Biofuel questions raised as commodity prices soar

There was an unmistakable buzz of optimism among visitors at this year’s Cereals event (13-14 June), undoubtedly fuelled by better commodity prices and the prospect of a fledgling biofuel industry finally getting off the ground.

But, with wheat prices rising to over £100/t and oilseed rape nearer £170/t – ironically partly due to biofuel demand – tough questions have been raised about the viability of using such feedstocks at current ($69/barrel) crude oil prices.

Former AICC chairman Allen Scobie was one of those who feared that current prices could slow the development of the bioethanol sector in particular.

“All models have been based on wheat at £80/t. They just don’t stack up at £100-£110/t, so I don’t think anyone will be in a hurry to start laying bricks.”

While bioethanol markets needed more time, he thought the EU biodiesel market would develop reasonably well. “Regardless, it’s good for UK farmers so long as it keeps supporting prices.”

Ian Munnery at United Oilseeds was also cautious about the current biofuel hype. The sector would only grow provided it was cost-effective and companies could make a profit. “It all comes down to price.” Energy aid payments were unlikely to make a significant difference, he added. “The problem is that energy payments depend on plantings. If the area increases [due to better prices], the amount paid will fall – especially when you include modulation on top.”

Funding problems delay starch plant
Delays caused by funding and planning problems at the £80m Immingham bioethanol plant mean that the first year of Centaur’s starch contract is no longer valid. “We’re still looking to sign people up for harvest 2009-13 on the same basis as the previous contract,” said John Bromwich from Bioethanol Ltd. People who signed up first time around were being re-approached and, despite a contract price of £78.50/t, a “significant majority” were re-signing, he said.

Velcourt Farms was among those who signed up originally. “Those contracts are now technically void and that grain will be put onto the open market,” said farms director, Richard Williamson. The firm remained supportive of the concept and said it would consider future offers.

Grainfarmers’ Andrew Barnard acknowledged that current grain prices were a concern for future expansion, and believed the wheat price threshold for bioethanol production was nearer £90/t.

But he was optimistic about the future, particularly as the Renewable Transport Fuel Obligation (RTFO) would require transport fuel suppliers to ensure that 5% of all UK road vehicle fuel was from renewable sources by 2010. “All the oil majors are taking more notice now,” he said.

A similar view was shared by Richard Whitlock from Frontier, who predicted a recovery in global stocks and a downturn in future prices. “And British free-trade policy says it isn’t just for the domestic industry to supply the biofuel market, so we will be subject to cheaper supplies coming in.”

Certainly, with some planned facilities requiring more than 1m tonnes of wheat when fully operational, it is unlikely that this can be met by domestic supplies alone. Nick Oakhill from Glencore said the Ensus bioethanol plant on Teesside (which Glencore will be supplying) would require 1.1-1.2m tonnes from the 2009 harvest. “For harvest 2008 we will be looking to source primarily from the UK, but by 2009, we realise we will have to import some.”

Contracts had not been offered to growers yet, as the firm was waiting until energy crop regime details had been confirmed, he said. “Also, at current prices (£109/t for November), it’s very unlikely that growers will be booking up crop that far in advance.”