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Brazil: Just Not That Into Second-Generation Biofuels
Posted September 30, 2013 While the US and the EU — two of the world’s largest biofuel-consuming-and-producing markets in the world — are moving towards the introduction of second-generation or advanced biofuels , Brazil, the second-largest producer, does not foresee production or legislation to promote cellulosic or advanced biofuels in the next ten years. Global biofuel production has grown sevenfold since 2000, and today biofuels provide 3% of road fuel transport by energy basis. According to the International Energy Agency (IEA), in 2010 the biofuel contributing percentage was particularly higher in Brazil, US and the EU, with 20.1%, 4.4% and 4.2% respectively. The IEA, the Energy Information Administration, and even the major oil companies like Exxon and BP predict a higher biofuel share in the future. BP expects biofuel consumption in Brazil to be around 38% by volume, and in the US, 24% of road transport by volume in 2030. Following US and EU biofuel legislation, cellulosic ethanol and other advanced biofuels are expected to play an increasingly large role in global biofuel production and consumption. However, Brazil is not as eager to join the race for the development and commercialization of second-generation and advanced biofuels as the other main producing countries/regions, despite having the largest share of flex-fuel cars in the world, the highest ethanol blend percentage mandate, and consumer awareness of ethanol’s positive impacts. The long history of ethanol use and the two ‘revolutions ’ Brazil has a long history of ethanol implementation that started since the first blending mandate in 1931. In the South American country, ethanol is derived from sugarcane in two ways: as hydrous ethanol, used as a complete fuel substitute (E100) and anhydrous ethanol (in proportions up to 25% mixed with gasoline E25). In Brazil there have been two major revolutions that have substantially increased the use of sugarcane ethanol in the country, which created a large first-generation ethanol market. The first revolution was the government Proalcool program in the 1970´s. During this program, ethanol as a fuel substitute was first introduced alongside ethanol-run cars (made only in Brazil). This program increased the ethanol blending mandate from 4.5% in 1977 to 15% in 1979. It also pushed ethanol-powered cars to 90% of total cars sold in Brazil in 1983. Although the program was abandoned due to ethanol shortage and lower oil prices, it provided the country with wide ethanol infrastructure adaptations for distributing, transporting and selling this type of biofuel at pump stations. The other great change in the Brazilian ethanol market took place when the flex-fuel cars became available in 2003. This type of vehicle has a new engine that can take any combination between hydrated alcohol and gasoline. In 2003, only 2.6% of new manufactured cars were flex fuel type, but by 2010, nearly 80% of all cars produced in Brazil were flex fuel-compatible. In contrast to the US market, where not more than 5% of cars can use flex fuel, Brazil has the largest market flex-fuel fleet (over 11 million) representing nearly 50% of all cars in use in Brazil, a trend that is expected to increase to 83% by 2021. The large share of flex-fuel cars prompted a substantial increase in both anhydrous (blending component) and hydrous (substitute fuel) ethanol demand. The ethanol market share within the light vehicle fleet fuel market has also reached a large proportion, attaining more than 50% in 2009 (a historic record for an alternative fuel). However, the aftermath of the 2008 crisis generated a downturn in the production and consumption of both type of ethanol fuels. The mismatch between the country’s domestic supply and demand resulted in ethanol imports from the US in 2011. Since 2012, domestic production has recovered, but the government does not expect a swift recovery to levels before the crisis. Brazil had in 2012 an ethanol market of 23.5 billion litres, down from 28 billion litres in 2010. The sugarcane feedstock advantage Brazil´s sugarcane ethanol has been characterized as the most efficient source of first-generation biofuel available, providing more than 60% reduction of greenhouse gas (GHG) emissions compared with gasoline. Current US biofuel legislation FS(2) consider sugarcane ethanol as an “advanced fuel” due to the fact that it reduces more than 50% of GHG emissions and therefore provides an opportunity to export to the US market. Moreover, the removal of the US ethanol import brought an extra incentive to spur ethanol production in the South American country. Stuck on first-generation, missing drivers and lacking second-generation policy Despite the recent US market incentives, the largest flex-fuel share in the world, and the highest anhydrous blend, Brazil has not generated stimulus to follow the US and EU’s examples for advancing legislation for the development of cellulosic ethanol and other advanced fuels. The missing drivers for such endeavor are related to characteristics of the Brazilian sugarcane ethanol, which already provide high reduction of GHG emissions, and to the lack of interest of pursuing the biotechnological route by the Brazilian government. Brazil, which has had difficulties supplying their local market since 2011, has done very little to promote the development of cellulosic or other advanced biofuels. There is currently a lack of legislation in place that sets targets for the production and incorporation of the cellulosic or advanced biofuels in the Brazilian transport mix for the next decade. Brazil/s Ministry of Energy, in its ten year plan for 2012-2021, does not foresee second-generation production in Brazil in 2021. It expects all 61 billion litres of ethanol production in 2021 to come from conventional sources. There have been few projects seeking to develop new advanced technologies using sugarcane feedstock both from government funded institutions and other private companies. However, not surprisingly, numerous projects are being developed by international companies such as Novozymes, Butamax, Dupont, Petrobras, Abengoa which are among a selected group that are in the process of receiving up to 70% of credit of their total costs from the 880 million USD PAISS program , a program financed by the National Brazilian Development Bank (BNDES) and FINEP (National Innovation Funding Agency) for developing sugarcane-based advanced biofuels. Graal Bio, in partnership with the Italian firm Beta Renewables, claims to have the first cellulosic plant of its type in South America; they are expected to be fully operational in 2014 and produce 82 million litres of ethanol per year. They plan to export their production to the United States. The development of first-generation ethanol implementation has not provided stimulus to spur cellulosic or advanced biofuel legislation and development. If cellulosic or other advanced biofuels are to be developed to large scale and play an important role in the future fuel transport mix, Brazil should be taking more steps into the promotion of such fuels, helping to diversify the feedstock sources as it currently does with sugarcane in first generation. Continue reading
Adding Up Farmland Value Factors
http://www.agricultu….jpg&type=admin Jeff Caldwell 09/17/2013 Death and taxes. The old saying is those are the only two certainties in this world. And right now, that’s especially true for the farmland market. There’s not as much land going onto the market for sale right now — for a few reasons — and that calls for anybody looking to add acres to their farm to always be ready to pull the trigger, says one farmland market expert. The proposition of buying or selling land, especially the latter, is typically an emotional one, and as such doesn’t always follow market fundamentals and dynamics in lockstep. So, in lieu of a textbook for how to approach buying land when considering these factors, it’s important to always be ready when the time arises that circumstances dictate a seller to pull the trigger, says Randy Hertz, accredited farm manager and land consultant with Hertz Farm Management, Inc. “Certainly, you need to be in buying position. As people get panicky, they may be willing to take a lower price or offer lower than the general public really would anticipate. It’s an emotional decision,” he says. That emotion is typically manifested directly in how buyers approach potential land buys from sellers who, whether it’s the settlement of an estate by multiple stakeholders or a retirement, may be facing just as emotional a set of circumstances themselves. Combine that with the fact that buying land is a long-term decision, and it can make it tough to forecast how any given land sale will shake out. Then, add on to that variables specific to years like 2013, namely whether the land was planted or laid idle because of adverse weather, and sale prices are tough to peg. All this adds to the importance of staying in that buying position, Hertz says. “As the markets go against you, it’s an angst. As prices go up, you feel good about things. There’s a lot of prevented-planting acres this year. In those areas, it certainly was negatively impacted by the emotions of struggling crops,” he says, adding that a recent Iowa land sale netted a lower-than-expected price because it hadn’t been planted in the spring because of the weather. “People get bullish at the top. People overstay the market. Farmers are notorious for this. They ride it up, ride it down, and right at the bottom, freak out and sell in the bottom third of the market. “It’s such an imperfect market,” he adds. Right now, a major factor playing into both the amount of land going up for sale and the price volatility those sales yield is the state of the economy, both on the macro level and in the ag sector. In the former, taxes and return on investment are huge factors. Farmland remains a solid investment compared to equities, and with the tax implications of selling land as they are right now, it makes it easy to hold on, even if the climb in land values is seen tapering off. “There are just fewer farms on the market now. The reason for that is when you’ve got a land market that increases in value, people don’t want to pay taxes on that increase. And, you’ve got low interest rates. They say ‘I’m earning 3% to 3 1/2% on rented land. What would I do if I sold? I’d have to pay tax on $9,000/acre in capital gains,” Hertz says. “You’re going to pay one-third of that in taxes, plus the privilege of 1% on a CD. So, you’ve seen a lot fewer farms for sale. Ones selling are ones stepping up in basis, estates or families fighting.” More specific to the ag sector, crop inputs and cash land rents will continue to drive where sale prices wind up moving forward. The former group influences the direction of the latter, and how close rents have kept up with the general fluctuation of land values will help determine the willingness of landowners on the fence to sell land. “The dynamics of the farm market, specifically inputs have rocketed. Cash rents have not kept pace with the profits farmers have gotten. People are wondering what will happen with cash rents,” Hertz says. “If you had not increased along with where it should’ve been, you probably should’ve gotten an increase. If you were pretty good but not at top of the market, rent will probably be pretty good next year. If you were at the high for cash rent last year, probably adjust downward.” Specific to the last few years in the heart of the Corn Belt, the shape of the current crop on top of how sharply the land market’s fluctuated in the last five years will likely contribute to how it flexes and moves in the future, Hertz says. That’s clear when comparing past moves in key states in the region. “Illinois and Indiana are really strong right now. They’ve got a good crop coming, and they have been somewhat toned-down in their increases. Certainly not as fast as the increases Iowa has seen,” he says. “You’re going to see some adjustments like that.” And while he fully expects the general rise in farmland values to taper off in the coming year, Hertz says current strong grain prices will likely keep the market out of the red, even if this year’s crops don’t amount to earlier expectations. “How could you ever look a gift horse in the mouth? We can sell new-crop soybeans for over $13/bushel cash. Those are phenomenal prices. Yes, we’re going to get kicked in the shorts with our soybean yield, but you still have to sell the stuff,” he adds. “You’ve still got to make a decision.” Continue reading
Asian Currencies Have Best Weekly Gain in a Year on Fed Decision
By Lilian Karunungan & Yumi Teso – Sep 20, 2013 Asian currencies rallied this week by the most in a year after the Federal Reserve unexpectedly maintained monetary stimulus that’s led to capital inflows to emerging-market assets. Malaysia’s ringgit and Thailand’s baht led the advance after Fed Chairman Ben S. Bernanke said Sept. 18 more evidence of a recovery in the world’s largest economy is needed before the central bank starts paring its $85 billion a month of bond purchases. Global funds bought $494 million more stocks than they sold in the first four days of the week in Indonesia, the Philippines and Thailand. Enlarge image The Malaysian currency is headed for its best weekly gain since the 1998 Asian financial crisis, helping the FTSE Bursa Malaysia KLCI Index of shares to climb 1.4 percent this week. Photographer: Sanjit Das/Bloomberg “Investors reversed positions built up across the board on speculation about the stimulus reduction,” said Tohru Nishihama, an economist covering emerging markets at Dai-ichi Life Research Institute Inc. in Tokyo. “But the Fed will eventually trim stimulus, and investors will become more selective. The long-term trend of gradual dollar appreciation may remain intact.” The Bloomberg-JPMorgan Asia Dollar Index , which tracks the region’s 10 most-active currencies excluding the yen, climbed 0.8 percent during the five days to 116.14 as of 5:20 p.m. in Singapore, the most since the period ended Sept. 14, 2012. The ringgit strengthened 4 percent this week to 3.1650 per dollar in Kuala Lumpur , according to data compiled by Bloomberg. The Thai baht appreciated 2.9 percent to 30.96 and the Indonesian rupiah rallied 0.5 percent to 11,350. Bernanke Concern The Federal Open Market Committee is concerned that the rapid tightening of financial conditions in recent months could damp growth, Bernanke said at a press conference in Washington on Sept. 18. Economists surveyed by Bloomberg were predicting a cut of $5 billion in the Fed’s monthly bond buying. The Malaysian currency posted its biggest weekly gain since the 1998 Asian financial crisis, helping the FTSE Bursa Malaysia KLCI Index of shares climb 1.8 percent. The U.S. is Malaysia’s fourth-largest overseas market. Shipments rose in July after a five-month contraction. “We are building up our portfolio to come back to a long position on emerging currencies versus the dollar,” said Philippe Jauer, chief investment officer for global fixed income and currencies in Singapore at Amundi, which oversees about $1 trillion, said in an e-mail interview yesterday. “The Philippines, Malaysia and Thailand are the first countries any investor should come back to because the economic fundamentals are much better than in India and Indonesia.” RBI Policy The Reserve Bank of India unexpectedly raised its benchmark repurchase rate by a quarter percentage point to 7.5 percent today, the first increase since 2011. Governor Raghuram Rajan , who took office two weeks ago, is seeking to rein in inflation that’s hurting the poor and dimming economic prospects. The rupee dropped 0.6 percent to 62.1387 in Mumbai, trimming the week’s gain to 2.2 percent. It reached 61.6450 yesterday, the strongest level since Aug. 16, as markets reacted to the Fed decision. The S&P BSE Sensex Index of shares fell 2 percent, after climbing 4.6 percent in the previous four days. The rupee and Indonesia’s rupiah are the worst-performing Asian currencies this year after the yen, with losses of 12 percent and 15 percent, respectively, as investors fled nations with worsening current-account deficits. “Asian currencies’ strength this week has a lot to do with the Fed’s decision not to taper quantitative easing,” said Nizam Idris , the head of fixed income and currency strategy at Macquarie Bank Ltd. in Singapore. “It gives countries with worsening current accounts more time to get their houses in order.” Elsewhere in Asia, the Philippine peso rose 1.9 percent this week to 43.037 per dollar. Vietnam’s dong traded at 21,115, unchanged from the end of last week. South Korea’s markets are shut for three days from Sept. 18 for public holidays, while China and Taiwan are closed for two days from Sept. 19. Hong Kong also has a public holiday today. To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net ; Yumi Teso in Bangkok at yteso1@bloomberg.net To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net Continue reading
