Abstract
Ethanol is one of the most used fuels in Brazil, which is the second-largest producer of this biofuel in the world. The uncertainty of price direction in the future increases the risk for agents operating in this market and can affect a dependent price chain, such as food and gasoline. This paper uses the architecture of recurrent neural networks—Long short-term memory (LSTM)—to predict Brazilian ethanol spot prices for three horizon-times (12, 6 and 3 months ahead). The proposed model is compared to three benchmark algorithms: Random Forest, SVM Linear and RBF. We evaluate statistical measures such as MSE (Mean Squared Error), MAPE (Mean Absolute Percentage Error), and accuracy to assess the algorithm robustness. Our findings suggest LSTM outperforms the other techniques in regression, considering both MSE and MAPE but SVM Linear is better to identify price trends. Concerning predictions per se, all errors increase during the pandemic period, reinforcing the challenge to identify patterns in crisis scenarios.
Highlights
Ethanol has become an interesting alternative to fossil fuels in the world
The results obtained in this paper demonstrate that it is possible to forecast ethanol prices in Brazilian sight with a degree of correctness of direction between 68 and 80% for the periods of 63, 125 and 252 working days
In attempt to compare performances, we evaluate other 3 models: Random Forest (RF), Support Vector Machine (SVM) with two kernels: Linear (SVML) and Radial Basis Function (SVMR), which are considered as suggested techniques for this kind of problem [14,15]
Summary
In Brazil, this biofuel is widely used, and Brazilian production is the second largest in the world, behind only the United States. The importance of this biofuel in Brazil is because the country has succeeded in replacing oil with ethanol in 20% of the automotive fuel and . 80% of Brazilian cars can carry several mixtures of gasoline and ethanol. This substitution took place due to the fact the country was severely affected by the 1973 oil crisis, in which the local government invested in an ambitious program “Proalcool” for the production of ethanol as a substitute for gas [1]. In Brazil, the main raw material for this process is sugarcane, where sugars are transformed into ethanol, energy, cell biomass, CO2 and other secondary products by yeast cells [3]
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