Teréos Sees Opportunities Despite Wheat and Sugar Prices

AMSTERDAM – In December last year, wheat prices rose above $10 per bushel for the first time, as dry weather threatened crops in Argentina, adding to concern that the world's farmers may not be able to grow enough to meet demand for bread, pasta and livestock feed. The price of wheat has more than doubled in the past year as drought reduced output from Australia to Canada. Raw sugar prices on the other hand have fallen by more than 15% this year due to a huge oversupply of the sweetener, driven by leading producers Brazil and India. Knowing this, imagine the position of French commodity producer Teréos which, besides producing sugar, also processes wheat and sugar beet into ethanol for the European market. Ethanol Statistics sat down with Bernard Chaud, Director of Biofuel Projects at Teréos, to discuss the effects of rising commodity prices on the strategy of the company. Mr. Chaud remains confident about the production of ethanol on the long term, because of the continuous development of agricultural yields, the construction of more energy efficient production plants and commodity prices adjusting to increasing supply.

Flexibility
Teréos is one of the largest ethanol producers in the world, partially because it also owns Açucar Guarani which is one of Brazil’s largest sugar and ethanol producers. In Europe, it has fuel ethanol production plants in France and the Czech Republic. As a result, Teréos produces about one third of its ethanol from sugar beet, one third from sugar cane and one third from wheat. “Our strategy is confirmed by the current situation in commodity prices,” says Mr. Chaud. “Our strategy is to rely on a diversity of feedstock to produce a variety of final products, balancing outlets between food, feed, fuel and chemical.” In short, Teréos is coping with volatility and uncertainty in prices and demand, by diversifying its input and output. A concept that Teréos is trying to apply in its new plants. “We are currently looking at the possibility of building flexible plants, ”Mr. Chaud mentioned, “that are better able to switch between different feedstock.”

Feasibility of ethanol production from wheat
While few could argue with the strategic value of being flexible on feedstock, a valid point can be made on questioning the economic sustainability of ethanol production from wheat. Concerns about supply may keep wheat prices within the $10 per bushel area, making it hard to compete with sugarcane or corn based ethanol. According to Mr. Chaud, “The real question is what wheat will do compared to sugar prices. In the past, wheat prices averaged at about 70% of the price of sugar per tonne. The situation today is completely reversed, with wheat prices on the international market at about 1.7 times the price of sugar. We don’t think that such a situation is sustainable.” An economically sustainable situation for both Teréos and farmers is according to Mr. Chaud a wheat price of about 150 euro per tonne. “That’s a very good price for farmers I think.”