Britain's wheat outlook has been transformed this week by news that UK oil major BP Plc, Associated British Foods Plc and US chemical company DuPont plan to build a bioethanol plant in Hull, northeast England.

"The ABF/BP/DuPont project in Hull will change the dynamics of the UK wheat market," said Malcolm Shepherd of consultants BioFuel Matters Ltd.

The plant is expected to consume about one million tonnes of wheat a year and follows the announcement of a similar plant from Ensus in Teesside, also in northeast England, financed by two US private equity funds. Both plants should come on line sometime during 2009 and make their impact on Britain's wheat market in 2010. Demand for biofuels is expected to climb in 2010, driven by UK government rules that five percent of motor fuel must come from renewable sources by that year. Britain has an exportable wheat surplus of about 2.5 million tonnes but that total is expected to fall by about 750,000 tonnes later this year when a Cargill sweetener plant in Manchester, which uses wheat as its feedstock, comes on line. Spanish energy and engineering group Abengoa has announced plans to build a plant in Immingham, northeast England, that would consume about one million tonnes of wheat while several smaller projects have also been proposed.

"We never thought there was room for more than two, maybe three plants," Isaacson said.

SUPPLY RESPONSE

Some projects have been developed by new biofuels start-up companies but industry sources said the emergence of major companies such as BP and Abengoa in the sector could put their future in jeopardy. Industry sources said there could be a significant production response in Britain. "Farmers in the long term have always done well in coping with demand shocks. They have always adapted. There is a window for people to get ready for what is going to happen," said Home-Grown Cereals Authority economist Michael Archer.

"There is potential to increase area if that is what farmers choose to do," he said, adding planting decisions would be dictated by price movements on world markets.

Shepherd said farmers would also strive for increased yields with the assistance of agronomists and seed suppliers.

"Farmers can readily supply the early plants from the current exportable surplus and within a couple of years we will see a major increase in UK wheat production as farmers shift towards growing the high starch wheat varieties that produce higher yields per hectare," Shepherd said.

Isaacson said the spirit yield of grain has so far been mainly a concern for distillers but breeders would begin to focus more intensely on maximising litres of alcohol per tonne for wheat.

If Britain did need imports, he noted, the most likely sources would be the Black Sea region, but world wheat prices would probably be high.