Europe is wilting under a historic spate of heatwave occurrences as it devastates crops and forests across the continent. Environmental organizations have attributed the particularly searing summer this year to global warming, even as Europe braces itself for one of its worst harvest seasons since World War II.
Crop yield has been sour in Europe this year, as farms have been subjected to the vagaries of climate change – being struck with heavy rains and severe droughts. It has taken a toll on major grain crops like barley and wheat, with the United Nations’ Food and Agriculture Organization (FAO) forecasting double-digit percentage losses in grain produce across the length of Europe this year.
Strategie Grains, a cereal market analysis company significantly reduced its EU wheat harvest estimate to less than 130 million tonnes, citing extreme weather in what would be a six-year low in production. France is one of the heavily hit countries, with estimates showing that it would lose 20% of its grain harvest, followed by Italy and Britain losing 13% and 12% respectively. Scandinavia’s wheat crop estimates recorded the worst in Western and Northern Europe, with a 40% year-on-year fall.
Germany, the second largest European wheat exporter, has been hard hit with a heatwave that occurred in May, rising temperatures to a level unseen since 1881 at that time of the year. The country’s farmers’ association DBV has reported that wheat production would be down 25% this year and has called out for $1.2 billion in drought relief.
On the far East, Ukraine a wheat powerhouse of EU is staring down at a near 75% decrease in wheat, standing at 5 million tonnes this year. Russia, the third largest wheat producer in the world, is not faring well either with Strategie Grains predicting an 18% drop in harvest.
What might look ironic in the context of West Europe, is the fact that Ukraine, Romania, and Russia are seeing lower grain harvest due to a different reason – excessive rains and flooding. Laurentiu Baciu, President of Romania’s farmers’ association LAPAR, has said that the wheat production of the country would fall by at least 20% this year. “Output drops could be even bigger than that – day by day that percentage is increasing and the situation in the field is degrading. Rains have not stopped for a single day,” he said.
While the EU is licking its wounds in grain production, the European wheat futures market rallied by 7% over the last month as expectations have taken a turn for the worse. This is a sorry state of affairs as the year of 2017-18 was one of the bountiful years on record for Europe, especially with Russia which produced 85.7 million tonnes of wheat – an eight-year high.
As supply far exceeded demand, it led to a meltdown of global wheat prices with it standing 36% lower than what it was in 2014. This was a death knell to a lot of U.S. wheat farmers as they could not cope with the slash in prices which went below their break-even point. This resulted in a 99-year record low wheat production in the U.S. as farmer incomes slumped down to a 12-year low.
However, the decline in European grain production this year could be the silver lining for the U.S. farmers after all. The fall in Russian wheat export could see the revival of U.S. exports, which fell from 93.9 million tonnes in 2016-17 to 79.5 million tonnes in 2017-18. But with Europe struggling in the heat, facing a production deficit and mulling at an early opening of its winter rations, the onus is on the U.S. farmers to cash in.
The heavy rains and extended droughts in Europe have not just decimated farms, but has also reduced the overall quality of grains. For instance, malting barley, the premium quality barley used in beer breweries has seen a 60% rise in price over the last three months to stand at $270 per tonne. Farmers are seeing grain screenings go beyond the usual limit, to record double-digit figures. Screening is the process of filtering out grain produce to remove by-products like husk, hull, and damaged seeds to maintain quality standards.
All that said, grain production was not singled out by the heatwave. Regular vegetable crops like onions, carrots, potatoes, and corn fields have also been ravaged by the summer, with Denmark’s spring vegetable harvest down by nearly 50% this year. Britain has had bigger woes this year compounded by Brexit, with good vegetables left rotting in the fields due to unavailability of workers to pick them. A large part of the plantation workers migrate to the UK from mainland EU, which would no longer be the case post-Brexit.
Stay up-to-date with the latest commentary and insights on FreightTech and the impact to the markets by subscribing.
