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Southern hemisphere holds wheat supply hopesby Javier Blas in London, Financial Times 4 September 2007, page 24.
A combination of weather damage to crops in Europe and Canada, robust demand from food importing countries such as India, and the threat of export bans in countries such as Russia have propelled wheat prices to all-time highs.
Wheat prices last week rose above the $8-a-bushel level for the first time ever in Chicago, soaring in August more than 20 per cent, the steepest monthly increase in more than 30 years. On top of all this, cereal traders are worried that hot and dry weather in the southern hemisphere is endangering the next wheat crop.
The harvest in Australia and Argentina – representing about 23 per cent of global wheat exports – is due to start in the next 10 weeks. Traders say a good crop is essential to replenish global wheat inventories, which have fallen to their lowest levels since 1979. Stephane Delodder, associate director of agribusiness research at Rabobank in Utrecht, said: “All the hope is now on the southern hemisphere crop to rebalance the global wheat market.”
However, prospects are deteriorating despite a good seeding start. Australia and Argentina have suffered below-average rainfall for the last two months, according to cereal traders.
Iowa Grain, the Chicago-based cereals trading house, said in a report that the key Australian wheat growing regions of New South Wales and Western Australia have received from 20 to 60 per cent of their normal rainfall in August.
In addition, rainfall in Argentina, a key supplier for the biofuel industry, has been up to 50 per cent below normal levels, although recent showers have alleviated the situation.
August and September are a typical “do-or-die” time for Australian winter cereal production, according to the US Agriculture Department.
Cool, wet conditions during this time extend the growing season and allow for maximum production. However, hot and dry conditions effectively cut the growing season short, greatly reducing the crop. Christopher Brodie, a partner at London-based commodities hedge fund Krom River, said that Australia’s crop had been already damaged. “The question now is how severe it is going to be,” Mr Brodie said.
Sorin Vasloban, a trader at Plantureux, the Paris-based agricultural broker, said that the reduced rainfall had came on top of very dry conditions last year, which had exhausted soil moisture.
Australia suffered a severe drought in 2006, which cut the wheat crop to just below 10m tonnes, less than half the 22m average since 2000.
The USDA forecast in early August that the Australian crop would this year reach about 23m tonnes. But traders believe the forecast will be revised down. “The 20m tonnes figure is no longer credible. The market is looking at about 18m tonnes,” said Mr Vasloban.
Those fears yesterday helped to push up wheat prices. November milling wheat at Euronext.liffe in Paris rose €9, or 3.5 per cent, to €266 a tonne, just below last Friday’s all-time high of €272 a tonne.
Mr Delodder said: “At this moment, any further reduction of supply would be an extra incentive for prices to rise.”
Copyright The Financial Times Limited 2007 / reproduced for reference reasons only.