September 25, 2008
Cheaper grain feeding through to EU's livestock but challenges remain
Lower feed grain markets should ease the pressure on Europe's livestock farmers and could help slow the inflationary impact from some meat prices over time but high energy costs will remain a problem, according to Rabobank.
Experts say that even if cheaper feed wheat, corn and barley lead to lower prices for animal feed, farmers still face high energy and water bills as well as shortages of straw and good quality grass.
Meat sector analyst at Rabobank, Albert Vernooij said that it is good news for livestock producers globally as feed prices declined. Livestock farmers have faced dramatic increase in cost over the past year as prices for feed, fuel and fertiliser have soared, he noted.
Wheat prices nearly doubled in 2007 but prices have pulled back substantially due to large harvest prospects this year, with feed wheat especially in plentiful supply. Corn and feed barley markets are also easing.
Jorge de Saja, Secretary general of Spain's feed makers association CESFAC said lower wheat prices and expectations of abundant low quality wheat in Britain and elsewhere could reduce costs for the feeds industry.
He said this would likely lead to an easing in feeds prices, though the drop would be limited as energy and packaging prices rise.
Experts said any impact on animal feed was unlikely to be passed on in full to prices of poultry, pork and beef as the previous surge in input costs had still not been fully reflected on the supermarket shelves.
Poultry adviser at Britain's National Farmers' Union (NFU), Robert Newbery said producers were not fully compensated by the market for the increase in costs through 2008 so they would not expect to see any deflationary effect on meat prices, but it might slow inflation.
Significant costs like energy and even inputs like water are becoming more expensive, therefore the overall input costs are on the rise for poultry producers.
Meats prices have raised in the past few years, pushed up by increasing production costs, but have not experienced price hikes to the extent of those seen in grains markets.
A delayed response of meat markets to developments in feeds markets is partly explained by different livestock cycles, as well as animal diseases and contractual agreements, according to the FAO.
While poultry, with a shorter lifecycle, responds more quickly to changes in production costs, pork and beef would respond slower.
For poultry, an effect is noticeable in three to six months but for pork it could take more than a year and in beef, the cycle takes two to three years.
Analysts said however that other factors would keep production costs high and limit any effect from cheaper feeds.
Breeding costs other than feed have also inflated as the share of grains in total costs weakens. For example, energy costs are weighing more as producers go into winter, with gas and kerosene prices significantly higher than last year.
Experts also said that difficult summer weather conditions meant farmers were lacking good quality grass for animals and would likely have to compensate by buying more feeds.