Paris/Moscow / Reuters – Warm weather last week did not eliminate risks for Russia’s fragile winter grain plantings, said a Moscow-based agriculture consultancy SovEcon, warning of a potential export decline next year from one of the world’s key supplies.

An early cold spell this autumn has weakened winter grain crops in Russia, expected to be the world’s third largest wheat exporter in the 2014/15 marketing year after the European Union and United States.

“Despite warm weather last week crops still remain depressed,” Andrey Sizov Jr., managing director of SovEcon, told the Thomson Reuters online Global Ags Forum on Thursday. “We expect high winterkill and lower yields than the average level of recent years.”

Relatively warm weather forecast for November is likely to help plantings, first of all in Russia’s South, he added. Farmers have already sown 99.5 percent of the planned area – 16.4 million hectares, up from 14.5 million hectares at the same date a year ago.

According to SovEcon’s own estimate, the country’s 2015 grain crop could fall to less than 90 million tonnes, including less than 50 million tonnes of wheat. This year the country has harvested 108.3 million tonnes of grain before drying and cleaning.

With a wheat crop of about 50 million tonnes, the country’s exports could fall to between 16 and 18 million tonnes in the 2015/16 marketing year, which starts on July 1, from 23 million tonnes forecast this year, he added.

The fall in the rouble, which has lost about a quarter of its value against the dollar this year due to a decline in oil prices and a crisis in Ukraine, is also adding to risks for next year’s crop.

“Additional concern for the 2015 crop is the cost of inputs which is likely to go up significantly due to the rouble depreciation,” Sizov said.

Some farmers prefer to hold their crops due to the falling rouble and are selling sunflower when they need cash. Their mood may change around February or March when they need cash for the spring sowing campaign, he added.

This year’s exports

As to the current 2014/15 marketing year, the weak rouble continues to make exports more attractive and may cause Russia’s wheat exports to exceed 23 million tonnes, according to SovEcon.

Wheat of Russian origin has lost the latest two tenders of GASC, a state buyer of the world’s top wheat importer Egypt, but SovEcon expects that to change in future tenders.

The consultancy estimates Russia’s November grain exports at 3.0-3.2 million tonnes compared with about 3.1 million tonnes in October.

According to SovEcon, Russia may supply more grain to Iran this year as its neighbour Kazakhstan is having problems with grain quality this year.

Kazakhstan, Central Asia’s largest producer of grain, could lower its 2014/15 export forecast as wet weather has dented quality this year.

Russia exported 14.6 million tonnes of grains, including 12.1 million tonnes of wheat, between July 1 and Oct. 29.

Reporting by Gus Trompiz and Valerie Parent in Paris, Polina Devitt in Moscow and Christine Stebbins in Chicago

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French exports exceed those of Britain and Lithuania on the world market, but a wet summer has meant France is set to produce more wheat for animal feed and less higher-grade bread-making grain this year.

The imports are the latest signal that France might struggle to retain its market share of milling wheat exports this season because a large part of its crop is failing to live up to its traditional clients’ criteria.

During the past 13 years for which Reuters has records, France has only once imported significant amounts of Lithuanian wheat.

That was during the 2010-11 season, which was also beset by quality problems.

The total amount imported then, at 22,600 tonnes, was less than the single shipment of 27,500 tonnes of high protein-content wheat, which trade and port sources told Reuters was being unloaded at the Port of Rouen on Thursday.

The French imports point to the potential for more unusual global grain trade flows this season.

“Clearly there is a significant quantity of feed wheat in France which is normally not there, therefore they are struggling to fulfil some of their normal export destinations and obligations,” said a trader in Britain.

“Consequently grain has been bought to replace that French wheat from Scandinavia, Germany, Poland, the UK.”

France’s key markets in North Africa, particularly the world’s fourth-largest wheat importer Algeria, are expected to look beyond their traditional supplier for future purchases but in the meantime, French exporters are meeting existing contracts by mixing in higher quality foreign wheat.

“I think that France will certainly have a problem with high-volume sales to some of its traditional markets this year, especially Algeria and Morocco,” a German trader said.

“The French are also likely to be aggressive sellers of feed wheat which could be offered in the Arabian and Asian markets as a competitor to corn,” he added.

As for British milling wheat, a shipment of 3,000 tonnes reached Dunkirk earlier this week. A second, for 4,400 tonnes, was in Rouen on Thursday, and others should follow, the sources said.

Britain, which had a reasonably good quality harvest this season, is a more regular supplier of wheat to France, but its exports are usually aimed at the lower quality animal feed market.

French wheat missing Algeria standards

While quality readings are still emerging in France, reports so far suggest a large portion of the crop will fail to meet the flour-making standards of its traditional markets outside the EU, mainly its top client Algeria.

Britain is already eyeing increased market share in Algeria, with one trader estimating exports of 0.5 million tonnes by the end of the year.

“I wouldn’t rule out a record year of exports to Algeria,” said Jack Watts, senior analyst at Britain’s Home-Grown Cereals Authority.

This could lead France to ship more wheat within the bloc than on the world market for the first time in seven years.

The main quality concern has been weak Hagberg falling numbers, a measure of the flour-making quality of wheat and one that is hard to remedy even by blending low-grade grain with superior wheat.

Varied results in France have often been well below the 230-240 Hagberg minimum required by top client Algeria, the 250 sought by Moroccan importers or the 200 set by the state grain buyer in Egypt, the world’s top wheat importer.

Algeria also has high standards for other milling criteria, such as specific weight and protein content.

“There will be all sorts of grain flows,” another trader in Britain said. “People have got contractual obligations and people have to do odd things (to meet those obligations).”

— Valerie Parent reports for Reuters from Paris. Additional reporting for Reuters by Sarah McFarlane in London and Michael Hogan in Hamburg; writing by Sybille de La Hamaide.

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Farmers in eastern France have reported alarming quality indications for wheat, blamed on repeated rainfall in early July in the run-up to harvesting. After a dry spell last week, storms across France at the weekend brought as much as 50 mm of rain in some areas.

On the French cash market on Monday the spread between animal-feed wheat and milling wheat was at an unusually wide level of around 30 euros a tonne, close to levels seen during the poor quality harvest of 2007, brokers said.

Cash premiums for milling wheat against benchmark Paris wheat futures were between zero and 8 euros a tonne, a rise of up to 4 euros from Friday, brokers said.

“The market is becoming more and more complicated with such a mixed bag of quality,” one French broker said. “It’s a race to find milling wheat between millers and exporters.”

The increasing risk that a large portion of the 2014 crop will be graded as feed wheat was leading to cancellation of contracts and fresh deals being struck to cover quality needs, brokers said.

A swathe of northeast France from the outskirts of Paris to the German border via Burgundy was worst affected, with brokers citing 30 per cent sprouted grain and low Hagberg readings.

German wheat as hedge

Germination can lead to wheat being downgraded to animal-feed quality when it exceeds two per cent of volume, as can low Hagberg falling numbers, another measure of milling quality.

The French wheat harvest was still in its early stages after rain delays, with about a quarter of the crop cut, traders said.

Worries over poor harvest quality led some French buyers to turn to the German market.

“We have seen some French purchase interest in Hamburg today apparently with German wheat being taken as a hedge against quality losses caused by rain in France,” a German trader said.

Problems over crop quality could also lead to renewed debate over delivery of grain traded on the Euronext futures market.

The Senalia export silo at the northern port of Rouen, which was previously the sole delivery point for Euronext wheat, caused controversy two years ago by imposing additional quality requirements after a rain-affected harvest.

Euronext’s November contract will have a second delivery point at Rouen, the Socomac silo, but traders said the fact it does not currently set its own criteria like Senalia could create confusion over the quality of wheat delivered against Euronext futures.

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Protein content is a basic measure of wheat’s suitability for making bread and a key requirement for importers in Africa and the Middle East that France targets in competition with North American and eastern European suppliers.

Average protein content in this year’s French harvest was 11.2 per cent, the lowest since at least 2009 and around the minimum accepted by buyers. Poor growing weather was a factor, but the continuation of a declining trend has caused alarm in the grain sector and prompted the government to call for action.

“The issue is clear: we’re on a slippery slope in terms of protein content,” said Remi Haquin, a farmer and chairman of the cereals committee at farm agency FranceAgriMer.

“There is a real risk for us on the world market if we don’t get back to 11.5 per cent. That’s the standard for the French milling industry and for the French-style bread you find in the specifications of our customers in the Maghreb and Egypt.”

France exports about half of the roughly 36 million tonnes of wheat it produces annually, and in recent years has sent most of its exports outside the EU to meet emerging-market needs.

But the dip in protein has highlighted its relatively ordinary wheat quality.

The government has asked FranceAgriMer to put wheat protein in strategic plans for farming to be outlined by year-end.

“We know now that the protein levels in our wheat are too low,” Agriculture Minister Stephane Le Foll told a parliamentary committee last week. “There is the danger of losing markets, so we have to improve the situation.”

Prices for protein

Lower protein does not look like harming French exports this season, since EU wheat is being snapped up thanks to brisk demand and supply snags around the world.

But traders say this be may a lucky escape and France’s successful export model of high-volume, homogenous wheat needs to be changed to match the quality offered by competitors.

“French wheat gives you the basic quality,” one trader said. “The problem in future is that its clientele may be limited.”

Despite unstable output linked to a harsher climate, lower-cost exporters Russia and Ukraine are expanding their reach and unnerved French traders with sales to Morocco last season.

Unable to undercut its eastern European competitors on price, France will have to protect its wheat quality to keep core clients like Algeria and develop other outlets, they say.

All parties agree on the causes of the drop in wheat protein — including an erratic climate, less fertilizer use and a focus on yields — and that technical solutions are readily available.

Some 40 per cent of wheat fields in France already benefit from fertilizer precision tools — like satellite data on plant nitrogen absorption — and more uptake could bring results, said Jacques Mathieu, managing director of crop institute Arvalis.

“Our objective is in the next two years to set in motion a trend to at least stabilize and if possible raise again wheat protein. So we’re talking about the short term,” Mathieu said.

The backing of the farm ministry and specialists like Arvalis should raise awareness of quality issues, but getting growers to adopt en masse protein measures will partly depend on linking prices more to quality, traders and crop experts say.

Cash markets for wheat in France either do not impose a protein level or set an 11 per cent minimum, and price differences between these markets are modest, in contrast to clearer price scales used in other exporting countries.

“Pricing will need to be more nuanced,” the trader said. “If you don’t have a price differential between animal-feed wheat, standard wheat and higher-category wheat, nobody is going to produce the higher grade.”

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The ending last year of the Canadian Wheat Board’s marketing monopoly in Western Canada has shaken up the grain trade, encouraging deals such as Glencore’s takeover of top Canadian grain handler Viterra.

The French trading operation, called Durum, will pool durum marketing activities of two grain co-operatives, Axereal and Arterris, in a bid to offer the volume and quality to satisfy buyers in nearby importing countries such as Italy and Algeria, Jean-Philippe Everling, head of the joint venture, said.

“The dismantling of the Canadian Wheat Board accelerated our groups’ thinking process,” he told Reuters by telephone.

“This (reform in Canada) has attracted large multinationals that weren’t interested in durum before. The market is more fluid, aggressive and volatile than it used to be.”

Canada claims about half of some seven million tonnes in annual global trade in durum, a much smaller market than common wheat used for bread that has flows of at least 120 million tonnes.

The Durum joint venture, which will start trading on July 14 after being announced in November, aims to expand its export volumes to 1.5 million tonnes a year, compared with just over 1 million tonnes handled by the cooperatives in the past two seasons.

The tie-up between Axereal, already a major grain trader via its Granit unit headed by Everling, and Arterris will offer durum from two growing regions, reducing supply risks, he said.

But strict requirements from semolina mills, which tend to use different durum origins to achieve a very precise quality, also meant the joint venture would trade non-French grain to satisfy clients, he said.

The share of foreign supply would increase and could range from one-third to half of Durum’s traded volumes, he said.

French durum production should fall this year, after a sharp decline in the sown area, and Everling said a crop of about two million tonnes was expected, compared with 2.4 million in 2012.

Crop quality would be particularly important after poor quality reported in fellow European producers Greece, Italy and Spain, he said, adding it was too early to assess with harvesting of durum only just starting in France.

— Valerie Parent and Gus Trompiz report for Reuters from Paris.

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The European Union’s cereals management committee voted Thursday to extend the suspension of the bloc’s import duties on feed wheat and barley until June 30, 2012, the EU’s executive said in a statement.

The EU in June suspended its import duties of 12 euros per tonne for low- and medium-quality wheat and 16 euros a tonne for feed barley until Dec. 31, in response to a spring drought that hit supplies of animal fodder in Europe.

The decision extended the measure until the end of the marketing year.

The move was made to assist the EU livestock sector, which is struggling to secure affordable feed supplies with grain prices above 180 euros per tonne, a Commission spokesman said in the statement.

Under international rules, the EU fixes maximum duties on cereals imports known as bound tariffs. For imports of low- and medium-quality wheat above the tariff-rate quotas (TRQs), these are fixed at 95 euros per tonne and 93 euros for barley.

A portion of the TRQs for wheat are reserved for imports from the U.S. and Canada, while much of the rest usually comes from Russia and Ukraine.

Traders in import-dependent Spain, who use TRQ permits to buy Ukrainian feed wheat, said they had been expecting the EU to extend the duty waiver. They said demand at the auction due in January would depend on the relative price of maize, the ingredient of choice for Spanish animal feed makers.

"If Ukrainian wheat is more expensive than maize, then there won’t be much appetite for wheat and the auction may be null and void," one Spanish dealer said.

"If, on the other hand, Ukrainian maize fob prices are more expensive, and as Ukrainian maize is the benchmark for maize, then there will be appetite for wheat and plenty of bids."

The committee also agreed to merge the first two quarterly tranches of the 2012 TRQ for low- and medium-quality wheat from all countries excluding the U.S and Canada, which means that traders will be free to bid for total imports of 1,189,194 tonnes from Jan. 1.

— Additional reporting for Reuters by Martin Roberts in Madrid; writing by Sybille de La Hamaide

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The European Union’s cereals management committee may vote Thursday to extend a suspension of the bloc’s import duties on feed wheat and barley until June 30 2012, a draft agenda of the meeting seen by Reuters showed.

In June, the EU suspended its import duties of 12 euros per tonne for low- and medium-quality wheat and 16 euros a tonne for feed barley until Dec. 31, in response to a spring drought that hit supplies of animal fodder.

Thursday’s possible vote could extend the measure until the end of the current marketing year, the agenda showed, to help meet strong demand for animal feed in southern European countries such as Spain, where stocks remain tight.

"It’s clearly the Commission’s intention (to extend the suspension). Cereals are available in quantity from the current EU campaign, but the problem is that they are expensive," a source close to the EU management committee told Reuters.

A spokeswoman for EU farm union Copa-Cogeca said the organisation opposed the extension of zero duties, as wheat prices within Europe were starting to fall.

Under international rules, the EU fixes maximum duties on cereals imports known as bound tariffs. For low- and medium-quality wheat, these are currently fixed at 95 euros per tonne.

For some cereals, the bloc has established TRQs, annual volume quotas for grain imports at duties much lower than the standard bound tariffs.

Exclusive rights

In 2003, the EU introduced TRQs at reduced tariffs for imports of low- and medium-quality wheat, and barley, with exclusive rights for Canada and the U.S.

Of the bloc’s 2,989,240-tonne quota for feed wheat in 2011, 572,000 tonnes are earmarked for imports from the U.S., and 38,853 tonnes for imports from Canada.

The bulk of the import quotas for 2011 have already been filled, but the full volume for 2012 will become available again from Jan. 1, and could be imported at zero duty if the EU committee extends the current measures.

In October, the EU agreed to open a new import quota from 2012 for feed wheat from non-EU countries of 122,790 tonnes, taking the total TRQ for next year to 3,112,030 tonnes.

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“With the financial cri -sis, market conditions are changing. The big question mark is no longer supply but demand,” said Alain Caekaert, buying director at Malteurop, one of the world’s top malt manufacturers.

Between 2005 and 2008, worldwide beer production rose 14 per cent to 1.8 billion hectolitres (39.59 billion Imperial gallons) to meet rising consumption, especially in emerging countries.

After rising 5.3 per cent in 2007, global demand had been forecast to grow by two to 2.5 per cent in 2008, but these expectations have been scaled down.

“With the crisis, some people think it will be more like zero growth,” said Jean-Claude Girard, managing director at malt broker Interbrau. For 2009, the consensus is already for no rise, he said.

In response to stalling demand, brewers may turn more to beer with lower malt content that is cheaper to produce and buy.

“The global recession could lead to changes in consumption patterns,” said Alain Le Foch, Malteurop’s managing director.

In China, for example, the amount of malt used to make a hectolitre of beer has fallen to 7.75 kg versus 13 kg on average in Europe.

The malt manufacturers who supply brewers are already feeling a squeeze from deteriorating worldwide demand.

In Russia, where beer is a relative luxury, malt firms have cut capacity by 25 per cent, Interbrau’s Girard said.

“In the coming weeks, this is going to happen in Europe too, we could go from 95 per cent of capacity used to 90 per cent,” he said on the sidelines of the conference.

A sharp fall in demand for malt could further increase stocks of malting barley – the crop used to produce the beer ingredient – after a big harvest in 2008.

In the European Union, malting barley stocks could reach 1.3 million tonnes by the end of this season, representing six weeks of malt capacity.

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