Hot, dry weather that has strained crops from Spain to Hungary could shave several million tonnes off the EU's wheat production this year, limiting scope to raise exports of the staple cereal after a disappointing past season, a Reuters poll showed. The 28-country European Union, collectively the world's largest wheat grower, is expected to produce 141.0 million tonnes of soft wheat - or common wheat - in 2017, according to the median of 14 estimates polled.
That projection is up sharply from the 2016 crop of 134.4 million tonnes, marked by the worst harvest in three decades in top EU producer France. But it is 2-3 million tonnes below some 2017 forecasts made in early spring and well shy of bumper crops in 2014 and 2015 that helped the EU become the world's top wheat exporter. The likelihood of EU yield losses, after an exceptional June heatwave added pressure on plants after persistent dryness and late frosts in spring, contributed to a surge in international prices sparked by weather damage to US spring wheat.
"We're still looking at a reasonable EU crop size, but volume has been lost since late May so there is a bit of disappointment," one grain trader said. "When you're already starting the season with low EU stocks and reduced US production, this gives a different tone to the market and prices react more sharply." The impact of drought and heat has been particularly severe in Spain, where producers anticipate winter cereal output could shrink by half, and in Italy, which is facing its worst grain crop in 20 years amid widespread losses in farming.
In central Europe, mid-sized producers such as Hungary and the Czech Republic are also set for sharp drop in harvest output. Yield potential has been eroded in France by dry, sweltering weather, even if the crop is still expected to rebound from last year's dire 28 million tonne level to a more normal 36-37 million range. "A crucial factor will undoubtedly be the final crop figure for France," Benjamin Bodart of CRM AgriCommodities said.
"Romania is clearly one to watch too due to the lack of moisture and its important role in the export market." The French harvest got off to an quick start in late June following the hot spell, but the outcome is still hard to call given varying field conditions, analysts say. The return of rain in France and elsewhere in western Europe is now raising concern of damage to grain quality, which determines wheat's suitability for flour-making and its acceptability for importers in North Africa and the Middle East.
Decent milling quality in France could help it recoup some of the market share it lost in its main export outlet Algeria last season and elsewhere on the African continent. However, forecasters are cautious in early projections for EU wheat exports in the 2017/18 season that started on July 1. The median of eight estimates in the poll put soft wheat exports at 26.3 million tonnes, up from 24.6 million in 2016/17. "EU exports should increase versus last year after the French crop failure, but with tight stocks, the 30 million-plus figure seen between 2013 and 2015 is unlikely," Bodart said.
Constrained supply and a rally in the euro to one-year highs against the dollar have given an initial disadvantage to the EU as it competes against a hefty surplus in Russia, the biggest wheat exporter last season. The export outlook looks brighter in the high-protein wheat segment for producers such as Germany as harvest prospects for spring wheat in the United States and Canada deteriorate. The surge in US spring wheat prices and the expectation of export demand has fuelled cash premiums for high-protein wheat in Germany to a steep 20 euros above Paris futures. "Germany, Poland and the Baltic states will be big winners," said Palle Jacobsen, head of consultancy Agrocom.dk.
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