Grain pain harms the biofuel industry

High grain prices are threatening the nascent biofuels industry, raising input costs and making the fuel less economic compared with oil.

High grain prices create problems for biofuel companies which produce ethanol from wheat and barley. Other biofuel companies make biodiesel from oil-bearing crops such as soya, peanuts, palm oil and rapeseed.

The prices for most of these commodities have also risen strongly, reflecting strong demand for these crops as food, and additional demand from the biofuels industry.
Christian Langaard, chairman of Euro-Latin Capital, which invests in biofuel projects, said: “This is causing problems for certain producers.”

Earlier this week, production problems were reported at a biofuel plant in Spain jointly owned by Abengoa and Ebro Puleva. The plant was reported to be running below capacity and a halt in production was under consideration. But Ebro Puleva said the plant was guaranteed feedstock into March, although it admitted that the high cereal prices were squeezing operating margins.

Sophie Justice, director and head of renewables at RBC Capital Markets, says rising grain prices are one of the biggest issues for biofuel companies. She says: “There is a real risk (to these companies from the higher prices). The more uncertainty in the feedstock prices, the more the economics (of biofuels) are challenged.”

She says it shows that the biofuels industry is still heavily dependent on government subsidies in most countries.

The Australian