Fitch raised Brazil’s foreign-currency debt rating to BBB-, the lowest investment-grade level, from BB+, matching a move made by S&P on April 30. The increase will give the South American country better access to capital markets because some institutional investors can only buy securities issued by countries with at least two investment-grade ratings. [...]

The yield on the government’s zero-coupon bonds due January 2010 fell 19 basis points, or 0.19 percentage point, today to 14.31 percent, according to Banco Bradesco SA. The extra yield investors demand to own Brazil’s dollar bonds rather than Treasuries shrank 16 basis points to 1.91 percentage points, the narrowest since Nov. 7, according to JPMorgan Chase & Co.’s EMBI Plus index.

The Fitch move “is potentially the door opening to some investors who now can buy Brazil in the fixed-income market,” said Geoffrey Pazzanese, who helps manage $44 billion in global stocks at Federated Investors Inc. in New York.

The risk of owning Brazilian bonds fell to the lowest since May 19, according to Bloomberg data. Five-year credit default swaps based on the country’s debt dropped 6 basis points to 0.895 percentage point. That means it costs $89,500 to protect $10 million of the country’s debt from default.

“Brazilian companies have become global leaders in key industries,” says Manraaj Singh in Profit Watch.

“Companhia Vale do Rio Doce is now the world’s biggest iron-ore producer. State-owned oil company, Petrobras, overtook Mircrosoft to become the world’s sixth-biggest company by market capitalisation last week. Petrobras is sitting on the Western Hemisphere’s largest oil discovery in three decades. Possibly even the third-biggest oil field in the world!

“These are names that are going to become much more familiar to us in the decades ahead.

“Brazil isn’t just an emerging oil giant… it’s also the biggest producer of the only truly commercially viable alternative to oil – sugar-based ethanol.”

As the world’s lowest cost ethanol producer, Brazil has a big advantage over other countries, says Mike Burnick in The Offshore A-Letter:

“Neither U.S. corn-based ethanol, nor wheat-based ethanol from Europe, can come close to matching the Brazilians on a production cost basis.

“The sugarcane plant, which flourishes in Brazil’s tropical climate, produces a ‘yield’ of 6,000 liters of ethanol per hectare of land. That’s about twice the yield of corn-based ethanol!

In fact, Brazilian ethanol is about 40% cheaper to make than in the US – and costs less than half the price of European ethanol.”

This from Mike Burnick:

Brazil is far and away the global leader in ethanol production technology. In fact, the country began large-scale development of ethanol as an alternative fuel source amid the oil shock of the late 1970’s and early 80’s.

Today, ethanol accounts for 50% of Brazil’s total annual automotive fuel consumption. More than 70% of new cars sold in the country are flex-fuel capable. That means they’re able to run either on gasoline, ethanol, or some combination of the two.

Currently, Brazil is the world’s second-largest ethanol producer, and largest exporter, with total output of about six billion gallons a year.

The country has its sights set on becoming the dominant global exporter of ethanol by 2020. Brazil’s global ethanol exports could total as much as 200 billion gallons a year within that time – that’s over 30-times today’s ethanol production. Talk about a growing industry!

U.S. and Europe Just Can’t Compete with Brazilian Ethanol

Brazil enjoys a big advantage over other nations – as the world’s lowest cost ethanol producer. As shown in the graph above, Brazil can distill bio-fuels from sugar cane at a significant cost advantage to other nations.

Neither U.S. corn-based ethanol, nor wheat-based ethanol from Europe, can come close to matching the Brazilians on a production cost basis.

The sugarcane plant, which flourishes in Brazil’s tropical climate, produces a “yield” of 6,000 liters of ethanol per hectare of land. That’s about twice the yield of corn-based ethanol!

In fact, Brazilian ethanol is about 40% cheaper to make than in the U.S. – and costs less than half the price of European ethanol.

When Trade Tariffs Fall, Brazilian Ethanol Will Flow

Of course Washington, in their infinite wisdom, maintains silly trade tariffs equal to 54-cents a gallon on imported ethanol. This ridiculous trade barrier benefits a relatively small number of U.S. corn farmers at the expense of millions of American drivers.

In spite of this, Brazil’s largest ethanol export market remains the United States. In fact, Brazil shipped us more than 430 million gallons of ethanol last year – up fourfold from 2004! Wholesale gasoline prices in the U.S. are leaping above US$4 a gallon, and will keep spiraling higher as crude oil goes through the roof during what’s shaping up to be a long, hot summer.

Naturally, pressure is mounting for Congress to eliminate this silly, protectionist ethanol tariff. When that happens, the floodgates will open wide for much-cheaper Brazilian ethanol to flow freely into U.S. markets.

By leveraging the strength of its vast sugarcane growing region, and building on its already well-established ethanol producing technology, Brazil is perfectly positioned to benefit.

In fact, this emerging market tiger could easily become the Saudi Arabia of ethanol within the next decade. You heard it here first!

Hopefully, American protectionist trade tariffs are lifted soon… and when they are, Brazil’s ethanol expansion would quickly follow.