August 3, 2012

Global wheat output estimates down to 665 million tonnes

World's 2011-12 wheat production forecast was lowered by the International Grains Council by five million tonnes to 665 million tonnes, more than 30 million tonnes below 2011-12 harvest estimates, or a 4% drop.

Much of the reduction in wheat production is attributed to the forecast of poor harvest in the former Soviet Union countries - in particular Russia, Ukraine and Kazakhstan - where the harvest is expected to be 17% down on the 2011-12 estimates - a fall of about 24 million tonnes.

The EU suffered a huge freeze during the winter and is expected to see a 4% drop in its wheat harvest or five million tonnes although, according to France AgriMer, the EU's own forecasts are less pessimistic, reducing production by just two million tonnes.

These falls in production have to be added to the poor harvests in countries such as Australia, Argentina and Morocco, where wheat production could be reduced by as much as 40% because of drought. Australian wheat production is expected to be reduced by 19% to 24 million tonnes, and Argentina will see a drop of 14% to 11.5 million tonnes.

By contrast, North American wheat production is forecast to rise with the US expecting an 11% rise and Canada a 5% rise, producing a total of around 87 million tonnes. As reported previously, drought across much of the US, however, is likely to hit the corn harvest hard and soy volumes will also be down unless rain falls in the coming weeks.

Dry conditions are increasing feed prices and quickly spelling financial disaster for livestock producers, according to Purdue agricultural economist, Chris Hurt. Lower harvests will inevitably raise feed prices. However, according to a Texas AgriLife Extension Service economist, the future of corn prices and the impact on fed livestock continue to form an unfolding, tumultuous situation but they have not reached crisis point yet.

Continuing hot, dry weather and the continuing rise in feed prices have made corn and soy prices to reach record levels in recent weeks, with corn at times above US$8 per bushel, soy above US$17 per bushel and soy meal above US$550 per tonne, report Ron Plain and Scott Brown of the University of Missouri.

Of course, many leading pig producers will have made plans to mitigate the risks of exposure to high prices. For example, the world's largest pork producer, Smithfield Foods Inc. has said it will import corn from Brazil, a move that reflects how surging costs for US feed grains are rippling through the livestock and meat industry.

In Brazil, the agriculture minister has set a minimum price of BRL0.40 (US$0.20) per kilogramme of pigs. The measure aims to ensure the flow of production from producing regions and cover the cost of production of the sector. This is just one of a series of measures to be announced recently to alleviate the industry's problems.

A modest improvement in pig prices in recent weeks is being overshadowed by a surge in feed prices in Scotland. Australian feed grain prices increased dramatically in July, underpinned by developments in international markets.

The International Feed Industry Federation (IFIF) has voiced an urgent concern that the rise in fee and food costs will continue unabated for the foreseeable future, in large part due to the diversion of feed and food grains and oilseeds into biofuels. This will result in critical pressure on feed manufacturers worldwide and higher prices for consumers.