Bioethanol likely outlet for big German sugar crop

HAMBURG,(Reuters) - Germany's sugar farmers are targeting sales to the bioethanol industry to shift a large crop this season but face competition from the grains sector where falling prices have made cereals a viable biofuels feedstock.

Germany is forecast to produce 3.6 million tonnes of refined sugar from its 2008/09 crop, well over the country's EU sugar production quota of 2.7 million tonnes, which has been cut as part of European Union reforms to curb farming subsidies.

With 178,000 tonnes of unsold sugar from last season added to this season's production quota, German sugar industry body WVZ estimates the country will produce 956,000 tonnes of sugar outside its EU quota, which cannot be sold as food.
WVZ Chief Executive Dieter Langendorf believes bioethanol will be a big customer for the excess sugar.

"We are taking a relatively relaxed view of this situation," Langendorf said. "I personally believe that we will be able to market these volumes."
He could not give an estimate of how much the bioethanol industry would consume, as much would depend on the grain price, he said.

But with Germany raising its biofuel blending levels with fossil fuels in 2009, bioethanol demand is likely to be high, one German sugar trader, who did not want to be named, said.

Germany is raising compulsory biofuel blending as part of its programme to cut greenhouse gases which cause global warming. Oil companies must achieve these blending levels, which in turn raises demand for biofuel raw materials.

Two bioethanol plants owned by German sugar company Nordzucker use only sugar as a feedstock. Bioethanol producers, including Verbio and CropEnergies, said earlier this year they would use more sugar as feedstock to replace expensive grain.
But wheat prices have since fallen from a peak of about 250 euros a tonne in March to around 135 euros a tonne now, hit by the global financial crisis as well as a plentiful grain after farmers planted more to take advantage of high prices.

SUGAR VS GRAIN
Verbio Chief Executive Claus Sauter said the company's strategy to use more sugar would continue, but the could switch back to grains if prices remained attractive.
"We can change feedstock use in a matter of hours," he said. "We will watch the prices each day and make a decision on which commodity to use."
A German grain trader said he was confident lots of sugar would be pushed out of the bioethanol market. "A huge volume of cheap feed grains are now available," the trader, who did not want to be named, said.

Stefan Uhlenbrock, senior analyst at soft commodity analysts F.O. Licht, said about 10 percent of Germany's sugar crop -- about 360,000 tonnes of refined sugar -- was likely to be used for bioethanol production this season.
But it was difficult to assess how much would be fully refined and count against the EU quota.

This could mean over 400,000 tonnes of above-quota refined sugar would be produced after bioethanol consumption, which would be hard to sell, he said.
"A certain volume can be sold for industrial use such as for chemicals, but it may be difficult to sell the entire volume so it seems likely that part of this will have to be transferred into next year's quota," Uhlenbrock said.

He also said the EU had approved an import quota of 400,000 tonnes for industrial, non-food sugar so there would also be tough competition from cheap imports.
WVZ's Langendorf said besides industrial uses for sugar, such as chemicals and pharmaceuticals, there was also the possibility of exports to third countries. The EU in August allowed 700,000 tonnes of non-quota sugar to be exported.

"The third possibility is the transfer of stocks into the new season's quota. We have until March to make decisions on this."
"This will give the industry several months to examine the strength of the various marketing possibilities and make a decision."