Hot commodities

Wheat, barley and rapeseed are among the crops affected by Europe's current dry spell. Many of the crops are now at an important tipping point as moisture stored in the soil from winter rapidly dries up.

Wheat is the Europe Union's second-largest agricultural product after wine, accounting for one-fifth of world production. From 2008 to 2010, the EU harvest had an average value of 3.45 billion euros ($51 billion) a year.

"Rain is definitely needed but that's not the only problem," said David Eudall, an analyst with British agricultural research group HGCA. "Heat is also an issue. Crops are three to four weeks ahead this year."

Critical stage

Because crops are much closer to harvest than usual, rain now would likely be of less benefit than in a normal crop development year. "Quality will suffer," Eudall told Deutsche Welle. "Yields could certainly be down."

The French wheat crop, Europe's largest, has entered a critical stage, according to the French Agriculture Ministry, noting that the country experienced its second hottest April since 1990 and one of the driest since 1953.

In some regions of France, wheat has already reached the so-called "grain-filling stage" at which point grain fails to gain volume without rain, according to government officials.

Germany has been unseasonably hot and dry, too, pleasing sunbathers but worrying crop growers. "We assume yields will be a bit less than average," said Astrid Rewerts, a consultant at the German farmers' association DBV, without providing numbers. "Some of the crops suffered from the severe winter and from the lack of rain in recent months."

Even in typically rainy Britain, moisture has been an issue up until last week, according to Eudall. "The recent rains have taken the edge off a bit," he said, adding that crops are about three weeks ahead of their normal cycle, which could still impact their yields.

France, Germany and Britain are the largest producers of grain in Europe. But they're also among the largest consumers.

Reaping profits

Wheat prices have been rising steadily, and not just because of supply concerns linked to the weather. Experts say speculators are harvesting some healthy yields of their own on commodity markets.

"It's always a bet," said Frank Neidig, a commodities expert at Bankhaus-Lampe, pointing out that while crop growers prefer to lock into fixed prices and play it safe, other stakeholders like to gamble and haul in the profits. "Markets are becoming increasingly crowded with speculators who are the least bit interested in real grain deliveries."

In commodity trading in Paris, the price of European wheat has doubled within 12 months to nearly 253 euros a ton.

Higher commodity prices are forcing food producers, in turn, to boost prices of consumer goods. The United Nations said global food costs rose in April for the ninth time in 10 months.

At the same time, demand for food is going up because the world population is going up and people in industrialized markets are demanding more meat and dairy products, requiring more feed. Add to that the rising demand for bio-fuels.

Adapting to climate change

Supply is also impacted when a key grower, such as Russia, temporarily bans grain exports, as the country did last year following its worst drought in 50 years.

While growers have little influence on commodity trading or the weather for that matter, some are beginning to look at grains bred to be more resistant to drought and heat.

"There is an entire industry focused on breeding these kinds of plants," said DBV's Rewerts. "We are lobbying hard for farmers and growers to adapt to environmental change."

And the need to adapt appears more important than ever. Scientists have determined that for every degree Celsius average temperatures rise, crop yields drop 10 percent.

Author: John Blau
Editor: Sam Edmonds