prices. Stronger demand from the biofuels sector would likely quickly erode margins by causing prices of the grain to rise.

"When you increase your export sector substantially, you're going to increase your (corn) usage which will in turn tighten up the balance sheet in corn," said Shawn McCambridge, analyst with Prudential Bache Commodities.

Farmers in the United States are currently harvesting what is projected to be the second-largest corn crop on record.

"If we start to support $4.50 or $5.00 (a bushel) corn, the economics change as to whether you can export corn-based ethanol into some of these other markets," he said.

Corn futures prices have risen steadily from $3 a bushel in September to over $4 this week.

U.S. ethanol makers are expected to use 4.2 billion bushels of corn in the 2009/10 marketing year, which would produce nearly 12 billion gallons of ethanol. U.S. law requires that 12 billion gallons of corn-based ethanol be blended into the nation's fuel supply in 2010.

BRAZIL IMPORTS?

There was market talk recently about U.S. ethanol being shipped to Brazil. No deal has been confirmed, only inquiries, but the buzz was enough to boost ethanol prices in the U.S. market, closing the window for deals, trade sources said.

For imports to be feasible, ethanol prices have to be high in Brazil and low in the United States to cover freight costs and the current import tariff of 20 percent.

The appreciation of the real against the dollar has helped to fuel expectations that import deals could happen in the coming months, especially to Brazil's northeast.

The United States is often the largest destination for Brazilian ethanol exports, via processing plants in the Caribbean.

Lower Brazilian ethanol exports this season coincided with an increase in production in the United States and Europe, said Plinio Nastari, president at Datagro consultants.

"Global demand for imports was lower this year, and Brazilian supplies were not enough to boost consumption in external markets," Nastari said, adding the amount of ethanol traded globally totaled 3.2 billion liters this year, down from 5.7 billion liters in 2008.

"I would expect a gradual increase in trade. Volumes in 2010 won't repeat 2008's level, but we could see something close to 6 billion within two to three years," Nastari said.

(Writing by Reese Ewing; Editing by Christian Wiessner)