Global Wheat Outlook: EU Focus

BMI View: We forecast total wheat production in the 28 countries of the EU to stagnate at around 141.0mn tonnes in 2014/15, as farmers have continued to favour wheat over barley and corn because wheat prices have remained more competitive. Strong output for the EU-28 in 2014/15 will prevent prices in the bloc from rising significantly over the coming months. However, because EU wheat prices experienced a weaker short-term rally than US prices in recent months, we expect more export demand to shift from the US to the EU at the start of the 2014/15 season, providing some support for EU prices.

We forecast overall wheat production in the 28 countries of the EU to stagnate at around 141.0mn tonnes in 2014/15. Farmers have continued to favour wheat over barley and corn, as wheat prices have remained more competitive, and weather conditions during plantings have been quite favourable, supporting yields. Local industry sources have indicated that of the 141mn tonnes of wheat expected to be produced in the coming season, 137.5mn tonnes will be soft wheat and the rest will be durum wheat. As a result, soft wheat stocks are forecast to increase from 13.1mn tonnes to 15.8mn tonnes in 2014/15, according to Strategie Grains.

Another season of strong output for the EU-28 in 2014/15 will prevent EU prices from rising significantly over the coming months. We expect EU wheat prices to trade largely sideways in the coming months; import demand at the moment is very subdued, as the region has low stocks and Russia has made a strong comeback on the global market in January.

Small Rebound
Paris Wheat (EUR/tonne, weekly)

BMI View: We forecast total wheat production in the 28 countries of the EU to stagnate at around 141.0mn tonnes in 2014/15, as farmers have continued to favour wheat over barley and corn because wheat prices have remained more competitive. Strong output for the EU-28 in 2014/15 will prevent prices in the bloc from rising significantly over the coming months. However, because EU wheat prices experienced a weaker short-term rally than US prices in recent months, we expect more export demand to shift from the US to the EU at the start of the 2014/15 season, providing some support for EU prices.

We forecast overall wheat production in the 28 countries of the EU to stagnate at around 141.0mn tonnes in 2014/15. Farmers have continued to favour wheat over barley and corn, as wheat prices have remained more competitive, and weather conditions during plantings have been quite favourable, supporting yields. Local industry sources have indicated that of the 141mn tonnes of wheat expected to be produced in the coming season, 137.5mn tonnes will be soft wheat and the rest will be durum wheat. As a result, soft wheat stocks are forecast to increase from 13.1mn tonnes to 15.8mn tonnes in 2014/15, according to Strategie Grains.

Small Rebound
Paris Wheat (EUR/tonne, weekly)

Another season of strong output for the EU-28 in 2014/15 will prevent EU prices from rising significantly over the coming months. We expect EU wheat prices to trade largely sideways in the coming months; import demand at the moment is very subdued, as the region has low stocks and Russia has made a strong comeback on the global market in January.

However, because EU wheat prices experienced a weaker short-term rally than US prices in recent months, we expect more export demand to shift from the US to the EU at the start of the 2014/15 season, which may provide some support for prices. In particular, EU wheat prices have increased by 8.7% since they reached a bottom at around EUR183/tonne in August 2013, while US CBOT prices increased by 12.0% since their bottom at USc550/bushel in January 2014. Also, the CBOT/Paris wheat price ratio has been increasing in recent weeks (implying CBOT outperformance), indicating improved competitiveness for European prices in the export market. As a result, we expect improved import demand for EU wheat in 2014/15 despite the stable production balance of around 19.0mn tonnes.

Exports To Stay Strong
EU- 28 - Wheat Exports ('000 tonnes)

We expect demand for EU wheat from Africa to be particularly strong in 2014/15. Even if EU sales to Egypt could be challenged by the recent decision by the Egyptian grains authority to tighten regulations regarding moisture levels in wheat imports (to 13.0%), Algeria and Morocco are set to ramp up imports, especially in the context of lower global wheat prices. Demand from Sub-Saharan Africa could be strong, too. France, the EU's biggest player in the wheat market, already sells to countries in West Africa (Mauritania, Senegal, Cameroon and Côte d'Ivoire), but the EU is working on expanding to markets that are traditionally supplied by the US (such as Nigeria and South Africa).

EU-28 Estimates
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
BMI EU-27 Wheat Production* 119.8 150.7 139.0 136.6 139.4 133.0 140.5 141.0
USDA EU-27 Estimates* 120.1 151.0 139.7 136.6 138.4 133.5 142.9 na
EU-27 Ending Stocks (USDA)* 12.8 19.3 16.5 11.9 13.8 10.0 10.6 na
Wheat Area Harvested (mn ha) 24.7 26.7 25.8 26.1 25.8 26.0 25.9 na
Wheat Yield (tonne/ha) 4.9 5.7 5.4 5.3 5.4 5.1 5.5 na
% Of Global Production 19.7 22.2 20.3 20.9 19.8 20.4 20.0 19.6
% Of Global Exports 10.6 17.6 16.3 17.3 10.6 16.4 17.3 na
BMI Global Wheat Production* 612.0 682.7 684.1 653.0 695.0 655.0 710.2 717.9
IGC Global Wheat Estimates* 609.0 686.0 677.0 653.0 695.0 654.0 698.0 na
*(mn tonnes) USDA, FAPRI, IGC, BMI (FY15 = 07/2014 to 06/2015)

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Geography: Ukraine, Global, Global
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