BofA-Latam Agribusiness What is the future of corn ethanol in Brazil？feedback from expert call-20250922

Success of an ethanol plant is mostly a case by case story

We hosted a meeting with Mr. Kory Melby, an agribusiness expert and consultant inMato Grosso, who has been following the corn ethanol industry in Brazil since inception.Mr. Kory is surprised with the fast growth of this industry, mainly given the number ofnew projects announced in the last month, and there is a chance that producers aregetting too optimistic about the returns of this industry. He believes the main concernsare the biomass availability and the buyer market for all the DDG (Distillers’ Dried Grains)that will be produced, which is an important margin contributor for the project. In thisscenario, he thinks flex plants that use cane and corn as inputs are the best model, asthey have lower biomass risk by using cane bagasse as feedstock and produces cornethanol during sugarcane inter-harvest period. Despite increasing industry challenges,players who have strategic corn sourcing, better access to biomass and are in favorableregions for price premium of the DDG, will succeeds and become the consolidators.

Access to biomass and DDG supply are the main concerns

Two important discussions regarding the corn ethanol expansion are: 1) the access tobiomass; and 2) the excess of DDG in the domestic market. A large corn ethanol plantuses around 1mn ton of biomass per year and the main challenge is the area/timing todevelop eucalyptus forests to support all the production capacity in the pipeline. OnDDG, the concern is if there will be a domestic market to absorb the total productionand/or logistics infrastructure to export the product. Mr. Kory believes DDG and corn arenot competitors as animal feed, but DDG does compete with soy meal. As biodieselproduction increases, more meal will be available for animal feed, which should pressureprices until Brazil develops a larger feedlot market. At the same time, Brazil lacks properlogistics, especially in the Northern Arch, to storage and export DDG.