World Grain - July 2010 - 21

GRAINMARKETREVIEW

Wheat
Weather and currency
dominate market thinking

World wheat production
(in 1,000 tonnes)

800
700
600
500
400

by Chris Lyddon

200
100
0

Source: U.S. Department of Agriculture

Indicative wheat export prices
U.S. No. 2 hard red winter, ordinary, FOB, Gulf
(in dollars per tonne)

300
275
250
225
200
175
150

May.
Apr.
Mar.
Feb.
Jan-2010
Dec.
Nov.
Oct.
Sept.
Aug.
Jul.
Jun.
May
Apr.
Mar.
Feb.
Jan-2009
Dec.
Nov.
Oct.

300

2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990

As harvesting gets under way in parts of the Northern Hemisphere,
the industry's attention is very much on the weather. The wheat market has moved in recent weeks from concern over drought to worries
about the effects of heavy rainfall. Currency has also played a role,
particularly because of the weakness of the euro and its fluctuations
against the U.S. dollar.
"Dollar-denominated grain and oilseed prices mostly declined
during the past month, largely attributable to the strength of the U.S.
currency, especially against the euro," the International Grains Council (IGC) said at the very start of its Grain Market Report.
The most recent U.S. Department of Agriculture (USDA) World
Agricultural Supply and Demand Estimates report highlighted weather
effects. The USDA lowered its estimate for E.U.-27 wheat production
by 2.1 million tonnes, "reflecting crop damage from recent flooding
and heavy rains in eastern Europe and April and May dryness in northwest France and the United Kingdom." The U.K. market rallied at the
start of the month, only to lose the gains as it started to rain.
Britain's HGCA reported that in Germany 43% more rainfall than
average in May helped crops, although it reckoned that low temperatures and sunlight hours may limit yield potential.
It also said that dry weather continued for most of May across
northern France, with rain in the south and southwest. Then evenly
distributed rains at the end of May during the flowering period alleviated water stress but increased the risk of mycotoxins.
The USDA now has world wheat production for 2010-11 at
668.52 million tonnes, compared with its previous estimate of
672.18 million. Its figure for the 2009-10 crop is 680 million
tonnes. Outbreaks of yellow rust meant a cut of 1.3 million tonnes
in the estimated crop in Syria and a cut of 1 million tonnes in the
USDA's crop estimate for Turkey.
"Widespread outbreaks of yellow rust have sharply reduced yield
prospects in key growing areas of both countries," the report said.
Russia production is lowered 500,000 tonnes as reports of higherthan-expected winter kill, particularly in the Volga Valley, reduce
potential harvested area. Production is raised 500,000 tonnes for
Ukraine as recent rains have improved yield prospects.
Parts of Eastern Europe have been hard hit, although the USDA's
attaché in Warsaw reckoned that most of the rain has managed to
miss grain producing areas.
According to the attaché, floods have affected around 450,000 hectares of Polish arable land. However, the USDA's attaché in Warsaw
said that grains and oilseeds were largely undamaged. The worst affected sectors have been specialty crops, like hops and fruit.
Rainfall has not been welcome in Canada. "Exceptional spring
rainfall will severely impact this year's wheat, durum and barley
production, leaving more than eight million acres unseeded, the Canadian Wheat Board announced in its preliminary crop forecast.
"The excess rain has washed away the hope of seeding for many
farmers," said Bruce Burnett, CWB Director of Weather and Market Analysis.

Source: International Grains Council

The CWB projected the western Canadian seeded area for all
wheat at 19.15 million acres (7.75 million hectares), the smallest area
since 1971 and an 18% reduction from 2009-10.
Rain hasn't been bad news everywhere. Eastern Australia had one
of the best starts to its winter cropping season for several years, according to the Australian Bureau of Agricultural and Resource Economics (ABARE).
"Rainfall between March and May was the most widespread above
average rainfall to be recorded over the eastern states since 2003,"
said Paul Morris, ABARE Deputy Executive Director.
"Despite the positive start to the season, crop plantings are expected to be down slightly due to lower wheat and barley prices,"
Morris said. "The area planted to wheat is forecast to fall by 2% to
13.5 million hectares. Wheat production in 2010-11 is forecast to
increase to 22.1 million tonnes, a 2% increase from 2009-10, assuming average yields."
Chris Lyddon is World Grain's European editor.
He may be contacted at: chris.lyddon@ntlworld.com.
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