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Drought in EU and US stressing crops and farmers

Paris/Chicago, May 24, 2011

Drought from Paris, France to Paris, Texas has farmers and grain dealers looking upwards. The farmers are looking to the skies for rain and the dealers are wondering where rising grain prices are going to stop.

US wheat prices are on their way to their biggest weekly gain and European benchmark wheat futures have jumped just under 30 per cent in the past nine weeks as wheat belts on both sides of the Atlantic show signs of irreversible drought damage.

'We need Mother Nature's help to save a crop, which whatever happens will be mediocre,' said a senior European trader, referring to France, the EU's biggest wheat producer.

An unusually dry and hot spring in top EU wheat producers and severe dryness in US states of Texas, Kansas and Oklahoma, have revived memories of the dry summer of 2010, which ravaged Russian and Ukrainian wheat harvests and choked off supplies from the key exporters.

Food security is a global concern and the UN's food body has issued repeated warnings about food price inflation since last year's Black Sea drought. Rising food prices helped fuel the unrest which toppled the heads of Egypt and Tunisia earlier this year, triggering protests in many Arab countries.

Black Sea wheat may this year go some way to meeting lost production from EU and US fields but governments and consumers anxious to secure reliable food supplies will be sensitive to anything that threatens the flow of grain.

'Clearly a return of Russia would relieve pressures on demand, at least temporarily, capping the wheat market's upward trend, but the overall picture would still remain dominated by the drought and a still sturdy economic cycle,' said Franck Nicolas, head of global asset management at Natixis AM.

Russia, once the world's third-largest wheat exporter, halted grain exports from mid-August last year, while Ukraine imposed export quotas, causing a grain vacuum which European and US farmers happily filled.

In a reversal of fortunes, Russia's crop has been developing in rather positive conditions so far this year, with slow snowmelt in the spring bringing abundant soil moisture, making international traders believe Moscow may gradually start exporting again this summer.-Reuters




Tags: agriculture | US | EU | commerce | Trade | Commodities | farming | food grains | Wheat Crop |

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