July 26, 2010

 

Europe heat wave to hike feed costs

 

 

Rising European grain prices following a heat wave in recent weeks may raise flour prices, and farmers are facing higher costs for animal feed, according to industry executives and analysts.

 

However, some analysts said they doubt whether recent price rises are sustainable in view of large global grains stocks and that overall grain supplies are currently still satisfactory.

 

European grain prices have jumped around 25% in the past three weeks as hot weather and drought have hit crops just before harvesting in west and east Europe. Key Paris wheat prices were around EUR178 (US$230) a tonne on Friday (Jul 23).
 

"Up to four weeks ago, the harvest outlook was very positive and flour mills had expected new crop wheat prices of around EUR110-114 (US$142-US$147) a tonne," said Manfred Weizbauer, chief executive of VDM, the association of German flour millers.

 

"This sort of rise in raw materials costs means a rise in flour prices looks unavoidable," with the level of any rise depending on individual companies, he added.

 

Analysts do not expect an immediate rise in bread prices, however, because in most European countries energy and wages account for about 90% of the costs of producing bread.

 

Farmers, meanwhile, are likely to face a rise in animal feed costs, because grass has not grown in the hot and dry weather.

 

"There has been a massive increase in the cost of feeding," said Hayley Campbell-Gibbons, chief dairy advisor to Britain's National Farmers Union.

 

The heat wave has stalled grass growth, Campbell-Gibbons said. Yields on a first grass cut to make grass silage to feed to dairy cows were down 20-30% in early June and were down as much as 50% on a second cut in late June.

 

"The heat wave has left a lot of fields looking more like Africa rather than European meadows," one grain trader said.

 

Hot weather has also meant cows had spent more time indoors, increasing the amount of straw needed for bedding.

 

France has authorised farmers to use set-aside land to feed animals to compensate for a drop in animal feed output after the heat wave in the country in past weeks.

Under the set-aside scheme, the EU pays farmers to leave land idle and not grow subsidised crops. France has given permission for the set-aside land to be used because of looming feed shortages.

 

But the picture is better in sun-drenched Spain, where farmers are not concerned about current hot weather, which they say is not unusual for the time and comes after cereals and other similar crops have finished ripening.