UPDATE 2-US ethanol giant POET bidding for wheat along with corn

Wed Mar 6, 2013 5:50pm EST

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By Michael Hirtzer

CHICAGO, March 6 (Reuters) - Leading U.S. ethanol maker POET Biorefining, in a rare move, is bidding for soft red winter wheat (SRW) at an Indiana facility as supplies of corn, the main feedstock in ethanol production, shrink to the smallest in 17 years.

Privately held POET, the country's No. 2 ethanol maker behind Archer Daniels Midland Co, said on its website that it was bidding to buy soft red winter wheat (SRW). The wheat is typically milled into flour for crackers and biscuits but can produce enough starch to offer at least limited substitution for corn as a feedstock for ethanol, industry experts said.

"Most POET plants have the ability to process additional feedstocks such as wheat or sorghum along with corn, and they will do so if it makes sense in the local markets. Being able to use multiple feedstocks can help manage costs and balance those markets," James Moe, president of POET's design and construction and plant management, said in an email to Reuters.

Corn is the main feedstock in ethanol production, but U.S. supplies at the end of this summer are forecast to be the smallest in 17 years after drought diminished last summer's harvest and drove prices to record highs. SRW wheat, a variety grown primarily in the eastern U.S. Midwest, in contrast, is both easier to get and cheaper than corn now.

At POET's facility in Portland, in central Indiana near the border of Ohio, its grain buyers were bidding $7.44 per bushel for corn and $6.85 for wheat, according to POET's website.

The Portland plant typically consumes 24 million bushels of corn to produce 68 million gallons of ethanol per year, according to the company.

POET appears to be the only major ethanol producer using wheat now, as other producers have said it is not yet a good option for them.

Analysts and industry experts said using wheat is usually only a temporary solution for ethanol plants designed for corn. Most facilities produce a byproduct called distiller's grains that is sold as animal feed as well as other byproducts that include corn oil. Using wheat as the feedstock alters the byproduct.

Ethanol industry experts said producers could typically blend 10 to 20 percent of wheat with corn as the feedstock mix for production without requiring significant equipment alterations and changes in yeast and enzymes.

Availability and pricing and quality of corn drive whether or not bringing wheat into the mix is cost effective.

Industry players said plants located in areas where the corn crop was hard hit by a toxic mold condition known as aflatoxin have more incentive to look to wheat because bringing corn in from outlying areas where aflatoxin is not a problem adds to costs.

Still, many ethanol makers, including the top U.S. ethanol producer ADM said they have no plans to use wheat to make ethanol.

Valero Renewable Fuels Co., a unit of Valero Energy , said they are not looking to use wheat at all right now as they focus on boosting revenues from corn-based byproducts, particularly corn oil.

Neill McKinstray, president of the ethanol group of The Andersons, which operates four plants with 350 million gallons of capacity said: "It doesn't work for us today." (Additional reporting by Mark Weinraub, Sam Nelson and Karl Plume in Chicago, Carey Gillam in Kansas City.; Editing by Gerald E. McCormick and Bob Burgdorfer)

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