U.S. wheat prices are on their way to their biggest weekly gain and European benchmark wheat futures have jumped just under 30 per cent in the past nine weeks as wheat belts on both sides of the Atlantic show signs of irreversible drought damage.

“We need Mother Nature’s help to save a crop, which whatever happens will be mediocre,” said a senior European trader, referring to France, the EU’s biggest wheat producer.

An unusually dry and hot spring in top EU wheat countries, and severe dryness in Texas, Kansas and Oklahoma, have revived memories of last year when drought ravaged Russian and Ukrainian wheat harvests and choked off supplies from the key exporters. This year, Black Sea wheat may go some way to meeting lost EU and U.S. production but markets remain skittish.

PARCHED EUROPE

A three-month-long drought has prompted curbs on water use in a third of France and some analysts are predicting its soft wheat output will fall 11.5 per cent this year, to 31.7 million tonnes. That could potentially halve its soft wheat exports.

Germany, the EU’s second-largest wheat producer, is facing a 7.2 per cent drop, to 22.3 million tonnes, along with a drop in quality.

In the United States, the world’s top wheat exporter, the hard red winter (HRW) wheat crop is showing signs of distress. The condition of HRW – a high-protein variety which accounts for nearly half of U.S. wheat exports – has steadily deteriorated throughout the spring in Texas, Oklahoma and key parts of Kansas.

“It is pretty bad,” said Kansas climatologist Mary Knapp. “For a lot of these areas… the last significant rainfall was in July of last year.”

The overall U.S. winter wheat crop is to be estimated as the smallest in five years.

Meanwhile, the soft red winter wheat belt in the eastern U.S. Midwest faces the opposite problem as excessive spring rains were likely to drag down crop quality while flooding destroyed thousands of acres just weeks from harvest.

In drought-traumatized France grain farmer Pascal Seingier cannot see the clouds, let alone any silver lining.

“It’s all dry. We have had almost no rain in weeks and it’s now clear I will not have the same harvest as usual. Usually Mother Nature repairs what it has broken, but it won’t happen this year.”

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Grain traders have had their eyes glued to weather forecasts rather than economic data, as heavy rainfall slows planting in the U.S. Corn Belt and a drought in parts of the U.S. and Western Europe threaten wheat crops.

Oil dove 10 per cent on Thursday as weak U.S. and German data stoked worries about slowing global growth but any new rush out of top commodities would pinch, not hammer, agricultural goods, says fund manager Gertjan van der Geer.

“If investors get out of commodities as a whole it will also put some pressure on agriculturals, but fundamental investors may start looking at agriculture as the odd one out, the attractive one in the bunch,” said Van der Geer, who manages agricultural funds at private Swiss bank Pictet.

Most commodity markets remained jittery Friday, with oil seesawing before rising on a stronger-than-expected U.S. jobs report, which helped ease some economic worries. But gold, copper, iron, sugar or coffee showed no sign of regaining substantial ground after the previous session’s brutal losses.

European wheat futures were up two per cent at about 214 euros a tonne, after adding 0.5 per cent on Thursday, apparently immune to the brutal losses in commodities that stunned many traders around the world. Chicago wheat was 1.39 per cent higher at US$7.64 per bushel.

“The (agricultural) fundamentals are less dependent on economic activity. Soft commodities are more dependent on the weather,” Van der Geer said.

Clinton’s call

Earlier on Friday U.S. Secretary of State Hillary Clinton said the world has to take swift action to arrest steadily rising food prices and step up its commitment to sustainable agriculture, even as commodities prices were sliding.

Food prices, which hit record highs in February, have been  a long running concern for the U.N.’s Food and Agriculture Organization (FAO), which said on Thursday its world food index rose slightly in April, boosted by worry about the U.S. grain crop.

FAO director general Jacques Diouf told Reuters Insider on Tuesday a weak trend in world food prices had already begun to reverse and prices were set to rise again as concerns persist over Chinese and U.S. winter crops.

Grains and oilseeds were tied to some extent to fluctuations in oil and other commodities due to their use in biofuels and with commodity-wide strategies used by some investors.

U.S. corn futures bounced in early Chicago trade in Friday with help from firmer crude oil as the U.S. jobs data encouraged renewed buying.

But weather and production issues continued to haunt the market and operators said slow U.S. corn plantings and the tightest stocks since the 1930s have helped soften the blow of the commodity selloff.

Wheat has also been underpinned by adverse weather. Severe drought in Texas and the U.S. Plains threatens to cause significant crop losses, while persistent dry weather in France, Germany and Britain could harm crops in Europe’s bread basket.

Commodity picking

“There are such low inventories that if the U.S. Corn Belt stays too wet too long it may push farmers to switch crops. That could mean even less corn and we would see new inflationary pressures,” Van der Geer said.

Philippe Chalmin, an academic who advises the French government on food issues, said a commodity selloff had been long overdue as prices “were nearing the sky” but he believes investors will do some “commodity picking.”

“Agriculturals appear best placed to do well. Not all of them will (do well), but there are some where we have real issues underpinning prices. This is the case for corn,” added Chalmin, who said the weaker dollar and Goldman Sachs were the double trigger of Thursday’s rout in commodity markets.

The U.S. bank advised customers to take profits from major commodity markets three times in early April, saying prices had moved too far, too fast, and that speculators had pushed prices ahead of fundamentals.

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