UK's Vivergo restart rumours drives UK wheat prices higher

UK ethanol producer Vivergo could be poised to restart its biofuel plant market sources said Friday, after the company publicly mothballing the facility on poor margins in December.

The news took the UK market by surprise adding more than 2% to the underlying UK feed wheat futures this week, according to market sources.

“There is definitely wheat going in next week,” one merchant said, adding that there was no clear sign of how long the 420-million litre plant might run for.

Industry rumours vary from a one-week trial run after carrying out maintenance during the down time, to the full recommissioning of the plant until the end of the crop year.

The biofuel producer was heard offering dried distillers grains (DDGs), the by-product of bioethanol production, as far out as July 2018 suggesting that it could be looking at a longer run than one week.

If the plant runs under the end of the campaign, it could take as much as 250,000 mt of wheat out of the UK's balance sheet, one buyer commented, with the expectation of demand seeing old crop prices narrow to minus £1 versus new crop, up from minus £3 at the start of the week.

However, with ethanol prices fighting back from the lows of late November and early December, margins look to have improved - but the run up in corn and wheat prices since the January 2018 raised questions for some. 

“The economics don’t make sense,” one wheat merchant said, questioning the viability of a run until the end of crop as bioethanol prices in the ARA hub remain under pressure while UK wheat prices climb.

Britain’s other main ethanol producer Ensus – with a similar 400,000 litre capacity - can switch up to 50% of its intake to cheaper corn and has “maxed out on it”, according to one UK broker, meaning it is less exposed to pressured margins.

Vivergo, owned by AB Sugar, mothballed its facility in December amidst poor margins and after the UK government ruled out introducing an E10 mandate - which would have required 10% of the UK's petrol mix to contain ethanol. 

Energy Census contacted Vivergo Fuels for comment but no one was available.