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Hot weather could result in costlier flour, analysts

By Jane Byrne , 27-Jul-2010

Bakers may expect to pay out more for flour on the back of the rally in global wheat prices this month, following production setbacks in the EU, Russia and Kazakhstan, claim industry commentators.

Wheat prices reached their highest level in over 12 months in the US and since September 2008 in Europe, reports Rabobank in its monthly commodities review for July.

Extreme weather conditions throughout June and early July have resulted in substantial downward revisions for EU wheat production in the 2010/11 season, according to the Dutch agro specialists.

And Reuters report that key Paris wheat prices, following the heat wave, were around €178 a tonne on Friday, with analysts claiming a hike in flour prices as a result is unavoidable.

The Rabobank review reports that the cereal reference publication, Stratégie grains, lowered its EU soft wheat production forecast by 3.6 million tonnes between June and July to 129.5 million tonnes.

“With some farmer groups in Germany now suggesting wheat yields may be 10 per cent to 20 per cent lower year on year, final EU production may actually come in below these latest estimates,” said the Rabobank team.

Focus in the world wheat and grain markets has shifted to Russia and the Black Sea Region (BSR) throughout July as above average temperatures have resulted in significant production downgrades prior to the upcoming harvest.

This month saw the USDA lower its Russia and Kazakhstan 2010/11 production estimates by 4.5 million and 3 million tonnes to 53 million and 14 million tonnes, respectively.

“While it will be some time before the true impact of Russia’s heat wave can be fully gauged, we expect final production to come in somewhere closer to 51 million tonnes,” claim the agribusiness specialists.

And they predict that the substantial new crop production downgrades in the Northern Hemisphere are expected to shift increased world wheat demand back to the US in the second half of 2010.

“Favourable weather conditions have benefitted harvest progress in the US this season, with the latest estimate from the USDA indicating 71 per cent of the winter wheat was harvested as of 18 July,” report the Rabobank experts.

They explain that while ‘global’ wheat stocks are expected to remain at very high levels and only a small deficit is expected in the 2010/11 season, a significant amount of these stocks are tied up in China and India—two countries that are unlikely to actively participate in the export market.

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