Energy
BRIC Shocker: No Money, or Less Money, in Brazilian Ethanol (PBR, ADM, VLO)
Published:
Last Updated:
In our daily internal reviews of looking for trends in commodities, one trend stood out rather clearly… Cane-based ethanol might not even be solid for the Boys from Brazil. The price of sugar is causing some Brazilian cane-ethanol makers to adjust their strategies. This almost sounds counter-intuitive when you consider how ethanol has become such a large business in Brazil.
It turns out that sugar prices are up about 47% in the past year while ethanol prices, which are set by the government, often don’t meet production costs, according to Bloomberg.
Part of the problem is that Brazilian drivers have figured out that when ethanol pump prices exceed 70% of gasoline prices, gasoline is a better value because it contains more energy than ethanol. Thus, in order to keep pump sales going, ethanol revenue is effectively capped despite the production costs.
Another part of the problem is that the government regulates gasoline prices through a division of Petroleo Brasileiro SA (NYSE: PBR), or Petrobras. This has the effect of regulating ethanol pump prices at the same time.
Sugar has none of these problems. It is widely and freely traded globally. This is leading at least some ethanol producers to invest in sugar mills as opposed to ethanol production capability.
One interesting side-light from this is that as Brazilian ethanol production fails to keep up with demand, US producers may find a market for more of their corn-based ethanol in Brazil. That would be ironic, given the US duty on ethanol imports. Still, this could be a boon to ethanol producers like Archer-Daniels-Midland Co. (NYSE: ADM) and Valero Energy Corp. (NYSE: VLO).
Paul Ausick
Is Your Money Earning the Best Possible Rate? (Sponsor)
Let’s face it: If your money is just sitting in a checking account, you’re losing value every single day. With most checking accounts offering little to no interest, the cash you worked so hard to save is gradually being eroded by inflation.
However, by moving that money into a high-yield savings account, you can put your cash to work, growing steadily with little to no effort on your part. In just a few clicks, you can set up a high-yield savings account and start earning interest immediately.
There are plenty of reputable banks and online platforms that offer competitive rates, and many of them come with zero fees and no minimum balance requirements. Click here to see if you’re earning the best possible rate on your money!
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Latest from 24/7
