FAO Cuts Wheat Production Forecast But Considers Supplies Adequate

International wheat prices have jumped by over 50 percent since June. This rapid increase in prices is prompting concerns about a repeat of the crisis of 2007/08.

Aug 5 2010 --- The impact of unfavourable weather events on crops in recent weeks has led FAO to cut its global wheat production forecast for 2010 to 651 million tonnes, from 676 million tonnes reported in June.

But despite production problems in some leading exporting countries, the world wheat market remains far more balanced than at the time of the world food crisis in 2007/08 and fears of a new global food crisis are not justified at this point, FAO said.

A continuing, devastating drought afflicting crops in the Russian Federation, coupled with anticipated lower outputs in Kazakhstan and Ukraine have raised strong fears about the availability of world wheat supply in the 2010/11 marketing season.

The turmoil in global wheat markets, which has intensified in recent weeks, is evidence of the growing dependence on the Black Sea region, an area renowned for erratic yields, as a major supplier of wheat to world markets. In addition, an expected production decline in Canada, another major producer and exporter of wheat, has reinforced market worries.

International wheat prices have jumped by over 50 percent since June. This rapid increase in prices is prompting concerns about a repeat of the crisis of 2007/08.

But after two consecutive years of record crops, world inventories have been replenished sufficiently to cover the current anticipated production shortfall. Even more importantly, stocks held by the traditional wheat exporters, the main buffer against unexpected events, remain ample.

External factors, including the macro economic environment and developments in other food markets, which were major drivers behind the surge in international prices in 2007/08, are not posing a threat so far, FAO said.

The latest downgrading of world wheat production forecast for 2010 points to a tighter supply situation and increases the likelihood of higher wheat prices compared to the previous season. However, fears of a global food crisis are unwarranted at this stage.

On the other hand, should the drought in the Russian Federation continue, it could pose problems for winter plantings in that country with potentially serious implications for world wheat supplies in 2011/12.

FAO says it will continue to monitor the situation closely. 

Meanwhile the European Commission has said it forecasts average crop production for 2010 in the EU despite extreme weather.  Total cereal production in 2010 should be close to the average from the last five years. While the yield per hectare will be 5% above average, overall cultivated areas have decreased. The yield forecast for cereals (wheat, barley, maize, other cereals) is 5.1 tonnes per hectare across the EU, the same level as last year (+0.7%) but above the five-year average (+5.0%). The total area used in the European Union for cereals in 2010 is estimated to have decreased by 3 % compared to 2009.