Drought set to boost European cereal and sugar prices

19-May-2011 - Last updated on 20-May-2011 at 13:37 GMT

In fine fettle: But, elsewhere, parched soils have already capped cereal yields and could boost prices.

Prolonged drought in northern Europe has already capped yields of cereals and sugar beet and, without significant rainfall over the next two months, could significantly boost prices, warn analysts.

Rabobank analyst, Erin Fitzpatric told FoodNavigator that drought in France, Germany and parts of the UK had already reduced yield potential leading many regions to downgrade their harvest forecasts. “Some damage has already been done. It’s not a disaster yet but we do need significant rain to prevent it from becoming so,” said Fitzpatric.

Earlier this week, new crop grain futures soared £10.50/t after French analyst Agritel, forecast the French wheat crop down 11.5 per cent at 31.7m tonnes compared with last year.

The EU's largest wheat producer, France has formed a national drought committee, limiting water consumption in many regions and lifting curbs on the use of fallow land for grazing.

Parts of Europe have received less than 40% of their long-term average rainfall between February and April.

Crop failure

Farmers in the south-west German region of Rhineland-Palatinate were fearing "serious financial losses" from crop failure and mounting irrigation costs, according to Deutsche Welle’s website. The German wheat harvest is forecast to be 7.5 per cent down on last year.

A spokesperson for the UK National Farmers Union told FoodNavigator: England and Wales have received only 61% of the long term average rainfall in the seven month period from October to April, making this the driest period since 1976.

“For non-irrigated crops grown on light land (wheat, barley, oil seed rape and outdoor herbs) and shallow rooting crops (such as peas and linseed), the situation, is becoming critical,” said the spokesperson.

Lower cereal yields will also impact livestock producers via higher costs for hay, concentrate feeds and straw.

But weather conditions have been good for planting vegetables and potatoes and for the demand and production of soft fruit, such as currents and berries, and top fruit, including apples and pears and asparagus.

Fitzpatric highlighted the impact of production elsewhere on European prices. Although wheat production is expected to recover in Russian this season, she estimated the nation’s exportable surplus at only 10m tonnes – the lowest level since 2004.

Russian plantings last autumn of the more productive winter wheat hit a four-year low intensifying the potential pressure on prices.

Toxic combination

The North American grains harvest is also predicted to be lower than expected due to a toxic combination of flooding, in states from Illinois to Louisiana and parts of Canada, combined with drought elsewhere.

The United States Department of Agriculture forecast last week that that the harvest of hard, red winter-wheat will fall 25 per cent to 762m bushels; the lowest for five years.

The European sugar industry is equally worried. Rabobank analyst Keith Flury said: “Without significant rainfall, we are looking at another 14m tonnes (EU) sugar crop – like last year which was much lower than the 16.5m tonnes expected.”

Drought worries are already leading some sugar suppliers to avoid agreeing contracts with food ingredient companies. “Worries about domestic prices are leading to the market shut down in contract signing,” said Flury.

Meanwhile, French weather forecaster Meteo France is predicting above-average temperatures for the country up until July.