by Chris Lyddon
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There was a hiccup in the rise of wheat in recent weeks, although the realization that the market remains tight and that there are concerns — especially because of rain in eastern Australia — about the supply of quality wheat has helped push prices to record levels in places.

“For wheat, concerns about the next U.S. winter wheat crop, tightening E.U. export supplies and mixed harvest results in Australia failed to halt the slide in prices, although U.S. export quotations did again harden toward the end of the month,” the International Grains Council (IGC) said in its monthly Grain Market Report at the end of November.

Its forecast for world wheat production is unchanged at 644 million tonnes, as it noted, “some 5 percent below last year’s but still the third highest on record.”

The U.S. Department of Agriculture (USDA), in its World Agricultural Supply and Demand Estimates report on Dec. 10, raised its number for the 2010 crop to 646.51 million tonnes from its earlier estimate of 642.89 million. Its figure for 2009 was 682.11 million tonnes. Changes to its 2010-11 production figure include a rise of 1.5 million tonnes for Australia on higher reported yields in eastern Australia.

“Recent heavy rains in many of these same areas, however, have dampened production prospects and reduced wheat quality” it said. The USDA also added 1.3 million tonnes for Pakistan and 1 million for Canada on the basis of official estimates.

Brazil production is raised 400,000 tonnes as favorably dry harvest weather in southern growing areas adds to the output. Ukraine production is raised 200,000 tonnes on the latest government data. Partly offsetting these increases is a 500,000-tonne reduction for Russia.

The IGC expects higher prices this season to stimulate production for next season.

“With winter wheat plantings nearing completion in the northern hemisphere, there are indications that this season’s higher prices will result in area increases, especially in the E.U., the U.S. and North Africa,” it said. “In Russia, the area for harvest should be significantly larger than this season, despite a fall in winter wheat plantings.”

The IGC put the 2011-12 global wheat area at a total of 224 million hectares, up from 216 million “based on a number of assumptions about northern hemisphere spring sowings and the outlook for next year’s southern hemisphere crop.”

“Over half of the increase reflects the expected return to a more normal rate of abandonment in Russia and Canada,” it said.
France-based market analyst Strategie Grains, which has released early estimates for the 2011 harvest, agrees that prices will push up planted area in Europe. It forecasts the E.U. soft wheat harvest (excluding durum) to rise by 7% to 136.5 million tonnes in 2011.

“The higher production comes from an increase in planted area, estimated at 500,000 hectares, in response to the current higher prices offering better gross margins for European producers,” the United Kingdom’s Home Grown Cereals Authority (HGCA) said in a commentary. “The largest increase in output comes from Germany, where yields are forecast to recover after a rain-disrupted 2010 harvest.”

The market is watching Australia, where rain has meant harvest delays of up to five weeks, possibly impacting quality. Australia is set for a record crop of 26.8 million tonnes of wheat, compared with 21.9 million tonnes last year. “With supplies tightening in Europe, this is likely to push further export demand for quality wheat to the U.S.,” the HGCA said. “Since the beginning of December, excessive precipitation in New South Wales (which is expected to produce more than 40% of Australian wheat this year) and Queensland has stalled wheat harvesting,” reported the USDA’s Economic Research Service. “The wetness is also expected to reduce crop quality and thereby supplies of milling-quality wheat. Eastern Australia is experiencing one of the wettest harvest seasons on record.”