Abengoa's Woes Risk Widening Grain Glut on Biofuel Concern

  • Owner of EU's biggest ethanol plant seeks to avoid insolvency
  • Grain traders may become reluctant to sell to company: Licht

Europe’s grain farmers, contending with the lowest prices in about five years, may soon face another challenge: woes at the owner of the region’s biggest ethanol plant may lead to less demand.

Spanish renewable energy producer Abengoa SA is due to meet its main creditor banks on Wednesday as it seeks funding needed to avoid insolvency. While Abengoa said Dec. 1 it had no plans to stop production, grain traders may become reluctant to sell the company the wheat and corn its uses to make the biofuel, said Christoph Berg, managing director of researcher F.O. Licht GmbH.

Abengoa’s factories in the Netherlands, France and Spain have the capacity to consume more than 2 million metric tons of grain a year, so any slowdown or closure of its plants would add to an oversupply. A Bloomberg index of wheat, corn and soybean prices is near the lowest since June 2010 as bumper crops boost global grain stockpiles to the highest in almost three decades.

"If we have further reduction in demand from the ethanol industry, it will be one more bearish factor for wheat and corn prices in Europe," said Benjamin Bodart, director at farm adviser CRM Agri-Commodities in Newmarket, England. "We already have surpluses and while ethanol demand is not a driver of grain prices in Europe, it’s another negative element."

Abengoa’s bioenergy plants are operating normally, with the exception of the Hugoton factory in U.S. state of Kansas, where its ramp-up phase has been postponed, the company said in an e-mailed statement Wednesday.

Grain Consumption

Still, biofuels account for a small amount of grain consumption. Europe processed 10.6 million tons of grain into ethanol last year, according to ePure, an association representing biofuel producers in the European Union. That’s about 3 percent of the bloc’s production of crops.

Grain usage to make ethanol rose 43 percent in 2010 as the European Renewable Energy Directive called for 10 percent of transport fuel to come from renewable sources by 2020. Growth slowed in the last few years as the bloc proposed capping the amount of conventional biofuels that can be used to meet renewable targets to 7 percent. The bill became law this summer and member states have two years to integrate the decision into legislation.

European Grain

"Our sector provides a valuable market for European farmers and for the excess grain that Europe produces," Robert Wright, ePure’s secretary-general, said in an e-mailed statement. "Capping the use of ethanol made from grains restricts continued and sustainable growth in the European grain market and has a negative impact on EU grain production."

Grain usage for ethanol in the U.K. may fall to 500,000 tons in the 12 months through June from about 800,000 tons in each of the past two seasons after CropEnergies AG earlier this year mothballed its Ensus ethanol plant, CRM Agri-Commodities estimates. The factory has a capacity to use more than 1 million tons of feed wheat a year. Farmers near the plant have been forced to sell their grain at a discount of 2 to 3 pounds ($3 to $4.50) a ton to exchange prices, a trend likely to last until spring, Bodart said.

CropEnergies didn’t respond to an e-mail or phone calls seeking comment on the current status of its Ensus plant.

It’s becoming more profitable to produce ethanol in Europe because prices have risen and grain costs declined, according to Ratzeburg, Germany-based F.O. Licht. That means it would make sense for Abengoa, which has said it could sell some its ethanol factories, to keep its plants running, Berg said.

Prices for the biofuel for loading in Rotterdam climbed 36 percent this year to 634 euros ($692) a cubic meter by Dec. 7, according to Nyon, Switzerland-based Starsupply Renewables.

"The Abengoa situation is delicate and worth watching," F.O. Licht’s Berg said. "It’s not clear how long they will be able to keep operating, as grain traders may become reluctant to sell to them."

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