Severe rainfall during France’s growing season has cut wheat yields and quality.
Each week the condition of their unharvested crop is being downgraded.
Over the last week, the condition rating was set at 42 per cent good to excellent, down seven points on the week before.
At this time last year, the rating was 76pc good to excellent.
French wheat futures are rallying in response, rising seven per cent in two trading sessions to end last week.
There was spillover to US wheat futures, where speculators had built a large net sold position that was being reversed by the end of the week.
The problems with the French crop are likely to be repeated in some regions of Germany and should have an impact on total EU production numbers.
France is a major EU exporter of wheat to external countries, and this trade is going to be pulled back sharply.
While the gap will be filled in part by other EU origins, it’s likely that total exports of milling wheat from the EU will be pared back this year.
We will see a lift in supply of feed wheat. But with yields disappointing, the total volume available will not be as bad as it could have been.
It will get consumed locally and push corn out of feed rations. We might also see feed wheat exports from the EU remain strong, competing with corn in global markets as well.
The biggest impact to global markets will be if any shortfall in supply to export markets spills over to increased demand for US wheat.
Driving down the level of US ending wheat stocks will be pivotal in providing upside to prices as we head into our own harvest period.
However, before we can increase US exports, the global balance sheet will have to cope with a large Canadian crop and a lift in our crop. The other problem in Australia is that bulk shipping freight rates are low, allowing wheat from other destinations to be exported to our key South Asian markets at levels competitive to our own exports.
We are seeing that as reduced basis levels for new season wheat, particularly in NSW and Victoria where basis levels have been running strong for the past three seasons because of localised production issues.
Corn is the other key to where wheat will head. Wheat will have to price itself against corn into feed markets in the US and globally.
If corn prices are pressured, it will keep pressure on CBOT wheat futures.
This is where weather conditions are still a factor in the US, although with the passage of time the American corn crop is becoming more secure against adverse weather.