The US and Brazil would limit ethanol production in the coming months

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By Stephanie Kelly, Marcelo Teixeira and Mark Weinraub

NEW YORK, Jun 22 (Reuters) – The United States and Brazil, the world’s top two ethanol producers, may cut production in the coming months due to rising costs of corn and sugar.

Corn and sugar shortages are affecting ethanol costs, making producers reluctant to increase production and gasoline prices rising as well.

The United States and Brazil are the hubs of the world’s ethanol supply, accounting for 75% of global exports last year, according to S&P Global Platts Analytics.

Gasoline prices in the United States are on average above $ 3 per gallon for the first time since 2014, according to data from the American Automobile Association, while in Brazil they were at 5.40 reais per liter (4.06 dollars per gallon) in June in the state of Sao Paulo, close to record highs.

Ethanol often helps lower gasoline prices, said Scott Irwin, a professor at the University of Illinois, as it is often a cheap source of the octane needed for gasoline. However, at current market prices, ethanol is increasing the cost of gasoline.

US corn futures recently hit highs not seen since 2013, while ethanol prices hit their highest level since 2014, according to Refinitiv data.

US ethanol production has rebounded from a low of 537,000 barrels a day in April to about 1 million bpd, according to data from the Energy Information Administration, but market signals suggest further growth will be slow.

“We do expect ethanol production this summer to be slightly below the production rates we saw during the summers of 2019 and 2018, and high corn prices and regionally adjusted corn supplies are a major reason for that,” said Geoff Cooper, president of the Renewable Fuels Association, a US biofuels trade group.

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