Drought in EU and US stressing crops and farmers

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 percent 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 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.
PARCHED EUROPE Parts of central Europe had under 40 percent of their long-term average rainfall from February to April and drought in much of Europe looks set to continue with little relief until June at the earliest, forecasters say. "From northern to central Europe, rainfall deficits have been remarkable in March and April," said Meteo France analysts.
The drought has prompted the French government to impose curbs on water use in a third of the country - after Environment Minister Nathalie Kosciusko-Morizet said France was in a "situation of crisis" - and leading analysts to slash output forecasts. Agritel analysts said this week they expected France's soft wheat output to fall 11.5 percent this year to 31.7 million tonnes - while European traders bet on a harvest of 33-34 million tonnes after 35.6 million in 2010/11. Strategie Grains was more conservative with an estimate closer to 35 million tonnes but the analyst said it could cut it further if the drought continued.
Unless sustained relief rainfall helps turn the situation around in June, this could potentially halve France's soft wheat export potential to 6 or 7 million tonnes - a scenario that is worrying traditional north and west African clients. In Germany, the EU's second largest wheat producer, the Farm Co-operatives Association cut by 3.2 million tonnes its estimate of the country's wheat harvest from last month, to 22.31 million tonnes, now down 7.2 percent on the year. In the United States, the world's top wheat exporter, the hard red winter (HRW) wheat crop is showing signs of distress.
The condition of HRW - a high-protein variety which accounts for nearly half of US wheat exports - has steadily deteriorated throughout the spring in Texas, Oklahoma and in key production areas of Kansas, the top US winter wheat state where production may be the smallest in 15 years. "It is pretty bad," said Kansas state climatologist Mary Knapp. "For a lot of these areas... the last significant rainfall was in July of last year."