By Fabiana Batista

Brazil and the U.S. have been hammering out a deal for ethanol trade between the nations for months, and the latest twist in the saga could end up being a major setback for American farmers.

On Thursday, the Brazilian government reached a deal with its Congress to restrict the time-frame on imports of U.S. ethanol, according to a person familiar with the matter. Shipments with zero tariffs to Brazil’s Northeast region, the destination for about 80% of cargoes from the U.S., will be limited to the so-called off season for millers in the area, or when they’re not producing biofuel themselves from March to August.

The issue, though, is that the off season in the Northeast comes at a time when output is booming in the country’s Center-South, according to Tarcilo Rodrigues, director at ethanol trading firm Bioagencia. The latter region is the biggest biofuel-producing area for Brazil, and ample supplies during March-August keep prices seasonally lower, likely making them more competitive in the Northeast than the U.S. shipments, he said.

“This restriction cold be fatal in specific moments” for U.S. imports, Rodrigues said.

Brazil’s move is the latest in a series of blows to the U.S. ethanol industry, which is suffering from poor margins and tepid demand amid Donald Trump’s trade war with China.

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While the Trump administration on Friday said it is taking action to boost U.S. demand for corn-based ethanol and soybean-based biodiesel, it may take the industry “time to recover” from the current downturn that’s curtailed production, according to Green Plains Inc. Chief Executive Officer Todd Becker. Still, the new U.S. government plan is also seeking to address trade issues, the administration said.

As of August, Brazil’s imports of U.S. ethanol had declined 23% this year to 1.1 billion liters. A drop in the value of the Brazilian real against the dollar has favored South American suppliers, Rodrigues said.

--With assistance from Rachel Gamarski and Murilo Fagundes.

To contact the reporter on this story:

Fabiana Batista in Sao Paulo at [email protected]

To contact the editors responsible for this story:

James Attwood at [email protected]

Millie Munshi

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