August 17, 2006

 

EU to have wheat deficit next year
 

 

The EU would have a "large wheat deficit" of 1 million tonnes, according to a Strategie Grains report released Thursday (Aug 17).

 

A downward revision of the 2006-07 harvest forecast would only be partly offset by an increase in imports and a reduction in animal feed demand, said the report.

 

Strategie Grains now forecasts 2006-07 EU soft wheat output at 109.9 million tonnes , a cut of 5.8 million from the previous month's projection following a hot and dry July. This marks a drop of 4 percent on-year.

 

Due to the smaller-than-expected harvest, wheat prices have been climbing, especially in Germany and France, with forecasts for those nations each cut by 2.1 million tonnes from the previous month.

 

"High temperatures recorded in July had a sharp negative impact on soft wheat yield potentials in France, as well as in Germany, Poland, UK, Benelux, Finland, Austria and Sweden," the report said.

 

Strategie Grains also said projected EU exports on the world market to fall 1 million tonnes because of a projected increase in Ukraine's exportable surplus. However, because Ukraine's export availability is mostly feed wheat, that limits the potential decrease for EU exports.

 

"A rationing of demand for wheat is therefore still necessary," said the report. "This would generate a new increase potential for wheat prices, over and above recent evolutions."

 

Strategie Grains also reports a decline in 2006-07 world wheat production, mostly in exporting nations. "The tension on the world balance has therefore intensified; stocks are again revised downwards towards a record low level."

 

Still, the report said the increased potential for wheat prices is much less than the rally seen after a severe drought in 2003.

 

A potential increase for EU wheat prices in 2006/2007 would depend on the differential between wheat and barley for feed and the differential between world and EU prices, the report indicated.

 

Quality in wheat harvested before rains began to fall in early August is "good," the report said. However, Strategie Grains said the rains have caused a decline in milling quality, with preharvest sprouting in the Czech Republic, Lithuania and Germany.

 

"Already last year, these countries' harvests comprised a higher proportion of feed wheat than normal due to rains at harvest time," the report said. "At present it is hard to say if grain quality will be as hard hit this year."

 

Strategie Grains also lowered its estimate of 2006-07 European Union cereal production to 249.0 million tonnes , a drop of 3 percent from last year's crop.

 

The EU corn crop forecast was revised down following the summer heat and dryness with the largest declines in France, Italy and Germany.

 

Strategie Grains now forecast EU corn output at 46.5 million tonnes in 2006-07, down 2 million from last month's projection and 7 percent below the 2005-06 crop.