With the harvest across Europe virtually complete (apart from maize), the impact of the variable weather this spring and summer is becoming clearer. Yield and quality losses in the EU wheat crop, with a global wheat supply situation already tight, caused prices to rally sharply, reaching record levels in recent weeks.
This summer, Europe was faced with an east-west weather split. Severe drought in Eastern Europe damaged crops, reducing yields significantly. Romania and Bulgaria’s wheat yields are around 60% of last year’s levels (down over 3m tonnes), with reductions also seen in Hungary, where average yields are around 3.6t/ha (4.0 in 2006/07), suggesting a crop of 4m tonnes, 0.4m tonnes below last season.
At the same time, major western European producers faced heavy rainfall in July and August, reducing yield potential and damaging crop quality, particularly in France, Germany, the UK and Italy. However more favourable conditions in Spain has increased its cereal production by 28% to 22.7m tonnes, while Poland’s grain crop is 21% higher at 26.4m tonnes.
The French harvest is now complete, and the German harvest is virtually complete, both having been delayed by heavy rain through the summer. Wheat production in France is estimated to be 0.4m tonnes lower at 32.5m tonnes, with early quality results acceptable. Germany’s wheat crop is now seen as low as 19.6m tonnes, down 12% from last year. The rainfall has caused significant damage to German wheat quality, with low Hagbergs and specific weights in many regions.
The crop problems in Europe this season are further compounded by a reported lack of rainfall in Australia and Argentina, the major Southern Hemisphere wheat producers. The tight global supply situation has led several major importers to open buying tenders for wheat to ensure their needs are met. Coming at a time of uncertainty, these actions further fuelled the market rally which has seen record futures prices in the USA, UK and Europe last week. UK wheat futures ended last week at a record £175/t, with the November 2008 contract at £137/t, and November 2009 at £136.50/t.
Despite wheat prices at near-record levels, the maize market remains relatively flat, suggesting a switch in feed usage from wheat that can be milled to maize or other feedstuffs, such as sorghum, which can compete in a GM-free, logistically tight market place. For the 2007/08 season therefore, the tight supply situation remains the driving force, and attention will now shift to the Southern Hemisphere’s production.
At the same time the current market prices for wheat are likely to increase wheat plantings for harvest 2008, with EU farmers likely to be planting larger areas of cereals and oilseeds as set-aside is reduced. This should sharpen the focus on the forward prices trading in the market place for 2008 and 2009 delivery.