São Paulo, June 18, 2009 – Despite the accelerated pace of the sugarcane harvest in Brazil’s South-Central Region, mills have not been able to increase ethanol stocks, which have grown by only 330 million liters (87 million gallons) since the beginning of this crop year (April). The data from production and sales up until June 1 shows that the existing ethanol stocks would meet demand for the month, if domestic and international demand remains at the current pace. However, companies in the sugarcane industry have been unable to utilize the warehousing credit facility that has been made available by BNDES (Brazil’s Development Bank) and Bank of Brazil. There are R$ 2.5 billion (US$ 1.26 billion) available in credit facility but there has been minimal demand due to the requirement that for every liter financed there be 1.5 liters warehoused.

The amount of cane crushed by mills during the second half of May reached 26.45 million tons, 15.66% higher than in the same period last crop year. Through June 1, mills have crushed a total of 109.72 million tons of sugarcane, 43.55% more than at the same time last year.

There was a reduction in the quantity of recoverable sugar from a ton of cane (ATR, in the Portuguese acronym), which is due in part to the rainfall experienced in many sugarcane growing areas during parts of May. The accelerated pace of the crush led many mills to harvest cane from areas with young crop, not completely ripe for harvest, negatively affecting the sugar content of cane processed. In relation to the same period last crop year, there was a reduction of 2.28% in the ATR, leading to a drop from 127.87 kg to 124.96 kg per ton of cane crushed. The accumulated average ATR this crop year continues above last year’s levels by 1.95 kg, reaching 119.8 kg against 117.49 kg per ton of cane crushed in the same period a year before.

Up to now, agricultural productivity (tons of cane per hectare) remains above last crop year for “cane bis” (cane that was not harvested last year) but below in young cane (cane of 18 months), which is the prime period for agricultural productivity. In the other stages of cane, productivity is slightly superior to what was seen in the last crop year.

Up until June 1, more than 50 mills in South-Central Brazil had not begun their harvest. Of these, 22 are new mills, that should begin harvesting at some point this crop year. Four other mills have halted operations during the second half of May and plans to resume operations have yet to be announced.

As predicted since the beginning of the harvest, the mills that produce both ethanol and sugar have been prioritizing sugar. The production of sugar in the second half of May totaled 1.87 million tons, 20.96% higher than in the same period last crop year. Through June 1, the accumulated sugar production is 5.04 million tons against 3.20 million, which is 57.38% higher than observed in the same period last year. Even with the drop in industrial production, 43.04% of the supply [of cane] was directed to sugar production in the second half of May. In the accumulated amounts, 40.23% of the cane harvested was directed towards sugar production, versus 37.42% during last crop year.

As for ethanol, since the start of the harvest 4.61 billion liters were produced by June 1 (1.22 billion gallons), 40.48% more than in the same period last crop year, which was 3.28 billion liters. Three reasons led to an expansion of the domestic market for ethanol: competitive prices for hydrous ethanol in relation to gasoline nearly nationwide, due to below cost of production prices paid to mills; increasing size of the flex-fuel fleet; and, the increase in shipments of ethanol produced in South-Central Brazil to supply the North and Northeast regions of the country.

Since the start of the harvest, 1 billion liters (264 million gallons) of anhydrous ethanol and 2.70 billion liters (713 million gallons) of hydrous ethanol were sold. Depressed ethanol prices have led to exports in April and May of 580 million liters (153 million gallons).