Drought to lift Spain's grain import needs

Grains production in Spain, one of Europe's key import markets, may fall even further than had been thought thanks to dry weather, whetting the country's appetite for foreign supplies.

Spain's agriculture ministry sees a 17% drop, to 16.10m tonnes, in the country's production of grains, minus corn, as the impact of drought more than offsets the impact of a small rise in sowings.

However, many other observers believe that the increase is even bigger, given the extent of the dryness which, having delayed autumn sowings, returned in April to dent yield potential.

"The dry spell and warm temperatures prevailing since mid-April dried out the soil," US Department of officials in Madrid said.

The drought has, besides accelerating crop development by one-to-two weeks, "driven down yield expectations.

"The reduction of yields is expected to be significant in east central Spain," in areas such as Aragon and Castile-La-Mancha, if more marginal in the north west.

'More pessimistic'

"Industry sources are more pessimistic in their projections" than the farm ministry, the USDA staff said.

Spanish farm co-operatives have forecast production at 14.81m tonnes, while the Accoe grain merchants' association sees output at 13.77m tonnes – which would represent a fall of nearly 30% year on year.

And doubts concern corn plantings too, with the official Spanish forecast for a drop of 11,000 hectares to 428,000 hectares also seen by many as an overestimate.

"Lower margins than expected, and higher irrigation costs are the two main factors driving the decline given corn's high demand of water."

'Imports to grow'

The disappointing production prospects look set to increase Spanish reliance on grain imports, typically at 9m-12m tonnes a year, with the drought landing a second blow to livestock farmers by reducing pasture condition.

"Overall grain imports are expected to grow compared with 2013-14 to offset the reduction in the domestic supply," the USDA staff said.

However, the prospect of huge imports has been reduced by relatively large inventories left over from 2013-14, of potentially 1.4m tonnes for wheat and more than 800,000 tonnes for barley.

Traditional exporters to Spain, such as the UK, also face the threat of enhanced competition from Ukraine, which has been granted preferential trade access as part of a drive to support the crisis-hit former Soviet Union country.

While the introduction zero import duties for some Ukraine grain exports, up to quota levels, will likely "not have a significant impact" on Spanish barley imports, they could encourage the substitution of Ukrainian corn for EU feed wheat.

"Given the current import duty for corn is set at zero, these duty free quotas might encourage extra-EU wheat imports," the USDA said.

First to gain

Ukraine's Ucab agricultural business association has forecast a rise of up to 14%, to $4.8bn-5.1bn, in the country's export sales of agricultural commodities to the EU in 2014, although this will be largely made up of livestock products.

Ukraine egg and dairy groups are likely to be quick off the mark to exploit the improved trade terms, as they already "comply with basic EU standards", Ucab said.

Chicken producers are in the same position, although for beef and pork exporters, access will be "more complicated… given sophisticated inspection procedures".

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