30 July 2012

3 minute read

In May and then this month, the International Grains Council, cut its production forecasts for wheat by five million tonnes - down to 665 million tonnes.

This is more than 30 million tonnes less than the estimates for the 2011/2012 harvest or a four per cent drop.

The forecast for production is a drop to 3.02 tonnes per hectare compared to 3.25 tonnes per hectare in 2011/2012.

Much of the drop in wheat production is down to the forecast poor harvest in the former Soviet Union countries - in particular Russia, Ukraine and Kazakhstan - where the harvest is expected to be 17 per cent down on the 2011/2012 estimates - a drop of about 24 million tonnes.

This is in part because Ukraine is reported to have lost 2 million hectares in planting this winter through freezing weather. Ukrainian wheat production is expected to be 41 per cent down and Kazakhstan's wheat production is forecast to be 34 per cent down.

The European Union, which also suffered a huge freeze during the winter is expected to see a four per cent drop in its wheat harvest - a drop of 5 million tonnes - although according to France AgriMer, the EU's own forecasts are less pessimistic reducing production by just 2 million tonnes.

These falls in production have to be added to the poor harvests in countries such as Australia, Argentina and Morocco, where wheat production could be reduced by as much as 40 per cent because of drought. Australian wheat production is expected to be reduced by 19 per cent to 24 million tonnes, and Argentina will be see a drop of 14 per cent to 11.5 million tonnes.

By contrast North American wheat production is forecast to rise with the US expecting an 11 per cent rise and Canada a five per cent rise, producing a total of around 87 million tonnes.

With the large drop in production in the former Soviet Union countries, there is expected to be a shift in the market to the US and the EU for both feed and food grade wheat.

However, while wheat harvests in the US might be expected to rise, drought conditions there have forced estimates for maize and soybean down. The US maize crop is expected to fall by 50 million tonnes to 300 million tonnes and soybean by 8.3 million tonnes to 79 million tonnes.

The total global grain harvest is now expected to be down to 1,810 million tonnes.

All this weather driven volatility on the grain and oilseeds crop forecasts has had the effect of driving price up.

Maize and soy bean prices soared to new highs because the US has experienced drought conditions that have not been seen in the country for more than 50 years.

However, an improvement in soybean production in South America, where planting will start in the last quarter of this year, is expected to see harvests in 2012/2013 to rise by nine per cent globally.

The hopes for the harvest in South America could help to balance the fears for the harvest in the US.

The drops in production and the poor harvests in all grains worldwide and the continued use of corn for ethanol in the US is expected to see the high prices remain. Both wheat and maize have gone over the $350 a tonne level in July.

The International Grains Council and France AgriMer predicts that maize use will rise in the coming year although the industrial - ethanol - usage might fall year on year.

Chris Harris