Much has been said about the possible implications of the rise of corn ethanol in Brazil for producers of biofuel from sugar cane. Low ethanol prices in the 2023/2024 harvest were partially credited to the increase in the product originating from corn, resulting in a growing disparity in remuneration between sugar and fuel. But, before sentencing sugarcane to a 100% sweet future, it is necessary to closely analyze some factors that can balance the scales.

The last few decades have been marked by incessant debates on a global scale regarding sustainable development, which has as one of its pillars the replacement of traditional energy sources with renewable ones. Whether through the development of biofuels or the electrification of fleets, the global decarbonization project is supported by increasingly ambitious goals, and one of the most promising ways of joining is the mixture of ethanol in gasoline. Today, more than 60 countries already have blending mandates in place and increasing targets over the years, Brazil being the main example, with its current 27% anhydrous in gasoline and 14% biodiesel in diesel. Not to mention the increased use of biofuels in other sectors as well, such as aviation.

In this context, there is a potential for growth in demand for ethanol not only in the domestic scenario, but also globally, and Brazil, as the second largest producer in the world, should play a determining role in the supply of biofuel in the coming decades, with guaranteed room for increase in production, both from sugarcane and corn.

In addition to this global backdrop, at the local level the demand for biofuels should continue to grow. We can exemplify the case of ethanol by outlining a conservative scenario for the next decade. Assuming annual growth in Brazilian Otto Cycle consumption of 1% and an increase of one percentage point per year in the share of hydrated fuel in sales, we have an increase of almost 10 billion liters in the total demand for hydrated fuel over 10 years.

For comparison purposes, this would mean an average monthly sales on the domestic market by plants in the Center-South of close to 2 billion liters over the next 10 years, versus 1.5 billion liters in the last five years. Furthermore, we cannot ignore the potential increase in the mixture of anhydrous in gasoline, from the current 27% to 30%, which could bring an additional 1 billion liters in the consumption of anhydrous, as well as the possibility that the mixture will grow further in the future.

The increase in the share of hydrated ethanol in fuel consumption in Brazil can be justified by the advance of Renovabio. Despite flaws in the program, the goals continue to increase year after year, with the aim of improving the competitiveness of ethanol compared to gasoline, by passing on the cost of distributors with the acquisition of decarbonization credits for the price of the fossil fuel.

Considering that there are not enough investment plans to expect a great potential for growth in the sugarcane supply in the coming years, there is also a scenario of limited supply of Total Reducing Sugars, whose direction towards sugar or ethanol will fall, as always, about price arbitrage between the two products. Even with recent investments in increasing crystallization capacity, the promising context of demand for biofuel may weigh on the other side of the scale.

When designing a supply scenario based on crushing of 600 million metric tons, of Total Reducing Sugars averaging 140 kilograms per ton and a mix of 50%, we would have a supply of sugarcane ethanol orbiting around 24 billion liters in the Center. South. Adding to the demand scenario described previously and considering corn ethanol production from the current harvest at around 8.0 billion liters, we are talking about a need for additional ethanol production of around 12 billion liters, which It will be a big challenge, given the high sugar prices on the international market today.

Understanding that the global context is favorable to ethanol in the future, it remains for us to evaluate what the supply conditions are, that is, whether the product originating from corn will, in fact, be able to fill this space. The main point to be evaluated is the energy efficiency of the plants. Biomass from sugarcane makes industries self-sufficient, in addition to enabling many of them to sell surplus energy, generating a relevant extra source of income. The same cannot be said for a corn ethanol plant, which requires a complementary source of energy, making the process less efficient in this sense. This characteristic (or lack thereof) of corn-powered plants is today the biggest limitation regarding the viability of an exponential expansion of these plants.

Of course, corn ethanol plants also have other sources of revenue that contribute to the margin of their operations, such as Dried Distillery Grain and corn oil. However, margins can be compressed by a reduction in the added value of Dried Distillery Grain as its supply grows and by the increase in the cost of the energy sources used. And therein lies the big bottleneck.

Sustainable aviation fuel: New market for ethanol in the long term: Thinking about the long term, we also highlight the growing debate around Sustainable Aviation Fuel, an alternative to traditional Aviation Kerosene. There are several types of Sustainable Aviation Fuel that can replace Aviation Kerosene and they are distinguished by the raw material used. Currently, the main source of scale production of Sustainable Aviation Fuel is from the Hydrotreatment of Esters and Fatty Acids, however the limitation of this raw material in the face of growing demand should lead to the use of new sources in the coming years, one of the The most promising of these is Jet Alcohol, our ethanol, which can reach a mixing rate of up to 50% in Aviation Kerosene.

Even though Brazil is the main potential supply of Jet Alcohol, the project is moving at a slow pace. But the intention to develop the sector is already discussed, even mentioned in the “Future of the Future” bill. Despite being a relatively recent technology, which represents only around 0.2% of total aviation fuel consumption in the world, Sustainable Aviation Fuel has been one of the main focuses in the most recent global discussions on the decarbonization of the aviation sector and represents enormous potential for accommodating Brazilian ethanol supply.

What to expect in the future? Long-term demand scenarios point to a context capable of absorbing a growing supply of corn ethanol. On the other hand, it is necessary to consider the sector's capacity to actually provide this growth, given the limitations imposed by the lack of its own source of energy generation, which could offer a ceiling for the growth of new corn ethanol plants.

This limitation can be overcome by investments in flex plants, which combine the production of ethanol from sugar cane and corn. This would contribute to resolving not only the energy issue, but would also allow greater efficiency in general at sugarcane plants, with better use of time, possible integration of processes, sharing of infrastructure and cost reduction. This is without even discussing the potential of second-generation ethanol. In any case, it can be said that corn ethanol can be seen as an opportunity for the sector and that this increasingly sweet scenario that has been emerging in recent years should fluctuate in the long term, as the global context of decarbonization could return ethanol to the market spotlight in the future.