November 7, 2005

 

Bird flu impact on EU's grain prices seen limited

 

 

Feed grain consumption could drop sharply in the EU if a major outbreak of bird flu occurs, but the effects are likely to be short term, industry analysts and experts say.

 

A widespread outbreak of the deadly H5N1 bird flu strain could lead to flocks of poultry being killed to contain the disease, which would abruptly cut feed demand in the region. However, because poultry is relatively quick to replace, the effects on the grain market are expected to be short-lived.

 

"An outbreak of avian flu in Europe would have a dramatic impact on grain consumption in poultry feeds, because poultry is by far the largest consumer of grains in the animal feed sector," according to Strategie Grains, a periodical European grain market report.

 

However, the impact on meat production¡ªand therefore on grains¡ªwould be severe, "but not necessarily long-term," Strategie Grains said.

 

H5N1 has devastated poultry flocks in Asia and killed more than 60 people since 2003. The strain has spread into northern Russia, with recent cases also confirmed in Romania, Turkey and Croatia.

 

"The case that the EU will be hit is now extremely strong," said James Dunsterville, analyst with AgriNews in Geneva.

 

Poultry is a major industry in the EU, which in recent years has been the world's fourth-largest producer and third-largest exporter of broilers, according to data from the USDA.

 

EU poultry production in 2005 is estimated at 11.0 million tonnes, with France the largest producing member, according to EU figures.

 

The Association of Poultry Processors and Poultry Trade in the EU Countries estimates the poultry industry consumes 20 percent of the EU's annual cereal crop.

 

Strategie Grains estimates EU cereal output at nearly 252.9 million tonnes for the 2005-06 season, which runs from July to June. It predicts 2005-06 industrial production of poultry feed will be 46.7 million tonnes.

 

Poultry feed consists mainly of cereals combined with smaller proportion of oilseeds, though rations vary widely by area and by stage of development.

 

In the UK, where wheat is the primary cereal grown, the poultry industry consumes one-fifth of the annual crop, according to the British Poultry Council.

 

If culls of poultry become necessary to stop the spread of bird flu, the drop in feed use could be rapid, as the slaughter time for chickens is relatively quick, AgriNews's Dunsterville said.

 

However, poultry flocks can be rebuilt fast compared with larger animals.

 

It takes about 40 days to raise a day-old chick to a market-size broiler, with some industry experts estimating about eight weeks between bird crops.

 

By comparison, market hogs need about 28 weeks and cattle about 15 to 18 months.

 

When a different strain of bird flu broke out in the Netherlands in 2003, poultry processing dropped by as much as 35 percent at the height of the crisis. As a result, overall EU poultry production dropped 2.9 percent in 2003.

 

Nevertheless, by 2004 the EU poultry industry had recovered to pre-2003 levels, due to the short turnaround time needed to produce chicken.

 

Moreover, areas free of bird flu could see increases in demand for poultry as well as feed grain, grain traders say.

 

During the outbreak in the Netherlands, UK poultry exports rose 13 percent in 2003 from the previous year, according to the British Poultry Council.

 

Whatever the decline in feed wheat this season, price declines are expected to be limited, as grain is already priced near EU intervention levels following solid crops since 2003 and a competitive global grain market. The EU's intervention system buys grain at a set price to protect farmers from drops in the global market.

 

Still, a drop in feed use arising from culls could cause more grain to be placed in the EU intervention stores, which could be released onto the market at a later date, traders say.

 

Even if there isn't a major bird flu outbreak, demand for poultry could drop as a result of public fears about the disease, leading to a decline in feed use.

 

Poultry consumption has fallen about 20-30 percent in southern EU countries, said Nan-Drik Mulder, a poultry market specialist with Rabobank in the Netherlands.

 

"Consumers are concerned with what they see at this moment," he said.

 

Mulder said he expects the decline in consumption to be short-lived, but that much still depends on whether there's a major outbreak in the EU.