August 5, 2010

 

FAO warns that global wheat supplies may shrink in 2011

 

 

The UN's food agency has cut its 2010 global wheat forecast and warned world supplies may contract next year if Russia's worst drought in over 100 years persists.

 

So far in the current campaign Russia has reaped just over 35 million tonnes of grain, the agriculture ministry said on Wednesday (Aug 4), fractionally down on a year ago, but the bulk of this was from regions largely unaffected by drought. Average yields fell to 2.22 tonnes per hectare from 2.78 tonnes a year ago, which does not bode well for the output from the drought-affected regions.

 

The campaign was proceeding in the regions along the Volga River, north-western Russia and was starting in the Urals, areas where states of emergency due to the drought have been declared. The drought emergency has spread from 23 regions last month to 27 regions as of Tuesday (Aug 3).

 

US wheat futures rebounded on Wednesday, surging to a fresh 22-month high as worries about output in the drought-ravaged Black Sea region resurfaced after the previous session's dip.

 

Concern that Russia and neighbour Ukraine might move to curb grain exports helped fuel prices.

 

The UN's Food and Agriculture Organisation sliced 25 million tonnes from its previous world wheat forecast released in June before the drought took hold in Russia, which exported just over 18 million tonnes of wheat last year.

 

Expressing worries voiced by some in the grain markets about planting before the Russian frosts, the FAO said, "Should the drought in the Russian Federation continue, it could pose problems for winter plantings in that country with potentially serious implications for world wheat supplies in 2011/12."

 

Grain analysts the Institute for Agricultural Market Studies (IKAR) cut its own estimate for the Russian grain crop to 70 million tonnes and said the drought could hit the key winter sowing period.

 

"If there are no heavy rains in the next two weeks, the winter sowing is a big question," said IKAR head Dmitry Rylko, adding that some regions worst hit by the drought were approaching the optimal period for winter wheat planting.

 

World wheat prices have jumped by more than 50% since June and are likely to rise further due expectations of tighter supplies, triggering concerns about a repeat of the food crisis of 2007/08, the Rome-based FAO said.

 

However, such fears were not justified at present because world inventories, especially held by major exporters, were strong enough to cover expected production shortfalls after two consecutive years of record crops, the agency said.

 

"External factors, including the macro economic environment and developments in other food markets, which were major drivers behind the surge in international prices in 2007/08, are not posing a threat so far," the FAO said.