Dry weather spurs wheat shortage

European wheat stocks are expected to hit a 30-year low as dry weather could cut yields of some major European producers up to 20 percent and threaten some Central and East European harvests, making 2011 the fourth consecutive year of disappointing yields, pushing European wheat futures prices up 36 percent in the past two months.

Consumers in the Czech Republic have yet to feel the higher price of wheat at stores, but some food producers say their margins have been sapped for too long by rising wheat prices, and that food prices will have to rise.

Crops in France, Germany, the United Kingdom and Poland - Europe's largest producers, responsible for 65 percent of the EU's wheat crop - are experiencing some of the driest weather in 50 years with some areas receiving 40 percent less rainfall than usual.

Winter wheat crops have also seen less than ideal conditions in the United States and Canada, which could further strain supplies.

So far, farms in the Czech Republic have not been significantly affected, though the country has "seen some drought conditions lately only on regional levels," said Tereza Dvořáčková, a spokeswoman for the Agriculture Ministry.

"It is not possible to estimate yet how much the yields will be reduced," she said, before the harvest of winter wheat in June. "Generally, the warm and dry weather in May in the Czech Republic has a history of having a negative impact on the yield, but it will be necessary to take into account many other factors that influence the final level of the harvest."

The pressure on supplies comes after three consecutive years of lower wheat yields in Europe. Last year, massive droughts ruined one-third of Russia's crops, after which the country implemented an export ban. At the same time, extremely wet weather in Central Europe took a bite out of European supplies, including the Czech Republic, which saw 20 percent of its crops destroyed by flooding.

Higher input costs along with the lower overall purchasing power caused by the economic crisis have put some food manufacturers between a rock and a hard place. In most cases, costs for manufacturers depend on a laundry list of items that go into a single loaf of bread, from labor and transportation costs to packaging and energy, said Lisa McCooley, a spokeswoman for the Confederation of the Food and Drink Industries of the EU. If any of these costs increase, manufacturers are most often the ones to "get squeezed," whether they are multinational corporations or local bakeries, she said.

"A manufacturer might suggest a higher cost for their product, but there's no guarantee the retailer will accept it," she said. "The retailer might say, 'No, we are not going to charge more for your bread; you sell it to us at this price, or we'll get it from somewhere else.' "

In the Czech Republic, rising wheat prices have dealt a definite blow to bakers, according to Jaromír Dřízal, head of the Czech Association of Bakers and Confectioners. The cost of wheat flour in the country increased 90 percent, he said, from 4,500 Kč per ton to 8,500 Kč per ton. That, along with higher prices of other commodities, like butter and rye as well as energy costs, pushed input costs for bakeries up 30 percent on average, he said.

"Adjustment of the sales price was an existential necessity for further survival of the bakers' trade in the market," Dřízal said, as the baking sector has faced losses of around 200 million Kč since January, and in early May, consumer prices jumped around 20 percent for baked goods.

"Even after this increase, the prices of bakery products in the Czech Republic are among the lowest in Europe," he said.

Though those price increases seem fairly minor, global food costs are actually skyrocketing. In February, the UN Food and Agriculture Organization said food prices were at an all-time high since it began tracking costs in 1990. The higher costs are attributable to not only crop woes, but to overall shifts in the global demand for food as the population grows and developing countries like China and India consume more.

Global wheat production is expected to be higher overall this year than last year, said Erin Fitzpatrick, a commodities analyst at Rabobank, with yields expected to reach 657 million tons, 10 million tons more than last year. At the same time, demand is rising as the world crawls out of the economic crisis, and it won't be enough to make up for the reserves that were dug into by producing countries last year to make up for shortages.

"We'll need to continue to incentivize farmers to plant more and harvest more, and higher prices will slow demand," Fitzpatrick said. "We expect an increase in global wheat production this coming year, but it will still be below the record high after the price spike in 2008," as other crops that experienced weather-related shortages like soybeans and corn compete for the same acreage.

"We see acreage that could have gone to growing wheat going to these other crops," she said.

The shortages could cause countries to sit on their supplies more rather than exporting, and although Russia has said it will lift its export ban July 1, it remains unclear what the prospects are for Russian, Ukrainian and Kazahk yields as winter-wheat plantings were below average.

Demand in the Czech Republic should be met by national yields, even if crops are affected by drier weather, Dvořáčková said, and exports are expected to stay near their usual 0.7 million to 1.6 million tons.

"Wheat harvests have fluctuated in the past five years between 3.5 million tons to 4.6 million tons. In these years, the vegetation was significantly affected by droughts," she said. Even so, it has been enough to cover the national demand of 3 million tons, she said.

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com