May 9, 2008

 

EU grain production and imports to return to normal in MY 2008/09

 

 

EU's grain production and imports are likely to return to normal levels after the region saw a drastic reduction in MY 2007/08 according to a USDA GAIN report on the region's grain production. 

 

The region witnessed the unusual scenario of being a net importer after droughts and other weather conditions reduced production last year to 256 million tonnes 

 

This year's total EU grain crop is currently forecast to reach a more normalised level of 286 million tonnes, up 11.7 percent from last year.

 

The report said good planting conditions in late 2007, the high prices for grains and the removal of the mandated set aside requirement encouraged plantings. 

 

With winterkill limited, hopes are high for a good crop in both size and quality for MY 2008/9. 

 

Still, the report warned that much could occur between now and harvest to affect expectations. 

 

Nevertheless, the improved crop prospects are currently forecast to lead to a partial recovery in the very low EU domestic stocks of grain, a return to a more traditional feeding pattern and a reduced reliance on imports. 

 

The increased production can be linked to a 4-percent increase in area, the result of land being freed for use by the EU's compulsory set-aside requirement. Under EU rules, farmers are required to set aside a specified percentage of their land each year to enable its resources to recover. This was removed last year as international grain prices soared.

 

Other factors include the high grain prices, good planting conditions in late 2007 and more profits motivating farmers to plant higher yielding varieties and use more inputs.  

 

A mild winter and sufficient to good rains in recent months also bode well for the MY 2008/9 crop.

 

EU domestic use of grain is forecast to rise marginally to 274 million tonnes in MY 2008/9 with feed use to recover to 168 million tonnes.

 

In MY 2007/08, not only is feed use estimated to fall 1.5 million tonnes, the grain shortage and the availability of third country grains have upset the traditional EU feed mix-- wheat use in feed rations is estimated to have fallen 8 percent by 4.7 million tonnes to 53.1 million tonnes.

 

In order to replace wheat, farmers used more of sorghum which saw feeding of the grain quadrupling in MY 2007/08. All of the increase was imported, most of it from the US.

 

 Despite a 6.3 million-tonne lower EU corn harvest in the fall of 2007, corn use in feeding is estimated to remain on a par with the previous year's level of 48.7 million  tonnes - the needed supplies being imported, mainly from biotech-free certified suppliers in Brazil, or sourced from EU intervention stocks. 

 

This year and through next, EU feeding patterns are likely to return to normal in view of the sizeable forecast EU grain harvest in 2008.  In particular, feed use of wheat and rye is forecast to increase considerably in MY 2008/09, at the expense of imported sorghum and corn, the report said.

 

Food, Seed and Industrial (FSI) use of grain, relatively steady in MY 2007/8 at 102.4  MILLION TONNES, is currently forecast to rise 3.7 million tonnes in MY 2008/9. 

 

High prices and limited supplies have suppressed processors production last year.

 

However, next year may see demand rising from ethanol plants.

 

Within the past two and a half years, the EU has nearly depleted its intervention stocks.  By the beginning of April 2008 they were down to only 236,000 tonnes of corn, which was expected to be used up soon. 

 

Overall, EU grain ending stocks in MY 2007/08 will be down to 27.1 million tonnes compared to 46.1 million tonnes just two years earlier. 

 

The forecast larger crop in the summer of 2008 is expected to lead to improved pipeline supplies but little or no return to intervention.

 

For MY 2007/08, total imports are expected to reach 23.4 million tonnes, an increase of 10.2 million tonnes over MY 2006/07, due to production shortages.

 

Increases are primarily recorded for sorghum from the US and corn from Brazil. 

 

With grain growth conditions in both the EU looking promising, it is currently anticipated that any grain shortages resulting from a smaller crop in Spain will be compensated by higher imports of feed wheat from Black Sea origins. 

 

Total grain imports in MY 2008/09 are foreseen to decrease to more normal levels of just 15.2 million  tonnes, the report said. 

 

Exports are also expected to recover to 20.3 million tonnes next year (MY 2008/09) while it is expected to take a 4.5 million-tonne drop to 14.1 million-tonnes this year.

 

If world grain demand and prices remain on current high levels it is likely that exports will increase even further at the expense of commercial re-stocking.

 

The full report can be accessed here