Rapemeal seen threatened by UK biofuels expansion

PETERBOROUGH, England (Reuters) - Rapeseed meal's place in animal feed rations in Britain looks under threat with the first of two major bioethanol refineries due to enter commercial production soon, industry sources said on Thursday.

Ensus is due to ramp up its biorefinery in northeast England during the first quarter of this year. It will take about 1.1 million tonnes of wheat and produce bioethanol and around 350,000 tonnes of a high protein animal feed.

The feed, known either as wheat distillers or DDGS (distillers dried grains and solubles), should have a protein level of about 34 percent, far higher than the around 11 percent of the feed wheat input and comparable to rapeseed meal.

"It is going to be fascinating to see the battle between wheat distillers and rapemeal in the market," Hugh Burton, raw material manager for pig and poultry feed compounder ABN told a conference on Thursday.

ABN is a unit of Associated British Foods Plc.

"We are expecting quite a lot of DDGS supplies coming on stream potentially from bioethanol production in the UK and also from imported supplies," Michael Archer, senior economist at the Home-Grown Cereals Authority (HGCA) said.

"It is a bit of a challenge for rapemeal," he told the conference organised by HGCA and the Processors and Growers Research Organisation (PGRO).

Archer said there was some uncertainty about how easily DDGS could substitute for rapemeal but added "there is still a consensus that DDGS is a potentially useful form of protein and may have the ability to substitute for rapemeal and other sources of protein in rations."

ABN's Burton said Vivergo was expected to bring on line a second similar size bioethanol plant in eastern England which would also produce DDGS either in late 2010 or early 2011.

Ensus is owned by two U.S. private equity funds, the Carlyle Group and Riverstone, while Vivergo is a joint venture owned by British Sugar, BP and DuPont.

Burton said DDGS was relatively low in key amino acid lysine which is important for both pigs and poultry.

"I'm sure it will knock rapemeal out of the ration in the cattle sector but where lysine is more important in pig and poultry feed it doesn't seem to be having that effect with the price mix of ingredients we have at the moment," Burton said.

(Reporting by Nigel Hunt; editing by Christopher Johnson)