July 24, 2012


EU outlook for barley, wheat likely dim



Citing the divergent weather pattern which has left many eastern areas with too little rain and some western parts with too much, the European Commission ditched hopes of rises in European barley and wheat harvests, and slashed expectations for corn.


The commission's Mars crop monitoring division trimmed to 5.57 tonnes per hectares, from 5.60 tonnes per hectares, its estimate for the EU's soft wheat crop, the world's biggest, a downgrade which left it behind last year's result.


And it lowered to 4.31 tonnes per hectare its estimate for the barley harvest, matching last year's result, with the downgrade reflecting in the main lower hopes for the spring barley crop. The unit also reinforced market expectations of a poor Russian cereals harvest, saying "signs of serious drought -- are clearly visible" in satellite images, noting rainfall of 30-80% below average levels in the important black earth region.


Mars attributed its EU downgrade in part to "extremely hot and dry" conditions and southern and eastern areas, which had "put plants in difficulties".


Coming at a time of grains ripening, the heat, accompanied by dry conditions, had "negatively influenced yield potential" in countries such as Romania, which saw its soft wheat yield hopes downgraded to 2.79 tonnes per hectare, more than 20% below last year's bumper result.


For corn, "recent negative weather conditions" in Hungary, Italy and Romania "led to a sharp decrease of the forecasts" for the average EU yield, to a below-average level of 6.73 tonnes per hectare compared with the 7.38 tonnes per hectare previously expected.


In Romania, "the actual level of soil moisture under corn, sunflower, potato and sugar beet is on a critically low level and the signs of water shortage are already visible".


In Italy, "the high temperatures and the lack of precipitation during the last weeks had a negative impact on flowering and on the leaf area expansion, which is significantly below the average". The heat damage contrasted with the damage to Irish and UK crops hurt by the wettest spell over major arable areas since the start of April on records going back to 1975, with sunshine levels at their lowest ever.


"This accumulation of unfavourable meteorological conditions is expected to have jeopardised yield potential for all crops by subjecting them to intense disease pressure, limiting photosynthesis and exposing them to lodging," the flattening of crops, typically under pressure from hail or rain.


Mars lowered by 0.2 tonnes per hectare to 7.96 tonnes per hectare its forecast for the UK wheat yield. And it ditched expectations of a rise in UK output of spring barley, for which wet conditions had provided an excellent start, lowering its forecast by 0.13 tonnes per hectare to 5.28 tonnes per hectare.


Mars also cautioned over a "bad yield outlook" in southern Russia, thanks to drought, and of "hot and dry" conditions in Ukraine, although there recent rains had prompted the unit to stick with last month's yield estimates. Indeed, separately, Agritel said that rains in recent days had lifted expectations regarding corn, for which harvest hopes have been falling towards 20 million tonnes, compared with earlier expectations of a fresh record above last year's 22.9 million tonnes.


"In the south and in the east part of the country, yields won't exceed three tonnes per hectare, but the situation is improving in the north and in the west part, where the yields could reach 5.5 tonnes per hectare," the consultancy said. However, the rainfall was slowing the harvest of winter grains and "could impact the quality of crops".


On the markets, grain futures sagged despite the Mars downgrade, with financial markets facing a broad sell-off linked to fresh fears for euro zone debt, and many investors already having factored in lower yields.


Strategie Grains two weeks ago downgraded its yield estimate for EU wheat to 5.5 tonnes per hectare. Furthermore, weather forecasts for the US Midwest, where dryness concerns have been particularly pronounced, turned slightly wetter. Wheat for November tumbled by 2.3% to EUR263.50 (US$319) a tonne in Paris, and by 1.8% to GBP191 (US$296) a tonne in London.

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