Just over a month ago, I wrote an article detailing the global food crisis. According to data from the World Bank global food prices have soared 83% in the past three years.
There’s also another crisis brewing at the moment – that’s becoming more painfully obvious with each passing day: a global energy crisis! In many ways, the two are closely connected…
U.S. corn-based ethanol production is a big reason why corn prices surged 56% higher in the past 12 months alone. About one-third of the entire U.S. corn crop is being diverted from kitchen tables to gas tanks.
As a result, in poor countries around the world people are rioting in the streets in protest over U.S. corn-based ethanol. They complain bitterly that we are trading in THEIR food for OUR fuel… but there is a better way.
In fact, there is an “emerging” alternative bio-fuel source that is a lot more efficient than corn-based ethanol, and doesn’t require the same food vs. fuel trade-off.
It’s Brazilian sugar cane-based ethanol…
Brazil’s Big Ethanol Advantage
Brazil is far and away the global leader in ethanol production technology. In fact, the country began large-scale development of ethanol as an alternative fuel source amid the oil shock of the late 1970’s and early 80’s.
Today, ethanol accounts for 50% of Brazil’s total annual automotive fuel consumption. More than 70% of new cars sold in the country are flex-fuel capable; able to run either on gasoline, ethanol or some combination of the two.
Currently, Brazil is the world’s second-largest ethanol producer, and largest exporter, with total output of about 6 billion gallons a year.
Brazil uses just over half for domestic consumption each year, to fill up all those flex-fuel vehicles on Brazilian roadways. The rest of its ethanol production is targeted for a rapidly growing world-wide export market.
By 2020, Brazil’s global ethanol exports could total as much as 200 billion gallons a year – that’s over 30-times today’s ethanol production. Talk about a growing industry!
U.S., Europe, Just Can’t Compete with Brazilian Ethanol
This is where Brazil enjoys a big advantage over other nations – as the world’s lowest cost ethanol producer. As shown in the graph above, Brazil can distill bio-fuels from sugar cane at a significant cost advantage to other nations.
Neither U.S. corn-based ethanol, nor wheat-based ethanol from Europe, can come close to matching the Brazilians on a production cost basis.
The sugarcane plant, which flourishes in Brazil’s tropical climate, produces a “yield” of 6,000 liters of ethanol per hectare of land – that’s about twice the yield of corn-based ethanol!
In fact, Brazilian ethanol is about 40% cheaper to make than in the U.S. – and costs less than half the price of European ethanol.
When Trade Tariffs Fall, Brazilian Ethanol Will Flow
Of course Washington, in their infinite wisdom, maintains silly trade tariffs equal to 54-cents a gallon on imported ethanol. This ridiculous trade barrier benefits a relatively small number of U.S. corn farmers at the expense of millions of American drivers.
In spite of this, Brazil’s largest ethanol export market remains the U.S. In fact, Brazil shipped us more than 430 million gallons of ethanol last year – up four-fold from 2004! Wholesale gasoline prices in the U.S. are fast-approaching $4 a gallon, and will keep spiraling higher as crude oil goes through the roof during what’s shaping up to be a long, hot summer.
Naturally, pressure is mounting for Congress to eliminate this silly, protectionist ethanol tariff. When that happens, the floodgates will open wide for much-cheaper Brazilian ethanol to flow freely into U.S. markets.
By leveraging the strength of its vast sugarcane growing region, and building on its already well-established ethanol producing technology, Brazil is perfectly positioned to benefit.
In fact, this emerging market tiger could easily become the Saudi Arabia of ethanol within the next decade. You heard it here first!
P.S. On Thursday at high-noon I’ll be hosting a special teleconference with my colleagues to discuss the big upside potential we see in alternative energy – including Brazilian-based ethanol. To protect your portfolio and profit from the global energy crisis, I invite you to join me on this teleconference: just click here to sign up now.
Mr. Burnick, you have a totally twisted view of Brazil. I lived there until I was 38 --I am 49 now-- so I do know the country and its economy. Ethanol did NOT work there. It was supposed to be cheaper than gasoline, yet it's not. Brazil is not a blooming economy, especially after communist President (besides being a dear friend of dictators such as Castro, Evo Morales and Chavez) Lula was elected. The main problem with Brazil is that it is a highly socialist country, but they believe they are Capitalists. Please, get your facts straight.
Posted by: Emilia Rosa Kette | May 22, 2008 at 12:06 PM