Prospects look good for
the European Union grains harvest â€" but not good enough to dispel market nerves
over supplies, with stocks likely to fall in in 2014-15 after failing to
rebuild this season.
The EU will produce 296m
tonnes of grains this year, down 6m tonnes on the 2013 harvest but still one of
the strongest results on record, US Department of Agriculture foreign staff
said in their first forecasts for the forthcoming harvest.
However, bumper demand
for grains â€" both domestically and in the export market for wheat in particular
â€" which is allowing only a "limited recovery" in stocks in 2013-14 will continue
to undermine an inventory rebuild.
"With total domestic
consumption forecast little changed in 2014-15, stocks are currently forecast
to fall once again, even with a forecast reduction in exports," the USDA staff
said in a report.
In fact, EU wheat exports
"are forecast to remain high, at 25m tonnes" next season, which would be close
to record levels were it not for the 28m tonnes expected to be shipped in
The dynamics limit the EU's
cushion against supply setbacks, especially if the crisis in neighbouring Ukraine
limits shipments from a country which is a main rival in exports, besides being a
major shipper to the bloc itself.
"Total grain stock levels
remain relatively low meaning there is little room in the balance for a supply
shock should the current grain harvest forecast not be achieved or the
situation in Ukraine impacts on the global trade balance," the report said.
"Although grain exports
from Ukraine are reported to be unaffected at this time, recent rises in
futures prices suggest the market is nervous looking forward."
Concerns were particularly
acute over wheat, of which the EU is the world's top producer, besides being a
Although "sentiment is good"
towards wheat crop prospects, "with the EU entering a critical yield- and
quality-determining weather period, this could change.
"Any downward movement in
yield expectations or reduction in likely quality will be of interest to the
market given the tightness in the EU28 balance this season and the prospect of
limited carry in stocks from 2013-14."
The report forecast this
year's EU wheat harvest at 144.8m tonnes, up 1.5m tonnes year on year, and a
figure in line with other estimates.
The European Commission
has pegged the crop at 144.5m tonnes, including 8.67m tonnes of durum, the type
used in making pasta, while Strategie Grains foresees a 145.1m-tonne harvest.
The International Grains
Council has pencilled in a 143.0m-tonne harvest.
The UDSA staff highlighted
potential threats to the crop as including dryness in some eastern EU
countries, including Hungary, where after a "severe drought" last summer has
been followed by "insufficient precipitation" in the autumn and winter too.
"Similarly, in contrast to
the traditional concerns regarding frost damage, the late-planted winter wheat
crop in the Czech Republic has over wintered well but is also reported to be in
need of rain."
By contrast, an unusually
wet winter in parts of France, the EU's top wheat producing country, and in the
third-ranked UK means that "plant root systems are not well developed which may
leave them more susceptible to dry conditions in the coming months".
"The milder winter temperatures
have also encouraged excessive growth, meaning increased likelihood of lodging
come harvest, and disease pressure," the report said, echoing concerns raised
in the UK by consultancy Adas.
"Further, fertilizer and pesticide
applications have been delayed, increasing the risk of lower protein content,
although the latter part of March has seen drier weather in both countries."