August 29, 2007

Freak weather ruining EU wheat harvest

Rains during summer are disrupting wheat harvest and quality in EU.

The difficult weather has led to reduce estimates for France's wheat output to 32.5 million tonnes, according to domestic grains agency ONIGC, but some players expect the number to dip below 32 million tonnes. Last year, France produced 33.3 million tonnes of wheat.

In Germany, relentless rains during the critical harvest period of July and August may cut nation's wheat crop between 20 and 20.3 million tonnes this year, down from 22.4 million tonnes in 2006.

Though quality generally fared well in south Germany, rain damaged wheat in two of the largest wheat-growing areas of Lower Saxony and Schleswig-Holstein where harvesting is nearly over. Analysts said larger than usual proportion of Germany's wheat crop would probably only qualify for animal feed.

The adverse weather has included dramatic swings from hot to cold in countries like Italy, which also took toll on the on quality of wheat. Questions are now raised on how much of this season's wheat can qualify for human, rather than animal, consumption.

The weather problem was also coupled with sharp downward revisions in particular for Eastern Europe's likely wheat production, will remain supportive for wheat prices which have, in Paris, rallied over 80 percent since early April.

James Dunsterville, an analyst with Agrinews in Geneva said the situation could end up having more supplies of feed wheat than milling wheat such in the case of Germany.

But tight wheat supplies in Europe is not a problem given that the bloc could turn to other countries to import better quality grain, he said.

Everyone from food manufacturers to livestock firms and consumers are feeling the pinch as prices soar, raising concerns that this will feed through into higher inflation in Europe.

Last Thursday (August 23), Paris-traded new crop futures hit a new record at 241.50 euros a tonne.