Tag: bioethanol

Arable Market Commentary

New Crop

In terms of growing conditions, little could be more extreme than the temperatures recorded this month compared to last February.  In the February 2018 bulletin we cited the ‘Beast from the East’ delaying drilling.  This year, spring drilling is well ahead of normal with almost 25% of spring barley already in the ground.  A word of warning though; early drilled spring crops are not always the highest yielding, and there is time yet for very cold weather.  We reserve any judgement on harvest yield potential.

The USDA makes its first prediction of US wheat area every February, this year suggesting decreased plantings, in a falling area trend.  Indeed, if correct, it would be smallest US wheat area for 110 years.  This identifies the changing demands for grains, shifting to maize, for pig and poultry feed, biofuels and indeed even human food.

The International Grains Council’s first expectations of the forthcoming 2019/20 year are for a rise in global wheat production, of about 1%, a similar magnitude to the annual rise in demand so no substantial changes in year-end stocks.  This seems to contradict the findings of the USDA, but theirs, of course is USA only.  An increase in coarse grain harvests are also foreseen by the IGC, with maize and barley both up about 1%.  This is in line with the rise in demand so is no more than trend demand.  Much of the coarse grain increases are predicted to occur in the USA and China; the two biggest grain producers, so a small proportional change in these countries will be noticed.  However, there are also rumours that China is considering rolling-out a major expansion to its bioethanol inclusion policy, which would have a considerable impact on feed grain demand in the coming few harvests.

Of course, much of these crops that have been forecast have not yet even been drilled; all maize, and soybeans are spring crops and Canadian, Russian and half of the US wheat is also spring varieties.  Therefore, these projections are statistical analyses coupled with a smattering of planting intention data, not hard evidence of plants sprouting from the ground yet.

Old Crop

In the EU wheat market, a gradual decline in values this month (making European grain cheap compared with American grain) led to Europe and Russia winning some large export contracts to Saudi Arabia, boosting the export figures and balancing the supply and demand books.

The demand for ruminant feed is currently slipping away as cattle venture into the fields and sheep have grass to eat; leaving a lack of demand for feed barley, which has fallen to a £25 per tonne discount beneath feed wheat (which is primarily fed to housed chickens).  Barley is being included at maximum rates in rations now for this reason.

Oilseed rape prices have taken a tumble, based on the arrival of a large vessel loaded with Canadian canola, and the reduction of the rapeseed crush volumes in the UK.  This time of year is often difficult for European rapeseed (and pulses) as harvests from the Southern Hemisphere become available and start putting pressure in markets.  The Old Crop pulse market is increasingly thin and new opportunities will become rarer now, despite a healthy premium over feed wheat for pulses.

Wheat Processor Closures

Within 6 weeks, there have been announcements of 3 major wheat processing plants closing in the UK. Last month, we reported on the closure of Vivergo, one of the two very large bioethanol-manufacturing plants. The other bioethanol plant, Ensus, has now also announced similar plans, to close at the end of November. The third closure is of the Hovis mill in Southampton. The three locations between them have purchased and processed as much as a million tonnes of UK-grown wheat each year they have been operational.

The Ensus announcement suggested the plant would remain closed but ready to become operational again but did not state when that might be or how long they might remain in that limbo before decommissioning the site entirely. It claimed the closure was down to low bioethanol prices. Bioethanol production has always been a tight-margin and high-risk business, with both the raw materials and the finished products (including livestock feed), all being commodities, giving the manufacturers little control of input costs or output price. Furthermore, the commodities are all valued independently. When grain prices have been high and oil prices low in the past, then these facilities have had extended closed periods for maintenance or been mothballed. Ensus for example has had 4 extended closed periods in its short life. The other risk associated with biofuels is the dependence on government subsidies; both the capital required for their establishment and the ongoing per-litre support. Ensus opened in early 2010 and Vivergo followed in July 2013 meaning one was only 8 and the other 5 years old.

Hovis is closing its Southampton mill at the end of this year and is also selling its Selby and Manchester mills to Whitworth Brothers, leaving only one remaining mill in Wellingborough. Whilst a considerably smaller loss than 2016, Hovis lost almost £12 million in 2017. This closure means it is not just feed wheat in the north of England that is being lost but also milling wheat demand in the south of England.

The impact on the price of wheat in the UK has already been felt with a £5 per tonne reduction in domestic values in the week. What was initially expected to be a year with a wheat deficit in the UK, making the UK a net wheat importer once again has now, within the space of just over a month changed totally. After several years of gradually rising wheat processing capacity in the UK, coupled with declining wheat production, the closure of these three sites means that a surplus is likely again most years.

Vivergo Closure Proposed

Vivergo has announced a proposed cessation of production as of the 30th September.  Vivergo is the UK’s largest manufacturer of bioethanol, a biofuel made mostly from domestic (UK-grown) wheat.  Its announcement implies it is a permanent cessation and therefore presumably firm closure, although the wording it not very explicit.

The company blamed the UK Government’s ‘lack of pace to introduce E10 biofuel’, a bend of between 9% and 10% biofuel in petrol.  The regulations currently encourage fuel manufacturers to incorporate 5%  biofuel into their fuels, although Department of Transport data from August 2018 shows total ‘renewable fuel’ accounted for 3% of road fuel in 2017/2018.  Most of this is biodiesel from waste vegetable oils.

The Vivergo website states that the firm uses 1.1 million tonnes of feed wheat per year, but other sources have suggested the plant has seldom operated at full capacity, for example having had a 4-month closure from December 2017 to April this year.  Notwithstanding this, the closure, if permanent, would have a depressing impact on the price of wheat in the Yorkshire/Humberside area.