Flex-fuel nation

Brazil breaks its record for flex-fuel vehicle sales in the first half of 2009:

Data published by the Brazil’s National Association of Automakers (Anfavea) on July 6 shows that more than 1.2 million flex-fuel cars were licensed throughout the country between January and the end of June, which represents 92% of all light automobiles and vehicles (Otto cycle, which excludes diesel engines) licensed during that six-month period. The total is 5% greater than in the same period a year ago, which is a new record for flex-fuel models in Brazil.

"We are experiencing a situation of irreversible consumer preference for flex-fuel cars, an option that is sustainable, economic, creates jobs and develops the national industry," said Marcos Jank, UNICA president.

Within a decade, Brazil's car fleet will be predominantly flex-fuel and ethanol and gasoline will be almost completely substitutable. By contrast, in the U.S. most car engines can't take much more than 10% ethanol (E10), which means that U.S. ethanol consumption is effectively capped at around 10% of total motor gasoline consumption.

This cap isn't constraining ethanol production now (in fact, with current relatively low oil prices, U.S. ethanol consumption is hitting the floor of RFS mandates), but it could in the hypothetical future world where oil prices are sustained above $100/bbl. In that case, corn growers would wish they could sell even more corn to ethanol producers, but buyers of corn for food and feed would be grateful for the cap on fuel demand for corn.

In Brazil, on the other hand, there is no such cap, which means that the entire sugar value chain is, for better or for worse, tightly linked with global petroleum prices.