Strategie Grains has cut its estimate for the European Union's 2012-2013 wheat harvest after sharply higher winterkill levels in Germany, Poland and France and has warned that crops in the bloc's center urgently need more rain if yield potentials are to be maintained.
The influential analyst cut its estimate for the EU's soft wheat production, by 4.2 million metric tons to 122.7 million tons, meaning it now expects output to be 4.8% lower than 2011's estimate after temperatures dropped to zero or below in France, Germany and Poland in mid-May. It said the situation will need to be monitored closely in terms of duration and intensity.
While April's regular, plentiful rains eased drought concerns for the U.K., France and northern Italy, adverse growing weather in other regions of the 27-nation bloc could combine with extremely dry conditions in the former Soviet Union to increase wheat prices, and perhaps have a knock-on effect on inflationary pressures.
"The risk remains skewed to the downside in so far as yields are concerned," said Jaime-Nolan Miralles, commodity risk manager at FCStone Europe. "We need more rain across central and south eastern Europe, a moderation of rainfall in key northern areas of France due to disease concerns, and a moderation of temperatures to accommodate ideal soft wheat yield performance."
New-crop wheat prices have been held down by the good outlook for grain harvests in the U.S., but Strategie Grains said any new weather problem with a negative effect on forecasts could be extremely bullish for prices.
However, the United Nations' food body said that this would have little effect on world food prices.
"At most there may be some small price implications for wheat" but any wider rises should be counteracted by the large corn crop forecast, said Abdolreza Abbassian, grains analyst for the Food and Agriculture Organization.
"There will be a minor decline in productivity in the EU due to winterkill and drought issues, while there has also been weather problems with dryness in the former Soviet Union--however I think the weather forecast is going to improve shortly," he said.
The FAO's food price index, which measures the monthly change in international prices of a basket of food commodities, fell in April after three consecutive months of gains, and Abbassian said he would be surprised if it goes up again this month.
However, EU wheat futures will still likely outperform over the 2012-13 season, Macquarie said.
Precipitation has been very low in southern Russia in the last couple of months, significantly reducing soil moisture and putting the winter wheat crop at risk, the bank said. The Southern region is the country's biggest winter-wheat production region and accounts for the majority of exports, Macquarie noted, so if rains don't return shortly, a significant production loss is likely to cause a large cutback in exports.
The bank's commodities analyst Kona Haque said precipitation levels are almost as low as in 2010, when devastating drought cut Russia's harvest by around a third and lead to the introduction of an export embargo. However, she said that there is still time for the situation to improve, with forecasts for rains over the next week or so, but cautioned that these would need to be consistent and strong to have any effect on crops.
-By Michael Haddon, Dow Jones Newswires; 4420-7842-9289; michael.haddon@dowjones.com
