Biofuel plant to boost UK wheat prices

UK wheat prices look set to receive a further boost after plans to open a new bioethanol plant were announced this week.

The facility, to be built by energy firm Ensus at Wilton next year, will be capable of producing 400m litres of bioethanol a year.

The plant will require 1.2m tonnes of year, which is set to be supplied by grain merchants Glencore as part of a long-term deal.

Shell Trading, an arm of oil and gas giant Royal Dutch Shell, has signed a ten-year contract to buy the bioethanol produced.

The plant at Wilton is one of four Ensus plans to open in the UK and Europe in the next five years to meet increasing demand for bioethanol. Other sites under consideration include Humberside, Rotterdam and Hungary.

The Renewable Transport Fuels Obligation, introduced last year, will force fuel distributors to blend 5% biofuels with petroleum-based fuels by 2010.

‘Massive significance’

Nick Oakhill of Glencore Grain said using 1.2m tonnes of the UK’s wheat would have “massive significance” on the domestic wheat market.

“This year the UK had an exportable surplus of about 1.6m tonnes (from a total of 15m tonnes), so a plant of this size would use most of that surplus.”

Reliance on the competitiveness of other European countries had depressed UK wheat prices in the past, but greater UK demand should stabilise prices, he said.

As well as benefiting growers livestock producers would also benefit from a protein-rich animal feed produced by the plant as a by-product.

While farmers in the North-east would be well-placed to supply the plant with wheat, Mr Oakhill said Glencore would not be limited to sourcing UK wheat if it was more economical to import supplies.

Scepticism

However, Alastair Dickie, HGCA director of crop marketing, said he did not expect to see UK wheat priced out of the bioethanol market.

“Increasing domestic wheat consumption would move the market towards import parity, which could add £7-10/tonne,” he said.

Wheat prices could still be volatile, but they were unlikely to drop as low as they had been in recent years, he added.

Simon Ingle of Grainfarmers said the new plant would be positive for the wheat market, but scepticism over when biofuel plants would actually open meant prices would not move until plants start to take some of the UK crop.

Forward prices for wheat were £83/t for November 2007 and £84/t for the following year. Further price increases depended on how much of the current tight global supply was replenished over the next season, he added.

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