June 2, 2011

 

France's drought may drive up world wheat prices

 

 

Europe's key wheat producer, France, is experiencing a drought which will probably cause the global price for the commodity to increase, according to analysts.

 

According to French Agriculture ministry, the entire French territory was affected by the drought caused by less precipitation during the previous three months. France is Western Europe's largest producer of soft wheat, a low protein variety used to make pastries and snack foods. It also can be used as a feed for animals. France is having the driest spring since five decades. More than half of the departments in France's mainland were forced to restrict water use. French analyst Strategie Grains cut its forecast for this year's soft wheat crop in the EU by 3.6 million tonnes to 131.5 million tonnes mainly due to the impact of drought in the west of the bloc.

 

EU wheat stocks would remain relatively tight as expected higher international demand would offset renewed competition from Black Sea countries that were mostly absent from export markets this season due to a drought that hit 2010 crops.

 

The analyst also reduced its forecast for EU barley output this year by 300,000 tonnes to 54.2 million tonnes, now up 2% on 2010 production after French weather forecaster branded this spring as the hottest in the country since the beginning of 20th century on Tuesday (May 31).

 

However, French government announced hundreds of millions of euros to compensate the country's farmers. The government will tap an existing relief fund worth between EUR90 million (US$129.2 million) and EUR100 million (US$143.6 million) to aid livestock farmers though compensation may total several hundred millions of euros at the end of the season. Meanwhile, the present situation is likely to push up wheat prices if Russia did not lift a wheat export ban on July 1. The CBOT contract is for soft red winter wheat grown mostly in the US Midwest. The crop is planted in late fall and harvested in early summer. CBOT wheat for July delivery recent traded down 4.9% or US$0.3934 at US$7.80 a bushel.