November 16, 2006

 

Strategie Grains sees small EU wheat balance surplus

 

 

Strategie Grains left its estimate for 2006-07 European Union grain production in its monthly report Thursday unchanged from last month and said the EU wheat balance shows a small surplus from a month ago in a "precarious world situation."

 

Total EU grain production was left unchanged at 242.6 million tonnes, which is down by almost 14 million tonnes from the previous year. Soft wheat production was revised up by 0.3 million tonnes to 108.6 million tonnes, compared with 114.8 million tonnes in 2005-06.

 

Projected barley output was left unchanged from last month's estimate at 54.2 million tonnes compared with 53.17 million tonnes last year. EU corn production was revised down by 0.37 million tonnes to 44.45 million tonnes.

 

Strategie Grain's estimated wheat production was revised up slightly while animal sector demand was revised down again compared to last month.

 

"Following the drop in animal sector consumption and the increased production, projected closing stocks on Jun 30, 2007 has increased this month," the report said.

 

In this context, Strategie Grains forecasts a small EU wheat balance surplus, taking into account the wheat that the EU has begun to resell from intervention back onto the open market.

 

The EU wheat outlook is a "little less tight than was the case a month ago," the report said. "This generates a degree of downward pressure on prices in the short term, which is accentuated by the fact that EU wheat's competitiveness against US wheat has again deteriorated."

 

However, Strategie Grains said the potential price decrease will be small and prices could in fact increase again if the EU exports more than forecast.

 

At the global level, the report said closing stocks are expected to drop to a record low level. It said EU exports would depend on whether Russia and Kazakhstan can effectively export the quantities they are forecast to do.

 

Price evolutions would remain crucial for the balance in 2007-08, the report said. The level of stocks in June 2007 are projected lower than they were in June 2006, but wheat area should remain stable or increase slightly.

 

"If yields turn out similar to those of 2004-05, the EU would face a very large wheat surplus," the report said. "If, in contrast, yields are comparable to those of 2006-07, then the tension on the EU wheat balance in 2007-08 would be explosive."

 

EU barley production remains unchanged from the previous month's estimate.

 

"The EU barley balance is less tight than last month and small surpluses have reappeared for France and Germany," the report said.