According to the European Commission’s agricultural market report, EU cereals production could reach 295.2 million tonnes for 2020/21 season, an increase of 5.3% compared to last year. EU cereals trade flows in 2020/21 are forecast at 44.3 million t for exports and 22.6 million t for imports. “2021/22 marketing year could see a rebound of EU cereals production, easing the pressure on prices. Given the latest data on winter crops sowing and assumed average yields, EU domestic production could reach 292.5 million t.” the report said.
The European Union EU is the first trader in agricultural products of the world, both in terms of exports and imports. The EU produces around 300 million tonnes of grain per year and it is traditionally a net exporter.
EU cropland expands across four main bioclimatic zones, from the hot-summer Mediterranean climate to the Subarctic climate. About 65% of the 173 million hectares of agricultural area (39% of the EU's total land area) is allocated to cereals (mostly wheat, rye, barley, maize, millet and sorghum, followed by oil crops, olives, vegetables and grapes, roots and tubers, sugar and orchards). Cereals and vegetables are food commodities with the highest production by weight accounting for nearly 30% (26 billion EUR) of the total EU food exports, while maintaining domestic staple food supply.
About 20% of the EU’s wheat crop is exported annually, as oilseeds, animal feedstuff and rice are imported in large quantities. More than half of grain grown in the EU are wheat. The remaining 50% is composed of maize and barley, each representing about one-third. The last third includes cereals grown in smaller quantities such as rye, oats and spelt. The EU’s grains are mostly used for animal feed (nearly two-thirds); one-third is directed at human consumption, while only 3% is used for biofuels. Around two-thirds of rice consumed by Europeans is grown in the EU. The rest is complemented by imports of different varieties, from India or Cambodia for example. A small quantity of EU rice is exported.
COCERAL REVISED ITS CROP FORECAST
In its revised forecast for the 2020 crop, COCERAL, the European association representing the trade in cereals, rice, feedstuffs, oilseeds, olive oil, oils and fats and agro supply, sees the total grain crop in the EU-27+UK at 301.8 million t. This is marginally down from the 302.7 million t seen in the first forecast and 6.1 mln t down from the 2019 level of 307.9 million t.
Wheat production (excluding durum) is seen at 135.4 million t down from the previous 137.9 million t and from last year’s 145.7 million t. The expected decrease is mainly due to a further significant acreage reduction in the UK due to abundant rains during the planting season last fall.
The EU’s 2020 barley production is now forecast at 61.5 million t, up from the 60.8 million t seen in the first forecast, but down from the 62.2 million t last year. This is mainly due to a higher than previously expected spring barley area in the UK which is expected to benefit from lower winter wheat and rapeseed plantings.
The EU’s 2020 corn crop is still expected to reach 65.5 million t and thus more than last year’s 61.0 million t. The corn acreage is seen benefiting from the wet planting campaign for winter grains. It is therefore seen at 9.0 million ha versus 8.5 million ha in 2019. The most notable year-on-year increases in production are expected for France, Germany and Poland.
OUTLOOK FOR EU GRAIN MARKET
The EU economy starts to see light at the end of the tunnel, although significant uncertainties remain, especially with respect to the speed of the vaccination campaign against COVID-19 and the risk of the emergence of new virus variants that would be resistant to existing vaccines. The second quarter could see the start of the relaxation of confinement measures and further reopening of food services, assuming a progressing rollout of the vaccination.
The first 2021 edition of the short-term outlook for EU agricultural markets published by the European Commission concludes that the EU agricultural sector showed resilience throughout the Covid-19 crisis. The sector did relatively well thanks to increased retail sales and home consumption. In addition, prospects are favorable with dynamic global demand and the reopening of food services expected once the vaccination campaign is sufficiently advanced.
“Prices for all main cereals have increased, in line with global prices. Global consumption is also estimated to grow, mainly driven by animal feed demand. EU cereals production could reach 295.2 million tonnes for 2020/21, an increase of 5.3% compared to last year,” the report said.
EU cereals trade flows in 2020/21 are forecast at 44.3 million t for exports and 22.6 million t for imports. Compared to the high levels in 2019/20, it represents a drop of -26% and -10% respectively. Still, while EU soft wheat and maize stocks could decline and consumption of other cereals (barley, durum wheat, oats and rye) could increase (+3.8%/5-year average). EU cereals stock-to-use ratio is expected to remain stable at 16.5% year-on-year.
Trade policies in leading cereals exporting and importing countries significantly affected EU markets. In particular, the wheat export taxes imposed by Russia pushed both world and EU prices up. Furthermore, strong Chinese demand for barely has created a price premium in those EU countries, which are approved origins for exports to China.
FAIR OUTLOOK FOR EU CEREALS IN 2021/22
Sown areas for winter cereals are estimated slightly above the low area of 2020/21. This should benefit wheat, with winter wheat sown areas increasing by 3.8% year-on-year and durum wheat by 2.9%. Winter wheat sowings should reach 20.1 million ha. Winter barley area is estimated to slightly decline at 4.7 million ha. A reduction in rye and triticale areas is expected as well.
Despite a succession of cold and warm spells during winter, weather conditions have not widely affected winter crop development. Assuming average weather developments during spring and summer, total EU cereals production could reach 292.5 million t (+5.3% year-on-year). Soft wheat production is forecast at 126.7 million t, barley at 56.3 million t and maize at 71.2 million t. Other coarse grains’ production could decline at 30.7 million t (-7% year-on-year).
Given the increase foreseen in certain animal productions for 2021, it is expected that the demand for animal feed will increase by 0.7% in 2021/22 compared to 2020/21. EU total feed demand could reach 163.8 million t. Industrial uses of barley (malting barley) could recover to 6.7 million t.
YIELDS GROWTH EXPECTED FOR ARABLE CROPS SECTOR
EU production growth of arable crops is expected to be limited over the next decade. However, digitization will be at the heart of yield productivity gains, improved labor conditions and higher environmental standards. These are just a few of the projections for the arable crops market from the European Union agricultural outlook for 2020-30 report published by the European Commission.
Total agricultural land is expected to decline by 0.5 million ha in the EU over the outlook period, reaching 161.2 million ha. Total EU cereal production is expected to remain stable over the outlook period, at 278 million t. Even though the agricultural area will decline, yields will increase thanks to enhanced crop rotations, improved soil management and increased use of decision support tools. EU total consumption should stabilize at 260 million t by 2030, with higher food use. As for trade, EU exports are due to strengthen with EU and world prices converging as well as proximity to importing markets such as the Mediterranean region and sub-Saharan Africa.
Regarding oilseeds, total EU production is projected to increase thanks to sunflower and soy production growing. With a slight rise of oilseed imports, crushing volumes should increase, with sustained demand for oilseed oil in the EU. Finally, consumption of vegetable oils is expected to decline, mostly due to decreasing palm oil imports.
EU protein crops are projected to grow significantly. Production will be driven by a large increase in area and yield improvements. The strong demand for innovative plant protein products and locally produced protein sources should result in a 30% consumption rise.
EUROPEAN FLOUR MILLING INDUSTRY
The European flour milling industry is the leading food industry in grain processing, using around 45 million tonnes of common wheat and rye plus 2 million tonnes of oats a year to produce around 35 million tons of flour on an annual basis (EU-27). According to the European Flour Milling Association, the number of flour milling companies exceeds 3 800, of which a large majority are small and medium-sized companies. The European flour milling industry has always been producing on a relatively small scale compared to its counterparts, notably in the US. For example, the average US flour mill produces 13 times as much wheat flour as the average flour mill in Europe.
The European flour milling sector employs over 45 000 people and estimated 350 000 indirect labor at the European farm level due to its central position in the food chain (Source: LEI-Wageningen UR study).
The European Flour Milling Association defines three constraints that the sector is facing today:
• acute pressure from 3rd countries on traditional wheat flour export markets
• a structural overcapacity, as the sector is running in average at 65% of its capacity
• declining consumption of bread in most European countries
Bread consumption patterns differ widely within the EU but most countries have an average consumption of 50 kg of bread per person per year. The highest consumption levels are recorded in Bulgaria (app. 95 kg), although the lowest consumption is in the UK (app. 32 kg). The market structure varies throughout Europe. For example, in the UK the industrial sector representing 80% of production, it is 40% in Germany, 35% in France and 19% in Spain.