Western Europe wheat harvest may not be enough to offset shortage

PUBLISHED : Thursday, 23 August, 2012, 2:24pm
UPDATED : Thursday, 23 August, 2012, 3:47pm


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Wheat harvests in western Europe’s main producers are close to last year’s levels as reaping goes on, but that will not be good enough to make up for poor crops in the United States and Russia which have caused fears of a global food shortage.

Benchmark global corn and soybean prices hit record highs this summer in a stunning rally, sweeping wheat up with them, as the worst U.S. drought in 56 years ravaged crops, while a heatwave has also slashed key producer Russia’s grain harvest.

The surge is fanning fears of a crisis akin to that seen in 2007/08 when violent protests erupted in vulnerable countries.

Major European Union harvests are progressing at levels similar to last year, although there may be slightly less wheat that is of high enough quality for making bread.

And there will be no bumper crop in France, Germany and Britain to help ease problems from Russia and North America. As analyst James Dunsterville of Geneva-based Agrinews put it: “The EU is not going to be the one to save the world shortage.”

The European harvest seems to have weathered unfavourable conditions well. French analyst Strategie Grains estimates the total EU crop of soft wheat, used for flour and bread, at 125.3 million tonnes, down just 3 percent on the 2011 harvest.

“Milling wheat supplies will be generally sufficient from this summer’s crop, but the rising international markets mean prices will increase,” one German grain trader said.

The EU is the world’s largest soft wheat producer and its crop this year would contribute some 18.9 per cent of the total 2012 world wheat output seen at around 662 million tonnes. This compares to the 2011 crop of 128.7 million tonnes or 18.5 per cent of the world crop of 695 million tonnes.

The EU is also the world’s fifth largest wheat exporter after the United States, Australia, Canada and Russia, and is a particularly important supplier to its neighbours in the Middle East and North Africa, where rising food prices played a role in some of the political unrest of last year’s Arab Spring.

Wheat harvesting is now almost finished in top EU producer France and in second-largest producer Germany, but rain has delayed reaping in number three wheat grower Britain.

Crop experts say that technical data so far suggest that, compared to last year, a slightly larger proportion of wheat brought in may not make the grade for milling, or bread-making, which is the grade generally required on export markets.

Feed-grade wheat, a lower quality product used for poultry and animal fodder, accounted for one third of the total 2011 harvest in the European Union, Strategie Grains said.

In France, overall there should be sufficient supplies of milling wheat for domestic consumption and for normal export demand, despite a higher proportion of feed wheat in the crop.

With about 95 per cent of the French soft wheat harvest cut early last week, French farm agency FranceAgriMer forecast the crop at over 36.5 million tonnes, up from 34 million in 2011.

But quality may be lower: “Compared to last, year we will have a bigger share of feed wheat, that’s for sure,” said analyst Pierre du Peyroux of Horizon Soft Commodities.

There is no shortage of demand, however, for feed wheat, not least due to lower US maize, or corn, production. So traders may divert some wheat from milling to feed use.

“There will likely be some adjustments in uses,” said Alexandre Marie, an analyst with French consultancy Offre & Demande Agricole. “The world feed market is already tight, with less maize than forecast and with northern Europe having sizeable needs, there will be high demand for feed wheat.”

Germany’s farm cooperatives association forecasts the 2012 wheat crop there at 22.3 million tonnes, down marginally from 22.7 million tonnes last year, but up by 1.4 million on forecasts earlier this year thanks to improved weather.

“The quality viewed in the country as a whole is average to good,” the association said, adding that they expected there to be enough high-quality wheat to meet anticipated demand.

In Britain, rain has continued to trouble the harvest, raising concern over forecast volumes. Dealers estimated around 30 percent of field area had been harvested so far, but rain forecast for the coming weekend could cause further delays and concerns about reaching the quality for milling.

“Quality is very variable,” said David Sheppard, managing director of British merchant Gleadell. “It’s still a weather-disrupted harvest.”

The International Grains Council forecast the British 2012 wheat crop at 15.4 million tonnes, against 15.3 million tonnes in 2011. But commodity firm INTL FCStone is less optimistic:
“Results coming from the field in the UK continue to foster a large degree of variability,” it said. “At least 1 million tonnes will be shaved from UK wheat output estimates, taking it down to the mid to low 14 million tonne range.”

Some EU flour mills are warning that the sharp rise in EU grain prices this year could mean price increases for consumers.

“The EU is no longer a closed market, and international price rises also mean price rises here as the harvest is not enough to change this,” said Manfred Weizbauer, chief executive of the German Flour Mills Association.

“Flour prices have already started to rise, and I cannot exclude bread prices rising.”
(Additional Reporting by Sarah McFarlane in London; Editing by Alastair Macdonald)
REUTERS Reut 06:14 08-23-12