German Traders Rebuff EU in Bids for Biofuel Rye
Date: 07-Oct-05
Country: GERMANY
Author: Michael Hogan
"I am not surprised there are no bids," one trader said. "This tender is not necessary and I think it will end up being an embarrassment to the EU."
"Biofuel plants can get cheap rye supplies on the open market, bidding in the tender was too expensive and risky."
The EU's grains management committee decided in late September to open the tender for supplies from its massive and unwanted stocks of two million tonnes of rye in Germany.
Rye is used to produce bioethanol. Germany has two main bioethanol plants which are reaching full production this year. They have an annual requirement from this season of about 1.5 million tonnes of grain.
But the tender was issued against the wishes of the German government which had not requested it and even voted against it in the meeting which made the decision.
Germany's rye harvest suffered very serious quality damage by rain this summer. Large quantities will not reach bread quality and will have to be sold as feed.
Farmers had been hoping to sell poorer qualities to biofuel plants but there are fears the tender will reduce demand.
The tender was opened for the first bidding this week but attracted no interest.
"I do expect any bids in coming weeks either," a trader said. "The tender makes no sense as the bioethanol industry can currently buy the lowest price grain supplies that have been available for years."
"Low quality rye is available at 75 to 85 euros a tonne ex farm," a trader said. "The EU cannot say bioethanol producers face a price or supply problem."
"Bidding in the tender has too many costs and risks. You have to give security of 40 euros a tonne of rye and you only get this back when you provide proof that the rye has actually been processed into bioethanol which has been used for biofuel, not something like plastics."
"This means there is a considerable direct cost and commercial risk for bidders."
"What happens if a bioethanol plant gets a lucrative order for supplies from a plastics firm and you suddenly do not get your guarantee back? This risk cannot be assessed."
"To reflect these costs and risks the rye from the tender would have to be sold considerably cheaper than rye in the open market, perhaps at 50 to 60 euros a tonne which would be unrealistic to expect."
Rye was removed from EU intervention subsidies in 2004 and has since been priced well below other grains enjoying intervention support.
Rye is used to make black bread which is no longer in demand from consumers. Despite this it is produced in massive volumes by east German farmers who often cannot grow other crops on their poor quality land.
