Impact of bioethanol plant closure ‘uncertain’

While arable farmers were bracing themselves to see the effects the announcement of the proposed permanent closure of the Vivergo bioethanol plant would have on wheat prices, livestock producers had similar fears on the effects on the feed market.

The £350 million plant near Hull which opened in 2007, had the capacity to produce 420 million litres of bioethanol from 1.1 million tonnes of feed wheat, sourced from nearly 900 farms, mostly across the north of England. However, the plant is also the country’s largest single production site for animal feed, delivering 500,000 tonnes of high protein feed to more than 800 farms across the UK.

The news that Vivergo Fuels Ltd proposed to cease production was blamed on the continued difficult trading environment and delays in the implementation of national plans to increase the amount of bioethanol used in the current petrol mix.

Stating that the company proposed to end production at the plant at the end of the month, managing director, Mark Chesworth blamed the government’s “lack of pace” on the introduction of regulations for greener fuels.

Market commentators said that the impact of the closure on the domestic market would become clear over time, as markets readjusted to the shift in the domestic consumption landscape. And although few in Scotland supplied the market directly, the anticipated fall in feed wheat demand in the north of England is likely to see the structure of delivered feed wheat premiums throughout Great Britain change.

With delivered wheat in the area which did supply the plant averaging between parity and £2/t above that of the major wheat growing regions in the south, it had climbed considerably, peaking at £13.50/t above that of East Anglia in May of this year.

However, speaking yesterday Peter Collier, market analyst with the AHDB, said the supply and demand implications of the Vivergo shut down were not clear cut. He said: “As we move through autumn and into winter, wheat which may have been well placed to enter the ethanol market may now move into other domestic supply chains.”

He said that from an animal feed perspective, the supply of the distillers’ grain by-product would be expected to diminish – although he added that the livestock sector could eat into the “on paper” additional domestic wheat supply.

David Sheppard, managing director with grain traders Gleadell, said that together with moves in the global scene, the closure would ensure that the grain market remained choppy and difficult to read:

“This releases a lump of wheat back into the supply chain and removes a major influence in the northern wheat market for a while. It means we won’t have to import as much wheat or maize this season and our exportable surplus will grow a bit too,” he said.