French, German, U.K. Farmers May Plant More Wheat

Sept. 28 (Bloomberg) -- Farmers may plant more wheat in France, Germany and the U.K., the European Union’s largest producers, for the 2010 harvest as declining costs make the grain profitable to grow, consultants said.

Cheaper fertilizer has pulled estimated production costs for next year’s crop below futures prices, said analysts at U.K. consultant ADAS Holdings Ltd. and France’s Offre et Demande Agricole.

The November wheat contract fell 16 percent this year in Paris trading after a record 2008 harvest swelled global stocks. Prices no longer cover costs, said Adrien Bebin, head of research at Offre et Demande. Next year may be more profitable as growers pay less for products such as nitrogen, he said.

“There’s a general great relief that fertilizer costs have come down again,” said Susan Twining, an analyst at Wolverhampton, England-based ADAS. “At the moment we’ve got good drilling conditions. We would expect a slight increase in wheat area.”

French farmers may sow 4.93 million hectares (12.2 million acres) of wheat for harvesting in 2010, based on comments from clients of Bourges, France-based Offre et Demande, Bebin said in an interview. Soft-wheat plantings fell 3.8 percent to 4.87 million hectares this year, according to government statistics published this month.

German Sowing

U.K. plantings may rise to 2 million hectares from 1.8 million hectares, according to Twining. German wheat sowing may be “unchanged or slightly higher,” said Klaus Schumacher, head of the economics department at Hamburg-based grains trader Alfred C. Toepfer International GmbH.

Overall EU soft-wheat production is forecast to be 130.9 million metric tons this year, with France, Germany and the U.K. accounting for 59 percent of output, according to Coceral, a European association of grain trade groups. The 27-nation bloc is the world’s biggest producer, according to figures from the U.S. Department of Agriculture.

Milling wheat for delivery in November closed at 123 euros ($179.74) a ton on Euronext on Sept. 25 in Paris. Wheat for delivery in November 2010, after next year’s harvest, was at 137 euros a ton.

Forecast Raised

Prices have slumped this year as the International Grains Council raised its outlook for the global wheat crop at least three times on better-than-expected harvests in major producers including the EU and Russia. The group forecasts production of 666 million tons for the 2009-10 crop year, exceeding consumption by 23 million tons.

EU cereal stocks at the end of June had jumped 28 percent from a year earlier to 62.5 million tons as wheat, barley and corn production exceeded consumption, the bloc reported in July.

The price required to cover average costs for a producer in the Cher department, in France’s main wheat-growing region of Centre, climbed to about 140 euros a ton this year from 120 euros in 2008 because of costlier inputs, according to Bebin. Cheaper fertilizer this year means costs for the next harvest will fall to between 120 and 130 euros a ton, he said.

“At current prices, if they sell the wheat harvested this summer they’re losing money,” Bebin said. “For 2010, the farmers are buying fertilizer now, and we’ve returned to levels from before the surge.”

Fertilizer Costs

French farmers are paying less than 300 euros for a ton of nitrogen fertilizer, after prices doubled to 600 euros between May and September last year, according to Bebin.

Northwest European spot prices for bulk urea pellets, used in fertilizer as a source of nitrogen, have dropped to 198 euros a ton from 525 euros a year ago, based on data from ICIS-LOR, a provider of prices for chemicals and energy products.

In the U.K., average production costs this year were about 120 pounds ($192) to 125 pounds a ton, with higher fertilizer prices adding about 26 pounds, according to Twining at ADAS.

“Clearly where prices are, for most people they’re below the cost of production,” said Carl Atkin, head of agribusiness research at Cambridge, England-based Bidwells Property Consultants. “We saw a big spike in costs for 2009, but costs in 2010 for the better producers will be below 100 pounds.”

Farmers across Europe may also increase wheat plantings as they shift out of barley, which has been less profitable, said Atkin and Toepfer’s Schumacher.

Barley Prices

Barley export prices in Rouen, France’s main grains port, have dropped 31 percent in the past year, compared with a 29 percent drop for wheat, according to prices tracked by the International Grains Council.

The fact that some European farmers are now losing money on wheat won’t stop them from replanting the grain for next year, according to Twining, Bebin and Atkin. They spoke on Sept. 22, as did Schumacher.

Farmers in the U.K. are “highly capitalized” and require cash flow from selling grain, even below cost, to finance their business and service debt, according to Atkin.

“They need to produce, even if it’s just a contribution to overhead,” Atkin said. In “most of Western Europe, the planting decision is not as extreme as in Russia or Ukraine, where people can decide to leave large parts of land fallow.”

To contact the reporter on this story: Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net.

Last Updated: September 28, 2009 05:03 EDT