Winter wheat picks up reserves

Spring harvests of winter wheat will help close a supply gap caused by 2010's shortfall, according to forecasts, but analysts say other farming trends will maintain upward pressure on prices.

Winter wheat is a variety of grain planted between September and December. The wheat sprouts before freezing, at which point it becomes dormant, begins to grow again in the spring and is ready for harvest around July. Like other grains, winter wheat depends on stable weather conditions, and while the grain needs frost to flower, too much snow cover can be harmful.

Weather in regions like Liberec and Ústí, which received further heavy rainfall after harvests were damaged by flooding, complicated winter wheat sowing, according to Tereza Dvořáčková, a spokeswoman for the Agriculture Ministry. In the end, however, planting was "reasonably thick" and reached normal levels, she said.

"Results of winter crops will not be known until early February 2011, but it can be estimated, based on the amount of seeds used for winter cereals acreage, that it will not change significantly and will be at the same level as in years past [of 780,000 to 820,000 hectares of winter wheat]," she said. "If the weather is sunny, the anticipation is lower production but of good quality. If it's cold and rainy, it means higher production but worse quality."

Domestic wheat yields harvested this summer were lower by around 20 percent because of droughts and then flooding, and around half of the harvest was damaged and downgraded to lower quality.

Worldwide, higher wheat prices have pushed farmers to increase acreage, which was up about 4 percent compared with 2010, according to the International Grains Council, and 2 percent in Europe, said Pauline Boissinot, an analyst at Strategie Grains, a France-based cereal-markets research organization. But the acreage in Europe is still less than originally forecast two months ago, Boissinot said, because of unforeseen adverse weather conditions in southeast Europe. Production from winter plantings is expected to reach 138 million tons, compared with 128 million for 2010.

A major driver of current wheat suppies is the world's third-largest wheat exporter, Russia, which continues to ban wheat exports after losing about one-third of its wheat crop in catastrophic droughts this past summer. Although specifics are not available on Russian winter wheat, weather conditions have made wheat susceptible to winter kill in addition to the earth being drier from the droughts, and overall winter grain plantings are down 3 million hectares, according to Boissinot, which she said could possibly be made up for by increased spring planting.

However, the Russian government said in late November that it expects to import around 3 million tons of feed grain from Ukraine, Kazakhstan and possibly the European Union. In addition, a lobby group, the Russian Grain Union, said spring plantings are threatened by a shortage of fertilizer and planting equipment.

Following stunted European crops this summer, wheat prices rocketed to a record high of around $7.68 a bushel in August as demand from countries dependent on Russian imports like Egypt caused North American and European countries to dip into their reserves. Prices have eased since, but remain elevated around $6.50 to $6.75 a bushel for December delivery.

Those prices could go back up at the beginning of 2011, according to a late-November report from Rabobank, a Netherlands-based financial services provider focused on the food and agriculture sectors, which said the market "overestimates the ability of traditional wheat exporters to fill the gap from the Black Sea region" and that the "EU must dramatically slow its exports to ensure ample stocks in the pipeline ahead of next season's harvest."

Although 2010 harvests and the results of winter wheat harvests play into higher prices, there are a number of larger agricultural trends expected to keep the wheat market tight in coming years, analysts say.

"This is something we have to get used to not just this season, but also in the foreseeable future," said Abdolreza Abbassian, the senior grains economist at the Food and Agricultural Organization of the United Nations. Most immediately felt will be increased demand on wheat for animal feed, he said. As some countries become wealthier and boost meat production, maize, which is traditionally the main source for animal feed, is becoming significantly more in demand. However, supplies of maize were also affected by adverse weather, and maize production would need to increase 6 percent to make up for the gap, Abbassian said.

"What we need to watch is the soybean-to-maize ratio. Soybean is profitable for farmers, so farmers may opt for soybean," he said. "This is something we should be quite alarmed about because it can have consequences across the cereal sector."

In the longer term, supplies will continue to tighten because the higher wheat demand caused by more wealth coincides with an international shift in agricultural policy that has reduced the use of agricultural subsidies, which in the past encouraged countries to over-produce, resulting in large global reserve stocks, Abbassian said.

"The world is no longer producing these huge amounts that protect us from changes in supply and demand," Abbassian said. "I don't think it's permanent; I think the world ... will find a way to cope with this new era."

That trend could keep wheat prices higher for the next 10 years, according to reports by Rabobank. Although the actual amount of wheat in stock is high - 2010 had the third-highest production levels on record - when that amount is adjusted for the increased consumption levels in India and China, global stocks are actually lower than usual, the report said.

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com