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Cheap wheat to help meet EU fuel demand

A sharp decline in wheat prices driven by a supply glut is set to lead to more of the grain being turned into motor fuel in the European Union. Demand for bioethanol, a renewable substitute for petrol normally made from either grains or sugar crops, is increasing in the EU. It is seen as a way to reduce emissions of the greenhouse gases believed to contribute to climate change.

Wheat is now in pole position to help meet the demand with the price of alternative feedstock sugar rising to the highest levels in nearly three decades earlier this month and sugar-derived bioethanol imports from Brazil on the wane.

“Those plants that are flexible in the processing could switch to wheat and get a very cheap feedstock,” said Rob Vierhout, secretary general of the European Bioethanol Fuel Association (eBio) in Brussels.

Wheat futures have fallen sharply to contract lows in Paris during the last few weeks, depressed by larger-than-expected harvests in both France and Germany. Wheat was the most important feedstock for bioethanol production in the EU in 2007, the most recent year for which a breakdown is available, with a 39% share. Grains (including barley, maize and rye) accounted for two-thirds, according to eBio statistics.

That total should rise significantly.

Ensus should bring on-line later this year the largest biorefinery in Europe in north-east England which will use about 1.1 million tons of wheat to produce about 400 to 450 million liters of bioethanol.

In 2010, Vivergo is due to bring on-line a similar size plant in eastern England which is also expected to use wheat as its main feedstock.

Ensus is owned by two US private equity funds, the Carlyle Group and Riverstone, while Vivergo is a joint venture owned by British Sugar, BP and DuPont.

“I can well expect that more grain will be used (to produce bioethanol) as it can now be bought very cheaply,” said Frank Bruehning, spokesman for the German biofuels industry association VDB. (Reuters)