Grain boom over, Spanish farmers eye lean year

By Martin Roberts

DUENAS, Spain (Reuters) - Lucas Ferreras watches freshly harvested barley and wheat from a bumper crop pile up outside barns in northern Spain, but with prices coming off and his costs mounting, expects a lean year ahead.

World grain prices soared last year, boosting turnover for the 1,500 farmers at the Agropal cooperative led by Ferreras in Spain's grain belt, in the northern region of Castilla-Leon.

Beating a winter drought by planting more grain last winter, Spanish farmers are expected by Spain's Agriculture Ministry to harvest 23.75 million tonnes this year, virtually level with last year. Castilla-Leon is expected to contribute 9 million tonnes to that total.

But key U.S. markets recently peaked and rather than lasting prosperity, Ferreras says the commodities boom has brought him costlier fuel and fertilizers. Some farmers are already thinking of switching away from grain this winter.

While in America, demand for crops for biofuel has been a factor underpinning grain prices, Spain's fledgling industry accounts for a very small percentage of demand for grain, offering scant structural support for farmers like Ferreras.

"Last year was a one-off. We were just able to pay off our debts for once and invest in a bit more machinery," said Ferreras, watching a colleague weigh a tractor-load of barley in Duenas, about 250 km (155 miles) northeast of Madrid.

He is particularly concerned that an imminent flood of imports from the Black Sea to fill Spain's structural grain deficit will only exacerbate the downward trend in prices.

Europe faces a big grain crop this summer that has taken the shine off record high markets, although recent heavy rain has dented quality in some areas. This has particularly been the case in Black Sea regions, where much of the grain will only be suitable for use in animal feed.

"We're going to have problems with a market saturated by produce from Russia and Ukraine," said Ferreras, who is also national cereals spokesman for cooperatives' group CCAE.

SOARING COSTS

Last year's high prices helped boost Agropal's turnover by 29 percent to about 120 million euros in the market year to June 30.

But Ferreras estimates production costs have since risen by 60 percent. His crop manager Martin Aliste said that as farmers are squeezed between rising costs and lower prices, they will be less keen on planting grain this winter.

"We're having our best harvest in years but have barely time to savor it. Rising costs make it a bittersweet moment," Aliste said.

"I think we will go back to rotating cereals with other crops like sunflowers, which are cheaper to grow," he added at a shopping centre run by Agropal as part of a bid to diversify revenues away from volatile crop prices.

The Agriculture Ministry said in its latest crop progress report the main reason Spain will have a bumper crop this year after a severe drought in winter is that farmers planted almost 9 percent more land.