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Wheat demand from UK ethanol plants 'to stay strong'

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Wheat demand from UK biofuels plants will remain strong for a few months yet, the AHDB bureau said, after officials cut their forecast for domestic stocks of the grain, implying a sharp slowdown in exports ahead.

"Continued strong demand [for wheat] from the bioethanol industry is expected to remain until the end of the [2016-17] season," in June, the AHDB said.

The comments come amid improved conditions for ethanol producers, which spurred CropEnergies - which owns UK-based Ensus, which with nearby Vivergo is one of Europe's top biofuels plants – last month to raise its profits forecast.

"The main reasons for the better earnings situation are the spot prices for bioethanol which continue to be significantly higher than the previously expected forward prices," CropEnergies said at the time.

"With this, CropEnergies strengthens its position as leading bioethanol producer in the EU."

Record use

In fact, there has been some talk that Ensus has been using corn, rather than wheat, as its key ethanol feedstock, and of some setbacks in output at Vivergo, which is backed by Associated British Foods.

The industry has also raised concerns over its long-term future, and UK government proposals revealed in a consultation paper in January potentially to cap at 2% the proportion of ethanol manufactured from crops mandated for blending into UK petrol, with a preference for biofuel made from waste.

Still, Defra – which does not, for commercial confidentiality reasons break out its forecasts for wheat used in making ethanol alone - raised by 202,000 tonnes to 8.09m tonnes the volume used for industrial and food purposes overall in 2016-17.

That would represent a record high, and a rise of 10.0% year on year.

The estimate for use of wheat in livestock feed was also nudged higher to 7.21m tonnes, reflecting "growth in the poultry industry".

Export prospects

The revisions spurred a cut of 373,000 tonnes, to 1.48m tonnes, in the Defra forecast for the UK's exportable surplus of wheat in 2016-17, which factors in an estimate of 1.60m tonnes for grain needed to meet "pipeline" supplies.

With 1.09m tonnes shipped in the first half of the season, that implies shipments slowing to just 390,000 tonnes for the rest of 2016-17, equivalent to about 65,000 tonnes a month.

Such a shift is typically achieved through a rise in prices which renders UK wheat less competitive on export markets, and indeed the AHDB said that "continued domestic demand has pushed wheat prices to import parity in many areas".

However, that means that further price gains may be harder to come by, a UK trader told Agrimoney.com.

"Go any higher and buyers will just go abroad for their supplies," the trader said, flagging that market demand anyway appeared "a little flat" for now.

By Mike Verdin

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