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EU Grain Maintains Swell — Again

Farmers in the European Union, troubled by falling prices, are likely to ease market pressure by offering hundreds of thousands of tonnes of barley into EU stores, leaving the bloc with a new mountain of surplus cereals.

The EU supports farmers by guaranteeing it will buy some crops at a minimum price in its intervention scheme that starts on Nov. 1. In recent years, intervention was barely used as commercial prices were higher than intervention subsidies.

But bumper harvests this year and the export-punishing rise in the euro’s value has pushed down market prices for barley below the starting level of 101.31 euros a tonne at which the EU guarantees it will buy unwanted grain from farmers.

“We will definitely see large volumes of barley of fered into intervention this season for the first time in years as market prices are so low,” said Martin Schraa, chief grains analyst at German agricultural analysts AMI.

“In Germany we are talking about several hundred thousand tonnes in coming months.”

The EU’s intervention grain stocks shrank from 14 million tonnes at the beginning of the 2006-07 season to only 1.5 million tonnes now, including 554,000 tonnes of maize which no longer qualify for the subsidies.

Dealers expect the molehill will become a mountain again.

East German farm gate prices for barley are as low as 80 to 90 euros a tonne, making intervention subsidies a far more attractive option than commercial sales for famers, traders said.

“The current poor market means several million tonnes of barley will be offered into intervention around the EU this season,” one German trader said.

German farmers could offer up to 500,000 tonnes of barley into intervention, with offers expected immediately as the scheme opens in early November, traders said.

The EU will end automatic barley intervention under its “health check” reforms to cut farm subsidies from the summer 2010 harvest. The bloc has already removed maize from intervention, which will add to large feed grain supplies.

More broadly, a draft paper by the EU’s executive arm said the bloc should shift more of its spending to climate and energy security as part of a radical overhaul of its budget.

French farmers are also expected to offer a substantial amount of barley into intervention from November. The prospect of an easing in the supply glut contributed to a recovery in French cereal prices last week.

French farm agency FranceAgriMer expects over one million tonnes of barley will be offered into intervention after a record crop this summer and a sluggish start to the current export season.

Swelling supplies of feed grains had pushed French barley prices below the minimum EU intervention price of 101.31 euros a tonne.

Hefty offers of French barley to intervention stores are an unusual move given that growers in the EU’s largest grains producer rarely use the EU subsidy safety net.

Analysts said the glut of barley in Britain had also raised the possibility of deliveries into intervention stores for the first time in several years.

“We have had more questions on it in the last few weeks than we have had in the previous few years,” said Michael Archer, senior analyst at the Home-Grown Cereals Authority.

“People seem to be considering it as an option and seeing if it is viable but it will depend on how the currency rates and prices move before and during the intervention season starting on Nov. 1,” he added.

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