March 18, 2011

 

Demand for European wheat expected to increase

 

 

Demand for European wheat as animal feed is set to increase due to falling prices, while corn markets may now be left in surplus this year as users choose cheaper wheat supplies, according to Strategie Grains.

 

In its March market report, the French analyst estimated EU 2010-11 wheat production at 126.4 million tonnes, rising to 135.2 million tonnes next season due to high plantings this year.

 

Imports are expected to rise from 2.5 million tonnes this year to 3.7 million tonnes in 2011-12, while internal demand is predicted to increase by 3.5 million tonnes to 118.1 million tonnes, driven by higher consumption as feed.

 

"We forecast a larger growth in demand than last month reflecting higher demand for wheat in animal feeds (at the expense of corn) because the price of wheat fell more sharply," said Strategie Grains.

 

European wheat prices have fallen 15-20% in recent weeks due to fears of an economic downturn on the back of the crisis in the Middle East and now the earthquake in Japan, as well as hopes for the Northern Hemisphere crop.

 

However, with tighter world corn supplies and stocks at a near two-decade low, corn's pullback has been more limited, making it less attractive for buyers. Both grains can be used for livestock feed.

 

Strategie grains pegs EU corn production at around 54.9 million tonnes in the current marketing year, while internal corn demand is predicted to fall by one million tonnes due to lower use as feed.

 

Uncompetitive EU corn prices relative to the rest of the world mean exports are also due to fall 400,000 tonnes this season, easing pressure on domestic markets and therefore prices.

 

"Given the reduction in animal sector demand, the EU corn balance sheet is now showing a potential surplus," said Strategie Grains. "The balance sheet is therefore pointing to very tight situation in 2011-12 whereas the outlook for the remainder of 2010-11 has slackened considerably."

 

The analyst warned that the EU will face a potential 1.2 million-tonne deficit next year, despite production rising to around 58.7 million tonnes, as high world prices and low stocks limit import availability to 3.8 million tonnes.

 

"New crop US prices have no potential for decrease because the demand situation for 2011-12 could not accommodate a reduction in supply," the analyst said.