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European drought increases ethanol feedstock costs but also boosts dried distillers grains prices

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European drought increases ethanol feedstock costs but also boosts dried distillers grains prices

  • Author
  • Chrysa Glystra
  • Editor
  • Jonathan Fox

London — The hot and dry weather that has swept across Northwest Europe over the summer months has seen grains prices skyrocket but has also increased demand for animal feed, including dried distillers grains, a by-product of ethanol production.

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This has considerably increased feedstock costs for European ethanol producers who have been faced with a dire margin environment for most of the year.

Indicatively, EU milling wheat has surged more than Eur40 over the last three months, last closing at Eur216/mt Wednesday, a more than four-year high. This has left the theoretical margin calculation at minus Eur69.95/mt.

EU corn has also jumped around Eur30 over the same period to a five-year high of Eur195.25/mt, leaving the theoretical margin at minus Eur13.93/mt.

However, some respite for producers is coming in the form of increased prices for DDGs, as the drought has also resulted in increased feed demand.

DDGs have also benefited from tightness in the EU rape meal market, due to EU crushers switching away from rapeseed to soybeans, which offer a better crush margin since the imposition of Chinese import tariffs on US soybeans.

Expensive rape meal has driven up prices for the entire European feed complex and combined with increased demand, EU DDG prices have firmed considerably, providing a buffer to ethanol margins.

Increased revenues from by-products aside, some ethanol producers have also been able to switch their feedstock base from wheat to corn, so real margins could still end up positive or at least break even.

Industry sources said German producers have been increasingly switching to corn, but not all producers will have that flexibility. The UK's Vivergo for example is constrained by its machinery specs and cannot use corn, while for French plants the logistics don't add up.

Switching feedstock is also limited by forward DDG sales, as a switch would result in a different quality product.

--Chrysa Glystra,

--Edited by Jonathan Fox,