Biofuels In High Demand

As delegates from 193 nations return home from the Copenhagen climate conference, gaps still remain in greenhouse emissions targets worldwide. However, UK farmers can be confident that demand for biofuels will continue to grow.  The UK, as well as many other countries in the EU and across the globe, have revised targets for the production and inclusion of bio-fuels.

Mark Smith, Trading Director at Kings Lynn based grain trader, Saxon Agriculture, said Canada, for example, has introduced Biofuel targets for the first time, a 5% inclusion of ethanol in petrol in 2010, and a 2% biodiesel inclusion in diesel by 2011. Bulgaria is another example, pledging a 2% inclusion of biofuels in both petrol and diesel by 2011 and many other countries will follow suit.

UK production

We will soon see two new UK biofuel plants up and running. Ensus on Teeside is currently taking in wheat and starts production early in 2010. When running to full capacity the plant will use 1.2 million tonnes of wheat per year.  Towards the end of 2010 a second plant opens on the Humber, and is set to use a similar amount.

Such developments are clearly adding extra demand into the marketplace, both for ethanol from cereals and sugar cane, and biodiesel from oilseeds says Mr Smith. Extra demand increases the marketing options for producers and their crop and although grain production is still a volatile business that can alter significantly year on year, the growth of biofuels will certainly help to support prices.

The biofuel industry is currently using significant amounts of grain and oilseed and this will continue to grow, forecasts Mr Smith, oilseed plantings have generally been increasing, and biodiesel production is one of the reasons. In 2009 the world produced 16 billion litres of biodiesel and 74 billion litres of ethanol.  However this only represents about 1% of the total amount of crude oil used globally. It is forecast that we will see a 10% increase in biofuel production in 2010, some analysts are even predicting demand will double by 2015; demonstrating plenty of continuing support for the grain markets.

In an environment of growing demand, farmers must be wise about who they work with to market their grain. The Saxon Managed Fund, where farmers commit an agreed tonnage of their grain crop to be managed, is successful because it works independently of any end market and simply looks at emerging opportunities in the market place. In the kind of market that we are currently in, growers should keep their options open and not tie themselves to one end user

Biofuel Politics

In the UK, the system used to encourage biofuel inclusion sees penalties given to companies who fail to get the right percentage into their fuel mix. In other parts of the world, tax incentives are offered for companies who reach inclusion targets.

The net effect is that no matter which system is used, the politicians are in control. Will the politicians pull the plug? In my view this is unlikely, as setting and achieving biofuel targets is a key priority if the world wants to lower its greenhouse gas emissions. Biofuels offer an immediate and practical partial solution. In 2009 the global use of biofuels reduced net greenhouse gas emissions by over 120 million tonnes, a statistic not lost on global leaders.

With a general election in the UK in 2010, reducing greenhouse gas emissions is likely to be high on the political agenda, as will support for biofuels.

Cereal and oilseed prices will be supported by the biofuels sector as long as ethanol and biodiesel remain commodities with additional demand.  Just two years ago, during a period of low grain stocks and high prices, biofuels were accused of eating into the worlds grain supply. Two years on, following good harvests and a global stock rebuild, biofuels are back in favour. However, this could all change again, a bad harvest or two would see pressure on food prices and the politicians back under scrutiny as a result. The whole biofuels sector is fraught with political danger and the risk of upheaval, although prospects in the short term look very encouraging and growers should be aware of this.

To find out more information about Saxon Agriculture and the Saxon Managed Wheat Fund call 01760 339323 or log onto www.saxonagriculture.co.uk