August 26, 2010 / 6:05 PM / 7 years ago

Black Sea drought widens global wheat deficit

LONDON (Reuters) - Severe drought in the Black Sea region threw the global wheat market into a bigger deficit on Thursday, while a leading analyst increased its estimate for Russia’s import needs, driving wheat prices higher.

A French farmer drives a combine as he harvests wheat in Blecourt, northern France August 3, 2010. REUTERS/Pascal Rossignol/Files

The London-based International Grains Council lowered its 2010/11 wheat crop forecasts for Russia, Kazakhstan and Ukraine, leading to a drawdown in global stocks with demand continuing to rise. The global wheat crop was sliced 7 million tonnes to 644 million tonnes.

While the IGC still saw Russia as a net exporter of grain after its worst drought in more than a century, leading agricultural analyst SovEcon had other ideas.

It said last year’s third largest global wheat exporter may need now need to import up to six million tonnes of grain in the current crop year.

Wheat prices rose on Thursday on the Chicago Board of Trade after the report was issued with the September contract gaining more than two percent to $6.63 a bushel by 1700 GMT.

The IGC saw Russia’s wheat crop at just 44 million tonnes, down from a previous forecast of 50 million and sharply below the prior season’s 61.7 million.

Kazakhstan’s wheat crop was also cut to 12.0 million tonnes from 13.5 million seen a month earlier and Ukraine’s to 17.5 million from a previously anticipated 18.5 million.

“Adverse weather conditions continued to affect yield prospects in parts of the EU, Kazakhstan, Russia, Ukraine and Australia,” the IGC said in a monthly market report.

The drop in production in the Black Sea, a key region for wheat exports, opened the door for the U.S. whose exports are now seen reaching 33.0 million tonnes from 28.5 million seen a month ago and the highest level since the 2007/08 season.

“The sharp fall in Black Sea region exports will see a marked shift in trade flows, with U.S. exports in particular placed much higher than before,” the IGC said.

The U.S. Department of Agriculture said U.S. wheat export sales last week totalled 1,077,600 tonnes, above an average of analysts’ estimates for 750,000-900,000 tonnes.

RISING DEMAND

Demand for wheat is also increasing despite a rise in prices which earlier this month spiralled up to the highest levels in two years before settling back.

The IGC raised its wheat consumption forecast for 2010/11 to 657 million tonnes, up from a previous projection of 655 million and 648 million in 2009/10.

The increase is driven by demand in Russia where the production of other crops such as barley which are used to feed the country’s expanding livestock numbers has fallen sharply.

“Although recent high prices have reduced feed use of wheat in parts of Asia and the EU, this is more than outweighed by an increased forecast for Russia,” the IGC said.

Russia halted exports from Aug.15 until the end of 2010 and while Ukraine this week put off introducing curbs on exports, shipments have been slowed by new quality checks.

Ukraine’s Customs Service said on Thursday it would keep up quality checks on all Ukrainian wheat export shipments and might extend them to other cereals.

The deputy head of Ukraine’s customs service, Serhiy Semka, told Reuters the checks were “normal procedure” and the drop in export levels was not caused by customs curbs.

“We do not want to give a negative image to traders. What we are doing is not directed at creating any artificial bans or limits for wheat exports”, Semka said.

The IGC also cut its forecast for wheat stocks at the end of the 2010/11 season by 8 million tonnes to 184 million, now down 13 million tonnes from a year earlier.

Wheat stocks would still be at “a comfortable level,” far above the 110 million tonnes held at the end of the 2007/08 season, the IGC noted, adding that the lower global wheat crop would still be the third highest on record.

(Additional reporting by Sarah McFarlane in London, Aleksandras Budrys in Moscow and Pavel Polityuk in Kiev; editing by Keiron Henderson)

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