The Andersons Inc., a major U.S. ethanol producer, has started mixing wheat into its corn-based biofuel in a move to lower costs and diversify its sourcing amid increasingly tight corn supplies.
Andersons, which operates three U.S. ethanol plants with total capacity of 300 million gallons, has started using soft red winter wheat along with corn.
Neill McKinstray, vice-president and general manager of The Andersons ethanol division, confirmed the move, but said he could not discuss the matter.
Many in the industry see the move as a surprising but potentially savvy strategy for dealing with dwindling supplies of the corn feedstock.
But analysts said the company, which has plants in Indiana, Michigan and Ohio, was blending up to 10 per cent soft red winter wheat into its ethanol formula.
“With wheat cheaper than corn, they will likely continue to fit it into their mix to the extent their equipment will allow,” said Rich Feltes, an analyst at R.J. O’Brien in Chicago.
“Ohio soft red wheat harvest is peaking, and the stuff is available and people are looking for homes for the good harvest.”
On July 8, spot soft red winter wheat futures on the Chicago Board of Trade were priced at $6.51 a bushel in midday trade, while nearby CBOT corn futures were trading at $6.67.
The strategy is likely to be short lived, until new-crop corn harvest starts rolling in October, said many analysts.
“As soon as we correct that back to a normal spread, then that will go away,” said Newedge analyst Dan Cekander.
The profitability of ethanol production becomes more critical for industry players as U.S. lawmakers are set to repeal incentives that have been aiding industry growth.