20 November 2011

12 minute read

For cereals, the EU usable production in 2011/2012 is expected to remain largely unchanged at around 275 million tonnes as an area decrease by 1.1 per cent is met by an increase of one per cent in yields. In consequence, cereal markets tend to remain relatively tight in the EU and a further reduction in stocks can be expected.

Oilseeds continue to gain share in EU arable land use but growing conditions are expected to curb usable production by 2.2 per cent to about 28 million tonnes.

The overall EU meat market in 2010 was characterised by an increase in production (2.4 per cent) and a recovery in EU net trade position.

Production continues to increase in 2011, but is expected to decrease slightly, by -0.3 per cent in 2012. Overall EU meat consumption in 2012 is likely to remain at the level of 2010. Total EU milk production is forecast to reach 151 million tonnes in 2011 and remain similar in 2012.

MACROECONOMIC OUTLOOK

Latest projections (Global Insight – 15 September 2011 and Ameco 13 May 2011) depict a mixed picture on world and European economies over the outlook period with a steady, albeit fragile growth in GDP, a slow reduction in the unemployment rate, an increase in population as well as a moderate inflation and higher oil prices.

World Economic Outlook

Total world population is expected to grow further although slowly by +1 per cent p.a. in 2011 and 2012 so that to reach 7 billion inhabitants.

Global GDP growth is projected at around three per cent p.a. in 2011 and 2012, ranging from 3.8 per cent and four per cent in Russia, 1.5 per cent and 1.8 per cent in the US to nine per cent and eight per cent in China.

The unemployment at world level would stay at around eight per cent showing a slightly declining trend.

World inflation is expected to remain moderate during the outlook period, at four per cent in 2011 and at three per cent in 2012.

In 2011 most currencies are expected to appreciate further against the US Dollar, Argentina and Ukraine being among the important countries (relevant both in terms of EU import and export potential) to have their currencies depreciated against the US Dollar by -5 per cent and a slight -0.4 per cent, respectively. In 2012, the Argentinean peso (-6 per cent), Australian dollar (-3 per cent) and Brazilian real (-4 per cent) are expected to depreciate while the Chinese renminbi to appreciate by six per cent against the US Dollar.

The price of crude oil is expected to increase in 2011 to around 102 USD/barrel (+35 per cent against 2010) and to $107 per barrel in 2012.

EU Economic Outlook

EU population is projected to increase further in 2011 and 2012 at an annual rate of +0.2 per cent both in 2011 (503 million inhabitants) and 2012 (504 million inhabitants), with a slightly higher growth of 0.3 per cent expected in the EU-15 and a decline of around -0.1 per cent in the EU-12.

The GDP growth registered in 2010 is projected to continue in 2011 and 2012 (at around +2 per cent p.a.), where EU-12 growth is expected to be higher than that of the EU-15, both in 2011 and 2012 (3.2 per cent and 3.5 per cent against 1.8 per cent in both years for EU-15).

Modest decrease for unemployment is expected by the end of 2011 when it would reach 9.5 per cent out of the civilian labour force (22.9 million people) and 9.1 per cent by 2012 (22 million people); EU-15 unemployment would decline at a lower pace in both years (-0.1 per cent and -2.5 per cent) than in EU-12 (-4.2 per cent and -7.4 per cent). EU overall inflation would situate at three per cent in 2011 and retreat to two per cent in 2012.

The exchange rate USD/EUR is expected at 1.41 in 2011 and at 1.40 in 2012.

ARABLE CROPS

The marketing year 2010/2011 led to a sharp reduction in EU cereal stocks by 17 million tonnes, caused by a lower usable production of 275.2 million tonnes and considerable net exports of 18.5 million tonnes. Combined with tight world supplies this supported higher cereal prices.

EU usable cereal production in 2011/2012 is expected to remain largely unchanged at 274.8 million tonnes as an area decrease by 1.1 per cent is met by an increase of 1.0 per cent in yields. In consequence, cereal markets tend to remain tight in the EU and a further reduction in stocks can be expected. Oilseeds continue to gain share in EU arable land use but growing conditions are expected to curb usable production by 2.2 per cent to 28.1 million tonnes.

Cereals - 2010/2011 Marketing Year

The area cultivated under cereals in 2010/2011 has reached 56.2 mio ha, another decrease by 3.9 per cent in comparison with 2009/2010. Average yields of 5.0 t/ha led to a production volume estimated at almost 277.8 million tonnes.

Given cereal imports of 13.3 million tonnes, the level of cereal availabilities – taking into account carry-over of stocks - would be at 343.0 million tonnes.

Domestic demand would amount to 271.9 million tonnes, with animal feed at a reduced 167.5 million tonnes and bioethanol utilisation at 9.1 million tonnes.

Total cereal exports are projected at 31.8 million tonnes. On the basis of these estimates, total cereal ending stocks would decrease by 17.3 million tonnes to 37.1 million tonnes. Intervention stocks are reduced by 5.4 million tonnes and the remainder of 0.6 million tonnes is committed to the "most deprived persons" programme.

Cereals – Forecasts for the 2011/2012 Marketing Year

For the 2011 harvest, weather conditions resulted in reduced autumn plantings in the North and increased winter kill compared with the previous years. Conditions in the Mediterranean region have been mostly favourable, whereas warmer and dryer weather for most of April and May curbed the production potential in core cereal regions.

Improved weather conditions allowed for maintenance of average yields, whereas wet harvesting conditions heavily impacted on yields and quality around the Baltic Sea.

The area cultivated under cereals is forecast to decrease by a further 1.1 per cent in comparison with 2010/2011 to reach 55.6 million ha. The area under soft wheat is projected at an unchanged 23.1 million ha and the maize area increase by 6.8 per cent to 8.7 million ha. This area combined with yield estimates would lead to a harvested cereal production of about 277.4 million tonnes, down by 0.2 per cent from last year.

EU exports are expected to decline considerably to 21.8 million tonnes. Total domestic use is expected to be slightly curbed due to the prevailing high prices by 0.6 million tonnes to 271.3 million tonnes, of which 166.6 million tonnes for animal feed and 9.1 million tonnes for the production of bioethanol. On the basis of these forecasts, ending stocks would decrease by 6.5 million tonnes to reach 30.6 million tonnes, with no remaining intervention stocks.

Oilseeds

EU oilseed areas have reached 11.0 mio ha in 2010/2011, another 0.2 million ha higher than the previous high in 2009/2010. Total oilseed production would stand at 28.7 million tonnes, down by 2.1 per cent from the record harvest in 2009/2010. Protein crop production increased by 1.9 per cent to 2.9 million tonnes.

EU-27 oilseed area 2011/2012 is forecast at 11.4 million ha (+3.4 per cent). Total oilseed production would reach 28.1 million tonnes (-2.2 per cent). Protein crop production would decline by 1.6 per cent to 2.8 million tonnes.

MEAT

The overall EU meat market in 2010 was characterised by an increase in production (2.4 per cent) and a recovery in EU net trade position.

For the first time since 2003, the EU became a net exporter of beef (including live animal and meat products). Production continues to increase in 2011, but is expected to decrease slightly, by -0.3 per cent in 2012. Overall EU meat consumption in 2012 is likely to remain at the level of 2010, driven by the slightly improved (albeit fragile) economic situation.

Poultry demand would remain on an upswing while beef consumption is expected to decline further.

Both meat import and export trade volumes remain largely unchanged in total terms (+/- 15-20 per cent), although there will continue to be shifts in origin/destination naturally according to relative prices.

Production related uncertainties would mainly originate from rising production and investment costs and their financing, from a limited sectoral adjustment capacity with respect to market volatility, and from animal health related issues. Prices for energy and protein feed components and other essential feed ingredients have been increasing since 2010 and are expected to remain at elevated levels.

Beef and Veal

For the last four years the beef/veal herd decreased continuously, for dairy cows even minus 3.6 per cent. Production is expected to increase slightly (1.3 per cent) in 2011 at a higher slaughtering weight and driven by the dynamic on exports.

As a result of the overall herd decrease and the increase on slaughtering in 2011 it is expected that production decreases by two per cent in 2012. Internal EU prices for all beef categories remain stable at a higher level than previous years from the beginning of 2011 with a minor decline in June-July and an increasing trend in August-September.

In 2010 and 2011 beef exports increased exponential namely those of fresh and frozen meat. Major part of such increases was due to exports to Turkey and Russia.

On the other hand export of live animals regained only slightly and exports of tinned beef are almost negligible. After the sharp increase in beef exports in 2010 and in 2011, it is assumed that the live exports would decrease by 5 per cent and the meat exports by 29.6 per cent in 2012.

The overall and per-capita consumption of beef/veal would decrease slightly until 2012.

Pig Meat

The pig meat sector is facing a critical time since the autumn of 2010 due to the surge in feed prices, which has severely affected profitability.

Aid for private storage was introduced for a period of three weeks in February 2011 to stabilise the pig market when the already difficult market situation worsened by a dioxin incident in Germany.

For 2011, production is expected to grow slowly (+1.7 per cent) and then to remain stable in 2012.

According to the available trade data until the end of August 2011, meat exports could exceed 2010 volumes by 13.4 per cent. In particular exports to South Korea and China/Hong Kong performed very well, increasingly also in the area of higher value cuts.

However, pigmeat exports may fall slightly in 2012 (by 4.3 per cent). EU pigmeat imports are expected to decrease further, with -30.5 per cent and -24 per cent in 2011 and 2012 than in 2010. From 2010 onwards, consumption of pigmeat (absolute and per capita) will increase slightly by 0.6 per cent in 2011 and by 0.5 per cent in 2012.

Poultry Meat

After a 2.4 per cent increase in 2010, EU poultry meat production is expected to remain at the same level in 2011 and increase again slightly (0.6 per cent) in 2012, mainly triggered by a higher EU domestic demand. World demand for poultry meat is growing which will benefit EU poultry meat exports to third countries. It is expected that poultry meat exports will increase by 18.8 per cent in 2011 and decrease by 1.6 per cent in 2012.

Chicken is expected to continue benefiting from its "cheapest meat" image and overall EU poultry meat consumption is expected to increase slightly (by 0.8 per cent) in 2012.

Sheep and Goat Meat

EU sheep and goat meat production is forecasted to continue falling in 2011 and 2012 by -0.8 per cent and 2.4 per cent respectively.

Meat imports decreased by 10 per cent in 2011 but it would increase slightly due to New Zealand’s recovery from the 2008/2009 drought and poor lambing years. The per capita consumption is expected to decrease slightly, by 3.2 per cent in 2011 and to increase by 0.7 per cent in 2012.

MILK AND DAIRY PRODUCTS

strong>Milk production and deliveries to dairies

After an estimated increase by 1.1 per cent in 2010, EU cow milk deliveries to dairies are forecast to increase by two per cent in 2011 and a further 0.3 per cent in 2012.

Total EU milk production is forecast to reach almost 150.8 million tonnes in 2011 and consolidate at 151 million tonnes in 2012. This is achieved thanks to a continuous increase in milk yields both in the EU-15 and in the EU-12, while the herd continues to contract.

The 2011 forecast is based on the trend observed in the period January-July 2011, where milk deliveries registered a two to three per cent positive gap month after month, except for May and June when the drought in the Northern part of the EU dampened the upsurge in milk production compared to the same months of 2010.

Assuming that Member States that are producing their full quota will tend to avoid large volumes of excess production, delivery growth should ease back over the later part of the quota season.

Dairy Commodities

In light of a 0.6 per cent increase in cheese production in the first 7 months of 2011, total cheese production for the year is forecast to increase by one per cent, in line with a forecast positive trend in cheese exports as well as in domestic consumption.

The positive export forecast is based on sustained demand from the main cheese importers (Russia, Japan, the US, etc.) and the positive domestic consumption forecast derives from the existing room for per capita consumption growth in the EU-12.

Given the positive production figures registered so far for fermented milk, drinking milk and even more so for cream, total fresh dairy production is forecast to increase by 0.7 per cent in both 2011 and 2012, in line with the forecast increase in domestic consumption where those products continue to benefit from dynamic consumer demand.

The contraction in whole milk powder (WMP) production is forecast to continue in 2011 and 2012, although at a slower pace (- 0.1 per cent).

EU WMP exports are forecast to continue declining despite the increasing world demand, led by China, since exports would continue to be more competitive from Oceania (mainly New Zealand).

Skimmed Milk Powder (SMP) production is forecast to increase by nine per cent in 2011 and by a further four per cent in 2012, driven by continuous growth in exports (already +33 per cent in the first seven months of 2011) while a domestic use is expected to stay stable.

China is gradually becoming an important player in world SMP imports with a level now comparable with the traditional SMP imports of Algeria. SMP intervention stocks built up in 2009 are expected to be completely sold out by the end of 2012 through a combination of sales by open tender and release under the most deprived person's scheme.

Total butter/butteroil production is forecast to increase by 1.2 per cent in 2011 and by a further one per cent in 2012.

Imports are declining due to unprecedented high prices on the world market driven by continued firm demand on the world market, but EU exports remain uncompetitive (apart from Russia) given the existing price gap between EU and world quotations.

Uncertainties

The dairy outlook is subject to a number of uncertainties linked to the general macroeconomic environment - in particular concerns regarding economic growth in the EU-27 and important dairy importing economies - weather conditions, commodity market developments and major third country suppliers.

While the global market situation has been rather favourable over 2010 and the first seven months of 2011, expectations for the outlook period very much depend on the extent of increased milk production both in the EU and in the main supplying countries (New Zealand, Australia, the US, etc.) and the sustainability of strong demand on the world market led by China and other countries of South–East Asia as well as by the Near and Middle East.

Further Reading

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