UPDATE 1-US ethanol giant POET makes rare bid for wheat in Indiana

(Recasts, updates with analyst comments, adds details)

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, was bidding to buy SRW wheat, a variety grown primarily in the eastern U.S. Midwest and typically used to make crackers and biscuits.

U.S. ethanol producers rarely use wheat to make biofuels but the worst drought in five decades reduced last year's corn harvest and pushed corn prices to record highs. The U.S. ethanol grind subsequently fell to the lowest level since the government began releasing weekly statistics in June 2010.

The highest gasoline prices since last summer and better profit margins at ethanol plants have led some facilities to ramp up production in recent weeks.

However, U.S. farmers are holding tight to what remains of last year's corn harvest while wheat supplies are more plentiful.

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

POET spokesman Matt Merritt had no additional comment.

Analysts said using wheat is 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. Many plants also have technology to extract corn oil.

Ethanol plants can supplement corn supplies with other feedstocks, such as wheat, before drastically altering operations.

"They can do up to 20 percent with wheat before having to completely shift their plant over. I have heard it is being done in some areas depending on price and availability," said Chris Manns, president of Traders Group Inc.

(Additional reporting by Mark Weinraub, Sam Nelson and Karl Plume in Chicago; Editing by Gerald E. McCormick and Bob Burgdorfer)