Wheat intervention to be last resort for EU farmers
Paris, February 4, 2010
Rising stocks and a subdued market may lead European Union farmers to resort to selling wheat to public stores, but sizeable offers are unlikely to come before the end of the season as growers hold out for better prices.
A surge in supplies after a second successive bumper harvest last summer has depressed grain markets in Europe and led to large sales of barley to intervention stores, with Germany already registering 1 million tonnes of barley offers.
A slowdown in European wheat exports in the first half of the 2009/10 campaign, with shipments curbed by stiff competition from Russia and a broad rise in the euro-dollar rate, has also made wheat intervention plausible, even if exports have picked up since January.
But while barley prices have slumped to below the guaranteed EU minimum of just over 100 euros a tonne, the wheat market has mostly managed to stay above this price floor, explaining modest wheat intervention offers so far of less than 200,000 tonnes, dwarfed by 2.9 million tonnnes of barley.
'Intervention is a bit like the last card you have to play,' one French trader said. 'We've got a market that is still a little way above intervention prices.'
In France, the EU's top grains producer and host to the benchmark Euronext wheat market, the effective intervention level varies per region but traders said Euronext futures would have to drop to 110-115 euros from about 125 currently to put most areas below the EU price minimum.
But in Germany, traders said a 120 euro level on Euronext would be enough to stimulate offers in eastern regions far away from commercial outlets.
Growers have until end-May to submit offers and traders see them waiting as long as possible before turning to intervention.
'People will rather try to wait and see if something won't come along and save them,' another French trader said.
Growers in Hungary and Poland are not seen making big wheat intervention sales either for now, despite ample supplies.
'Farmers are still hoping for higher prices and do not offer much into intervention especially as market prices are by and large on the same level,' Zsofia Potsa, secretary general of the Hungarian Grain Association said.
'I had expected interest (in wheat intervention) to be significantly higher but it turned out otherwise so far.'
In Poland, wheat prices were above intervention levels and expected to pick up along with other grain prices, said Izabela Dabrowska-Kasiewicz, agricultural markets analyst at BGZ Bank.
'Barley prices have already started to increase and the interest in intervention offers dropped,' she noted.
A further brake on intervention in France could be the reluctance of cooperatives, whose silos can serve as intervention stores, to take in more stock ahead of what so far promises to be another big harvest in 2010.
'The grain cooperatives are afraid of having large volumes stocked in their silos before the harvest,' the first trader said. 'At the moment they'd rather sell grain than take it in.'
According to France's farm office, the country could have 4 million tonnes in wheat stocks at the end of June, well above the country's nominal required wheat stocks of 2.6 million.
France is also seen having stocks of nearly 4 million tonnes for barley, 2 million for maize, as well as an oilseed surplus.
Large flows of wheat into public stores were seen as more likely in Germany, the EU's No. 2 grains producer, because of more acute concerns over slower exports and the end to unlimited intervention after this season as part of an EU farm reform.
Under the reform, automatic intervention for barley will end and automatic purchases capped at 3 million tonnes for wheat. This follows the previous scrapping of maize intervention.
'Many farmers and cooperatives might decide to take the last chance of automatic intervention,' a German trader said.
'Many large cooperatives also own intervention stores so they can sell into intervention and then get paid for storing the grain, perhaps for many years.'-Reuters