Wheat prices could receive a significant boost after the announcement this week of a joint biofuels project by some of the world’s largest companies.
The collaboration involves petrochemical giant BP, science and chemical firm DuPont and Associated British Foods, which owns British Sugar and half of grain company Frontier.
It will centre around the development and production of biobutanol, which can be used at higher concentrations in unmodified engines and produces more energy than commonly used bioethanol.
It is also easier to transport using existing fuel networks because it does not absorb water.
The new fuel will be produced initially from sugar beet at British Sugar’s Wissington bioethanol plant, which is under construction.
But, if the £20m-£25m pilot scheme proves successful, a new wheat-fuelled plant, estimated to cost about £100m, will be built and could be online by harvest 2008, said Frontier’s managing director Mark Aitchison.
Mr Aitchison said:
“I think this is exciting news for British farming.
It is the first time all the main players in the biofuels industry have come together in a formal partnership.
The opportunity for establishing a technological advantage using biobutanol would give British farmers a real competitive edge.”
Although Mr Aitchison said it was difficult to predict exactly how much wheat the project would use, the level of investment required and the volumes used by comparable plants suggested it would be up to 1m tonnes.
Frontier, which already buys about 4m tonnes of wheat a year, would source the grain, he said.
And, because of the amount required, it was highly likely that most of this would be from the UK.
“The logistics required to assemble 30,000t of grain in one place each week mean you need local supply.”
Julian Bell, a consultant at the SAC, said wheat prices could theoretically improve by £10-£15/t if the increased demand from the new biofuel plants was sufficient to remove the UK’s exportable surplus, running at about 2m tonnes.
But he warned that farmers would need to be alert to take advantage of the best pricing opportunities.
“There will be a greater chance of better prices on the spot market, but the real opportunities will be in the forward market as these companies safeguard the supplies for their plants.”
November 2007 futures were already offering £80/t, said Mr Bell.
But getting many farmers to sell so far ahead was difficult, he added.
NFU president Peter Kendall said:
“If we can produce biofuels with a good environmental footprint, I can see no reason why British agriculture shouldn’t be producing more wheat rather than cutting back production.”