Wild weather harms wheat harvest

Natural disasters and less than ideal weather patterns have led to lower global wheat crop yields, including those in the Czech Republic, but it's not likely consumers in the country will be significantly affected in the short term, according to government officials and analysts.

Wheat prices hit a record of $7.68 (148 Kč) a bushel early this month in response to a ban on wheat exports from Russia, which lost one-third of its harvest to a harsh drought that fueled wildfires. The ban has created a shortfall of about 20 million tons in Russia and has left countries in the Middle East and North Africa that are dependent on the world's third-largest wheat exporter scrambling for new sources.

Domestic wheat yields fell 20 percent after droughts and then flooding destroyed 30,000 hectares of crops, according to the Agrarian Chamber, causing food-quality wheat prices to rise to 4,500 Kč per ton from 2,700 Kč per ton in April. Yields were also reduced in Ukraine, where an export ban is also being considered, and in Kazakhstan, Canada and several European countries. According to the Food and Agricultural Organization of the United Nations (FAO), overall world wheat production fell 4 percent, and wheat prices have gone up nearly 50 percent.

But bumper crops reserved from the past two years and stable harvests from North America, Europe, Australia and Brazil are expected to cover the shortfall.

"Stock levels are at a very comfortable level - nowhere near 2007 and 2008," said Brandon Kliethermes, an analyst for IHS Global Insight, referring to the wheat shortage in 2007 and 2008 that caused food prices to skyrocket. "Granted, it's not that this whole rally isn't justified, but the extreme highs might not be justified."

The Agriculture Ministry is likewise confident the shortfalls aren't insurmountable and consumers won't be subject to steep price growth.

"We don't expect a dramatic [price] increase," said Tereza Dvořáčková, a ministry spokeswoman. "The Czech Republic has its own massive reserves."

While not dramatic, there is nevertheless a rise in European wheat prices being driven partly by shortages in fine-quality wheat due to adverse weather in parts of the European Union, but mostly by demand from those countries that depend on Russian wheat, analysts say. Damper conditions around harvest time destroyed and damaged supplies of fine-grade wheat, downgrading parts of the crop to animal-feed quality.

However, the vast loss of feed wheat from Russia is keeping both prices high, said Keith Flury, a commodity analyst with German F.O. Licht. The EU is forecast to export 18.7 million tons, up from 16 million tons that was predicted, despite a 1.6 million ton decrease in their own production, according to Strategie Grains, a France-based cereal markets research organization that doesn't disclose authors. That is likely to keep prices high through Christmas, an analyst said.

Nearly half of the Czech Republic's wheat crops will be of lower quality this year, according to the Agrarian Chamber. Although the ministry said it does not yet know how much wheat will be exported from the Czech Republic, the general European pattern will likely hold true for the country, Flury said.

"For the Czech Republic, especially, there is plenty of wheat to cover domestic demand, but farmers are going to sell some of that wheat to other places in Europe for higher prices, which means even the Czech consumer and millers will have to buy wheat at higher prices," he said.

The increased demand for European wheat has been forecast to be a boon for farmers, but the Agrarian Chamber said farmers here will actually see decreased revenues because even the 20 percent increase in wheat value in the country will not make up for the loss of supply.

Whether any of these fluctuations on the wheat market will make a difference at the grocery store depends largely on how farmers and food companies respond to the increase, according to Abdolreza Abbassian, the senior grains economist at the FAO. He said although there is a potential for prices to go up - particularly meat prices because of feed costs - it is unlikely they will by much.

"Producers may take off their own profit margin to maintain the market and keep consumption at stable levels," he said. "The average consumer may not even notice it. In Europe, you eat sophisticated food, value-added food from companies like Nestlé that have hedged this year pretty well and won't be hurt by high prices."

The countries that will suffer, Flury said, will be the less developed ones.

"As you slide down the income chain, you get to people who have to devote a higher percentage of their income to food," he said.

The less urgent picture painted over the past couple days has allowed wheat prices to ease somewhat this week, but analysts say they are still waiting for the October harvests in Australia, Brazil and Canada and the conditions for winter crops before determining whether the future wheat situation will make up for the use of reserves this season. In the Czech Republic, winter wheat will likely not make up for the losses of this harvest, according to the Agrarian Chamber, because the area for planting is still filled with grain not yet harvested.

Even though shortfalls like this will probably be compensated for by farmers in other countries increasing their wheat acreage this winter, Abbassian said, instances like this could keep the market on edge.

"The market is so nervous, any bad news will immediately transfer to sharper rises in prices," he said. "This is the kind of situation on paper that, for the time being, seems rather adequate, but what happens in the next couple months will determine setting prices."

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com