GAIN Report - E23239 Page 2 of 27
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Voluntary Report - public distribution
Date: 12/11/2003
GAIN Report Number: E23239
E23239
European Union
Grain and Feed
Semi-Annual
2003
Approved by:
Christine Strossman
U.S. Mission to the EU, Brussels
Prepared by:
Peter Talks
Report Highlights:
A severe drought and heat wave across southern Europe reduced EU-15 grain production from 210 MMT in 2002/03 to 184.8 MMT in 2003/04.
This has helped to create a shortage of feed grains in Europe, leading to higher prices and reduced exports. Poor harvests in Central and Eastern Europe as well as the Black Sea region have reduced import availability with imports of wheat expected from the U.S. as well as corn imports from South America.
Continued high prices and a tight EU grain balance sheet are expected to continue till the summer of 2004. Should the production outlook for 04/05 look poor, EU markets could react nervously.
Includes PSD Changes: No
Includes Trade Matrix: No
Unscheduled Report
Brussels USEU [BE2]
[E2]
Table of Contents
Introduction 2
Executive Summary 3
Wheat 4
2003/04 Production 4
Consumption 7
Trade 7
Stocks 9
Barley 10
Corn 12
Rye 15
Sorghum 16
Oats 17
Mixed Grain 18
Rice 19
EU feed grain for 2003/04 21
Planting Outlook for 2004/05 22
Policy 24
Related USEU and European Post Reports: 25
Introduction
This report updates the grains outlook in the European Union, following on from the European Union Grains Annual Report in May 2003. It concentrates on the current production and market outlook for the Marketing Year (MY) 03/04 as well as including a description of those planting intentions known so far for 2004/05.
In May 2004, ten New Member States (NMS) will join the EU, namely, the Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. Currently, this FAS GAIN report reports all PSDs for the EU-15. As the EU will expand to 25 during the current MY, figures for the EU-25 are included on an indicative basis.
This is a consolidated EU-15 report prepared with input from the following FAS
analysts:
Bob Flach from FAS The Hague
Xavier Audran from FAS Paris
Steve Knight from FAS London
Diego Pazos from FAS Madrid
Sandro Perini from FAS Rome
Dietmar Achilles from FAS Bonn
Yvan Polet from FAS Brussels
Roswitha Krautgartner from FAS Vienna
Petra Choteborska from FAS Prague
Ferenc Nemes from FAS Budapest
Wlodzimierz Makowski from FAS Warsaw
Note: Data in this report is not official USDA data.
MT = Metric ton
MY = Marketing Year.
Executive Summary
In Marketing Year (MY) 03/04, drought and dry conditions reduced the EU-15 wheat harvest to less than 92 metric million tons (MMT). Total EU-15 coarse grain production in MY 03/04, is estimated to have fallen to 92.5 MMT, to give a total EU-15 grain output of 184.2 MMT.
In 2002/03, EU-15 wheat output was 103.7 MMT, and a coarse grain output was 105 MMT, to give total grains output of 208.6 MMT. This was combined with a high level of wheat imports. Wheat imports totaled over 12 MMT, notably from the Black Sea region and lead to a higher use of wheat as feed, up over 15% from 01/02 and record wheat exports of 16 MMT.
The dramatic reduction in domestic grain availability during MY 03/04, with production declining by 24 MMT compared to the previous year, has pushed prices to high levels, and combined with the Euro’s strength against the US Dollar, reduced expected EU exports in MY 03/04 to 8 MMT for wheat and 4.5 MMT for coarse grains.
The European grains balance sheet is currently tight, with continued strong domestic prices seen continuing until the new season crop becomes available in the Summer of 2004. The European Commission’s response to the tightness on grain markets has been to suspend export subsidies and slowly release intervention stocks onto the domestic market during the course of the year. Whether this will be enough to keep prices in check and provide sufficient domestic grain availability remains to be seen over the next couple of months. It is reported that French feed manufacturers’ requirements are essentially uncovered after January or February. Based on the current market situation, the European Commission are not expected to make any important policy changes to alleviate the situation.
Instead, it is expected that the high prices available on EU markets will encourage the imports of grains, including over 2 MMT of wheat and around 1 MMT of sorghum from the US, as well as a 2.4 MMT increase in corn imports to 5.4 MMT in MY 03/04. This would be sourced mainly from South America and could even include some shipments from China. This estimate does however rely on there being sufficient quantities of non biotech corn being available. The EU will not however be importing anything but minor quantities of US corn as not all the biotech varieties used in the US are permitted to be marketed in the EU. This year has also seen a rise in the imports of non grain feed ingredients (NGFI) including tapioca and cassava.
Stocks, both public and private will be drawn down heavily during the 03/04 MY, with EU-15 grains stocks falling from 33 MMT to 19 MMT. The European Commission has announced reduction in set-aside for 2004/05 from 10% to 5% in order to stimulate EU grains production in 04/05. This measure is tentatively expected to increase EU-15 grain production by 5 to 7 MMT in 04/05.
A good harvest in 04/05 would serve to replenish depleted stock levels. With stock levels low, any bad news for the 04/05 production outlook will be likely to create nervousness on the markets.
The situation in the New Member States (NMS) of central and eastern Europe is also of poor harvests and extreme tightness in domestic balance sheets. Poland has an estimated 2.5 MMT feed grain deficit, though with domestic prices currently lower than those in neighboring countries, it is difficult to see this deficit being plugged without important policy or market changes.
Wheat
PSD Table: EU-15, Wheat
Country / European UnionCommodity / Wheat / (1000 HA)(1000 MT)
2001 / Revised / 2002 / Estimate / 2003 / Forecast / UOM
USDA Official [Old] / Post Estimate [New] / USDA Official [Old] / Post Estimate [New] / USDA Official [Old] / Post Estimate [New]
Market Year Begin / 07/2001 / 07/2002 / 07/2003 / MM/YYYY
Area Harvested / 16476 / 16466 / 17991 / 17709 / 17100 / 17028 / (1000 HA)
Beginning Stocks / 9749 / 11951 / 7965 / 11277 / 11737 / 13158 / (1000 MT)
Production / 90988 / 90751 / 103872 / 103692 / 92000 / 91637 / (1000 MT)
TOTAL Mkt. Yr. Imports / 9822 / 9828 / 12000 / 11624 / 4000 / 5234 / (1000 MT)
Jul-Jun Imports / 9822 / 9828 / 12000 / 11624 / 4000 / 5234 / (1000 MT)
Jul-Jun Import U.S. / 1993 / 2095 / 1175 / 1228 / 0 / 2162 / (1000 MT)
TOTAL SUPPLY / 110559 / 112530 / 123837 / 126593 / 107737 / 110029 / (1000 MT)
TOTAL Mkt. Yr. Exports / 11494 / 11834 / 16000 / 16509 / 8500 / 8060 / (1000 MT)
Jul-Jun Exports / 11494 / 11834 / 16000 / 16509 / 8500 / 8060 / (1000 MT)
Feed Dom. Consumption / 46497 / 40268 / 51280 / 47255 / 48000 / 43484 / (1000 MT)
TOTAL Dom. Consumption / 91100 / 89419 / 96100 / 96926 / 93000 / 93261 / (1000 MT)
Ending Stocks / 7965 / 11277 / 11737 / 13158 / 6237 / 8708 / (1000 MT)
TOTAL DISTRIBUTION / 110559 / 112530 / 123837 / 126593 / 107737 / 110029 / (1000 MT)
2003/04 Production
A severe drought from late spring through the summer lead to reduced EU-15 wheat output. The drought and allied heat wave particularly impacted on production across the ‘South’ of the EU: Portugal, Spain, France, Italy, Austria, and Greece.
The French wheat crop in 2003/04 was below average due to some winterkill resulting from winter frosts, coupled with a dry spring and the only summer rainfall being in may to early June. This has lead to a high quality crop, with higher than normal protein levels, averaging 11.5% to 12% and up to 14% averages in some areas.
Across parts of central Europe (Germany, Poland, Hungary, the Czech Republic, Austria and some parts of France) very cold conditions during the winter lead to higher than usual levels of winterkill. Following the record crop in 2002/03, wheat production was down by 8 to 9% in Germany for MY 03/04. In Austria, some winter kill combined with a severe drought combined to reduce soft wheat yields by 19%. However, this was partially offset by hard wheat yields rising 29% and a small increase in area planted to hard wheat varieties.
In Northern Europe, the same dry and sunny summer conditions helped to produce an average crop in the UK, and Scandinavia, while the Netherlands recorded a record crop.
In Italy, imports are set to exceed domestic production during MY 03/04. The durum crop is generally poor due to excess rains during the 02/03 winter, particularly in southern Italy.
Wheat Production1000 MT / 01/02 / 02/03 / 03/04
France / 31572 / 39019 / 30810
Germany / 22838 / 20818 / 19269
United Kingdom / 11570 / 15973 / 14332
Italy / 6289 / 7677 / 6568
Spain / 4937 / 6782 / 6400
Netherlands / 991 / 1057 / 1228
Austria / 1439 / 1404 / 1165
Belgium-Luxembourg / 1510 / 1739 / 1715
Denmark / 4664 / 4040 / 4725
Finland / 489 / 570 / 550
Greece / 1217 / 1160 / 1230
Ireland / 731 / 963 / 750
Portugal / 159 / 390 / 315
Sweden / 2345 / 2100 / 2580
EU15 Total / 90,751 / 103,692 / 91,637
Cyprus / 10
Czech R. / 2623
Estonia / 130
Hungary / 2900
Latvia / 400
Lithuania / 1050
Malta / 5
Poland / 7940
Slovakia / 950
Slovenia / 70
NMS 10 total / 16,078
EU-25 Total / 107,715
Source: FAS EU Posts.
Estimated Wheat Balance for NMS-10 and EU-25 for 2003/04
2003/2004 / NMS 10 / EU-15 / EU-25Area / 4986 / 17028 / 22014
Beginning Stocks / 3433 / 13158 / 16591
Production / 16078 / 92130 / 107715
MY Imports / 2190 / 5234 / 6613
Jul-Jun Import U.S. / 300 / 2162 / 2462
Total Supply / 21701 / 110522 / 130919
MY Exports / 915 / 8560 / 8163
Dom Consumption / 18635 / 43477 / 111889
Feed / 7455 / 93254 / 50932
Ending Stocks / 2151 / 8708 / 10859
Tot Distribution / 21701 / 110522 / 130911
New Member States
A poor wheat harvest in Hungary is leading to considerable tightness in Hungarian markets. In line with neighboring countries, Polish grain yields were impacted by the weather conditions, with overall grains yields declining 12% year on year, 15% for wheat.
Wheat production in the Czech Republic for MY 03/04 declined to 2.6 MMT a fall of 800-900,000 MT over the two previous campaigns. Over-production in these two years had lead to reduced plantings for 03/04 as well as the impact of flooding in the winter of 2002 and higher than typical winter kill levels. This lead to a 40% drop in winter wheat production offset partially by increased spring wheat.
Consumption
During the MY 02/03, feed consumption of wheat was boosted by substantial imports of wheat from the Black Sea region as well as good domestic availability. However, for the MY 03/04, an 11 MMT drop in EU wheat production to 92 MMT, as well as very poor harvests in Russia, the Ukraine and the countries of central and eastern Europe has reduced the availability of wheat. This is coupled by with a 9 MMT reduction in EU corn output in MY 03/04.
Therefore, feed consumption of wheat is estimated to decline from 47.3 MMT in 2002/03 to 43.5 MMT in 2003/04.
In France, the higher prices resulting from the poor harvest will lead to reduced exports and decreases in both feed use and a running down of stocks.
In Spain, consumption of feed wheat is set to decline dramatically in 2003/04 due to high wheat prices, from 6.5 MMT in 02/03, to 4.5 MMT in 03/04. Feed wheat is expected to be replaced partly by sorghum from the U.S., Corn, some non grain feed ingredients (NGFI) and improved pasture conditions reducing some feed requirements, particularly in the extensive livestock areas where over 23 m sheep 3m goats and 2 m cattle are farmed. This is due to Fall rainfall being 50% higher than normal, encouraging very good grass growth.
German feed use is set at 9 MMT, and can be defined this year as a ‘protein feed’ with protein levels up to 14%. What would have been milling wheat is going to be used as feed wheat. However, demand for quality wheat remains strong in Germany, with roughly 40% of the crop of ‘A’ quality. Selling opportunities for this class of wheat are often better.
The UK feed sector is characterized by high prices for feed and feed substitutes, coupled with high freight rates. This may lead to increased on farm feed consumption, particularly as high levels of forage have already been used up due to the dry summer.
In the Netherlands, it is also expected that more rye, barley, sunflower meal (including 0.5 MMT from the Black Sea region) and soymeal will be incorporated into feed use. There is a question mark over whether corn gluten feed will be used in fee.
Trade
The level of exports from France depends on the evolution of the Euro exchange rate, it may however be that some of the expected exports go to feed rations domestically. Some wheat will probably be exported to Italy and Spain. Currently, Belgian imports from France appear to be continuing at a typical pace despite the high prices.
Spain has already imported 300k US wheat so far this season, with a similar quantity expected between now and the end of 03/04. Of this, most is high quality wheat plus around 60,000 MT of soft red wheat.