The Heat Is Online

Extreme Weather in Europe Threatens World Wheat Supply

Weather-Hit Crops Tighten European Wheat Supply, May 22, 2006


PARIS - Flooded fields in central Europe, a harsh Black Sea winter and low rainfall in France have dimmed the prospects for this summer's wheat crop, adding to tightening world supplies next season, analysts said on Friday.


French new crop wheat futures have rallied strongly this month as the supply/demand outlook for next season has tightened. The benchmark November position is up around five euros to above 119 euros (US$152.2) a tonne since early May as initial forecasts of a much bigger EU crop have been reined in.


French analyst Strategie Grains this week cut its forecast for European Union grain output next season by two million tonnes to just under 265 million, three percent up on 2005.


Wheat was trimmed by 1.5 million tonnes to 118.8 million, still up 3 percent or some four million tonnes on 2005.


"In central Europe, wheat yields have been revised down to take account of the impact of excess water levels in the soil caused by melting snow and high precipitation levels this spring," it said in its monthly report for May.


Key grower Hungary has been one of the worst hit.


Hungary's farmers have been forced to sow on wet soil, inevitably hitting yields, the farm ministry said on Thursday.


"There are still areas flooded with rainwater," Department Chief Ferenc Hinora told Reuters, saying 25-30,000 hectares of wheat planted in the autumn has been destroyed by flooding.


In Poland crops were damaged by cold temperatures in some parts, and delayed spring wheat planting could expose crops to higher temperatures late in their growing cycle.


And analysts point out that despite a higher crop than last year, many countries like landlocked Hungary have difficulty exporting their surpluses.


"This makes the situation even tighter," analyst James Dunsterville of AgriNews said.




Further east, the weather in Russia and Ukraine has improved but farmers are counting their losses after a harsh winter.


Russia expects its grain harvest to fall to 70-77 million tonnes this year from 78.2 million last year. Analysts say relatively warm weather will enable the spring crop to make up some of the losses wrought by the coldest winter in 30 years.


A senior Moscow trader put the wheat harvest at 42 million tonnes against 47.7 million tonnes in 2005.


The warm spring and good soil moisture has improved the state of winter grains. Leading market analyst SovEcon said winter-kill losses would cover 19 percent of the sown area.


It said losses were well below average in southern Russia, the country's major wheat producing area, but the central and Volga regions have been badly hit.


"Some of the Volga regions are in terrible shape," a trader with an international grains company said.


In France, the EU's top grower and exporter, crops are not looking quite as good as earlier. Strategie Grains cut its estimate for France by around 700,000 tonnes to 37.8 million, still up 3 million tonnes on last year.


"Some French and UK regions received insufficient water during a critical phase of development," it said.


But other areas like Spain, where drought crippled production in 2005, will see higher crops. Strategie Grains sees soft wheat at 4.2 million tonnes, up from 2.6 million in 2005.


But the EU overall balance is much tighter than before. "A situation where supply and demand are so close to balance and yet the end of the crop year is so far off, indicates the potential outcome may go either way," the analyst said.


"The situation therefore could become explosive if there are problems with the harvest," it added.


And this comes as world wheat production next season is forecast some 20 million tonnes down on 2005/06 at around 600 million. The USDA has forecast lower US production and global stocks dropping to a 25-year low.


"Despite excellent harvest outlooks for North Africa and potentially good harvests in Turkey, Canada, Argentina and the EU, the outlook for the world wheat market is very tight," Strategie Grains said.