Wet summer keeps EU grain crop concerns alive

A wet start to Europe's summer has soothed fears of drought but searing heat in the south and too much rain in the west have reignited concerns over the upcoming grain harvest, analysts said on Thursday. French wheat futures, which soared to their highest since trading began in 1998, are now just off the peaks, but not far.
November futures were trading around 182 euros ($248.4) a tonne on Thursday, up from below 140 euros in April and still within sight of the high at 188 euros. Analysts, who revised down their harvest estimates to take account of record heat in April, have since kept them low as fears over crop diseases have replaced concerns over drought.
This has caused premiums for high quality wheat to widen. "Those premiums are justified," analyst James Dunsterville of AgriNews in Geneva said. "They could widen even further or narrow again depending on how much rain falls in the next 10 days," he added. High grain markets are already putting pressure on millers and bakers, raising concerns of food price inflation in Europe.
Prices were originally driven largely by fears over Ukraine's drought-hit grain harvest, now expected to be 25-27 million tonnes against last year's 34.3 million. With those figures largely priced into markets, the focus is switching to the quality of crops in Western Europe.
French arable crop office ONIGC said it expected wheat output in 2007/08 at 35 million tonnes, up 5 percent on 2006/07, but final volumes would depend on rainfall levels. "The weather conditions in the coming two weeks will be decisive," ONIGC Director General Bruno Hot said.
"If the rain in May has reduced risks of a drought, it could hurt yields if it continues in the coming weeks," he added. Harvesting has started in many regions but progress has been slowed by heavy showers over the past weeks. Forecasters predict more unsettled weather over the next week. The picture is similar in Germany, where barley harvesting this week was brought to a standstill by rain.
"The ground is often simply too wet for harvesters to drive on," one trader said. "Work should be going on at full speed but hardly anything is being done."
Concern is growing that barley and wheat crops could suffer rain damage, a factor, which has helped strengthen prices for German wheat, known for its good milling quality. Sellers of standard milling wheat for September delivery in Hamburg were seeking 190 euros a tonne, up 7 euros in a week.
And in Britain, where rain has caused serious flooding in parts of northern and eastern England, there were fears of damage to crops, although wheat areas were not too badly hit. Provisional data from the UK's Met Office showed the month of June as the wettest since records began in 1914. Lodging, where crops are flattened by rain, had increased with oats seen as worst hit, followed by barley and then wheat.