Paris Wheat Heads for Bear Market as EU Production Rebounds

The European Union’s largest wheat crop in five years probably will send Paris futures into a bear market even as excess rain threatens to curb yields in the U.K. and northern France.

Wheat output in the bloc may rise to about 140 million metric tons in the season that starts July 1, up 6.2 percent from a year earlier and the highest since the 2008-09 marketing year, the European Commission said last week. Farmers in Europe boosted planting of winter crops last autumn after milling wheat on NYSE Liffe in Paris rose 27 percent in 2012, outpacing gains among all 24 commodities in the Standard & Poor’s GSCI gauge. Yields in southern and eastern Europe also may recover after drought, said Nick Higgins of Rabobank International.

“Acreage will be up near the 2008 highs, but most of the gain comes from increased yields,” Higgins, a London-based analyst at Rabobank, said by phone March 11. “We would look for harvest pressure on prices, in recognition of those conditions, and to see prices make a final decline in the fourth quarter.”

Paris milling wheat prices tumbled 16 percent since closing at 277 euros ($360) a ton on Nov. 9, the highest settlement since February 2011. The grain, which would need to close below 221.60 euros to fall 20 percent, deemed a bear market by many investors, may extend declines to average 204 euros during the third quarter, Rabobank estimates. The bank expects Paris wheat to average 197 euros in the fourth quarter, the lowest since the three months through March 2012.

Croatian Production

The estimate by the commission, the EU’s executive arm, includes durum and soft wheat and accounts for production in Croatia, which will become the bloc’s 28th member when it joins in July. In the previous season, the Croatian wheat harvest totaled 800,000 tons, 0.6 percent of the 27 current EU states’ combined output, according to U.S. Department of Agriculture estimates. The EU is the world’s largest wheat grower and second-biggest exporter, after the U.S., according to the USDA.

EU farmers may plant 26.35 million hectares (65 million acres) of soft wheat and durum this year, up 2.5 percent from a year earlier, the commission said March 11. Soft wheat yields may rebound about 3.2 percent from a year earlier to 5.58 tons a hectare, while durum yields may climb 7.1 percent, according to the report. Rabobank expects the biggest increases in production to come in Spain and Romania, which had dry weather last year, as well as Germany.

Winter Crops

In France, Europe’s biggest producer, farmers will plant 4.98 million hectares of soft wheat, up 2.4 percent from a year earlier, FranceAgriMer said March 8. In Germany, the second-biggest EU wheat grower, winter crops are in “very good” condition, Hamburg-based trader Alfred C. Toepfer International said Feb. 21. Germany’s winter soft wheat harvest may climb 9.1 percent to 23.3 million tons because of increased planting, farm group Deutscher Raiffeisenverband e.V. said today.

Still, the French crops office rated 66 percent of the country’s soft wheat in good or excellent condition as of March 4, down from 74 percent in early December. Crops in southern France are generally in good shape, while northern regions had too much wet weather, said Jake French, a Bartlow, England-based consultant at French farm adviser Offre et Demande Agricole.

In the U.K., winter wheat planting in England and Wales probably plunged 25 percent from last year to 1.394 million hectares, after the country had its second-wettest year on record last year, and soggy conditions persisted in 2013, the Agriculture & Horticulture Development Board said March 8.

“We’re not bearish just yet, but we’re becoming less bullish,” French said. “We’ve still got huge weather risks.”

Global Inventories

Before the next harvest begins, world inventories of wheat may drop to a four-year low at 178.23 million tons because of dry weather in Russia and eastern Europe in the past season and increasing demand for the grain in livestock feed after drought hurt U.S. corn yields, the USDA estimates.

EU wheat exports from the past season’s crop may be 19.5 million tons, 18 percent higher than a year earlier, according to the USDA. Shipments may drop to 17 million tons as Russian and eastern European output rebounds, pressuring wheat prices in Paris, Rabobank’s Higgins said.

Global wheat production may rise 4.3 percent from last year to 690 million tons, the United Nations’ Food & Agriculture Organization said March 7, led by a 39 percent jump in Russian output and respective increases in Kazakhstan and Ukraine of 48 percent and 23 percent. The FAO pegs the EU crop at 138 million tons, up 4.5 percent from the previous year.

“Europe in general seems to be in a good situation this year,” Abdolreza Abbassian, an economist at the FAO in Rome, said by phone March 6. “Why you see wheat prices under pressure is prospects have improved.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE