Leading trader warns against conditional bio-ethanol contracts

Grain traders, Gleadell Agriculture have warned farmers of the danger of conditional contracts for Ethanol production.

Ethanol producers margins are being increasingly squeezed as wheat prices have risen and oil prices fallen over the last year. Already, one Spanish producer has closed its plant in inland Spain for a few months at least.

The price of grain has a much larger effect on the ethanol producers than in some more traditional grain processing industries. For example the cost of barley makes up around 2% of the final price of a pint of beer, whereas the cost of the grain in ethanol makes up approximately 60% of the price of the end product.

Gleadell's Jonathan Lane says, "We are aware that there are some 'wheat for Bio-ethanol' contracts in the market. These contracts are conditional and will only become a real contract if the plants are constructed. Therefore, farmers who sign up to these conditional contracts are giving potential ethanol plant suppliers a free option, with no security as to whether the prices within the contracts can be relied on in the future. We would not recommend anyone tying themselves into conditional contracts – either a contract is real or it isn't."

Gleadell Agriculture offer short-term min/max priced contracts, long-term three-year min/max Protect contracts, with starch premiums if applicable, as well as minimum price Cash and Carry contracts.

"All of these contracts are real and not conditional on an ethanol plant being built sometime in the future. Farmers should be aware of the difference between a conditional 'piece of paper' and contracts that are worthwhile, long term and that can be relied upon to give farmers security in what will be a volatile future ," concluded Mr Lane.