September 9, 2014

Brazil Set to Increase % Ethanol in Gasoline and Veg Oil in Biodiesel

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

Legislation passed by the Brazilian Congress stipulates that starting on November 1, 2014, Brazil will adjust its biofuel program to reflect an increase in the amount of vegetable oil blended into biodiesel and the amount of ethanol blended into gasoline. On that date, the amount of vegetable oil blended into biodiesel will increase from 5% (B5) to 7% (B7). The new minimum amount of vegetable oil in biodiesel is set at 6%.

The soybean oil processors association had requested an increased use of vegetable oil in biodiesel a long time ago as a way to increase the demand for soybean oil. The primary vegetable oil used in biodiesel is soybean oil, but the law caps the percent of soybean oil at 80%. The remaining 20% must come from other vegetable oils or animal fats. The soybean oil processors had pushed for an even higher percentage citing excess capacity in their biodiesel facilities.

The same legislation that increases the use of vegetable oil in biodiesel production also stipulates that the amount of ethanol blended into gasoline will increase from the current 25% to 27.5% if there are no technical problems associated with such an increase. The minimum amount of ethanol allowed in gasoline will remain unchanged at 18%. The legislation now awaits either the signature or veto by President Rousseff.

While the increased ethanol blend is welcomed news for the ethanol producers in Brazil, they have also been pushing for an increase in the gasoline prices in Brazil as well which would translate to an increase in ethanol prices. The price of gasoline in Brazil has been held artificially low in recent years as a way to combat inflation, but it has also hampered the ethanol sector as well. The relatively low price of gasoline has led consumers with flex fuel vehicles to use more gasoline (E25) instead of pure ethanol (E100). There is no chance that the price of gasoline will be allowed to increase significantly prior to the presidential elections in early October, but ethanol producers hope an increase will be forthcoming after the elections.