What is the short-term outlook for EU agricultural markets?

Dairy and meat prices recovering, milk collection growth remaining strong, olive oil exports to reach a new record level in the EU – these are some of the observations of the European Commission in its outlook report, published this week.

The latest short-term outlook report for EU agricultural markets presents an overview of the latest trends and further prospect for each agri-food sector.

According to the commission, for the third edition this year, the short-term outlook faces the challenge of “factoring in the consequences of the Covid-19 crisis, where many uncertainties remain”.

However, the commission notes that compared to other sectors though, the impact of the crisis on the agri-food sector is expected to remain limited. The emerging patterns seem to mostly reinforce existing trends, such as an increase in demand for local food, short supply-chains and online food sales.

In this context, the situation in 2020 remains relatively positive, with the commission stating that: dairy and meat prices are recovering; milk collection growth remains strong; the positive trade balance in meat is increasing; oilseed and protein crop production is estimated to increase; and EU olive oil exports will reach a new record level.

Notable exceptions are cereals (in particular wheat) and sugar, with both having suffered from adverse weather or plant health conditions.

Meat

According to the commission, EU beef production first decreased by 2.4% in the first half of 2020 due to Covid-19 lockdown measures and lower demand from foodservice.

Demand has been recovering with the reopening of restaurants and tourism catching up, leading to an overall estimated decline in beef production of 1.4%. In 2021, a further decline of 1.5% is estimated due to a reduction of herd size in some EU countries. Consumption of beef is also projected to decline by 2.1% in 2020.

As for pigmeat, while production was down in the first half of the year, favourable prices, a return of consumer demand and recent investments contributed to an increase in production in the last few months. Nonetheless, the recent discovery of African swine fever (ASF) in Germany, which led to export bans, will impact the German, and therefore the EU, pigmeat market. The production of pigmeat is set to decline in 2020 and 2021.

EU poultry production is expected to increase in 2020 by 1%, supported by a shift in demand from other meats to poultry during lockdown. The reopening of foodservices and strong demand at retail level further contributed to this increase. Similarly, a modest growth of 1% is forecast for 2021.

Regarding sheep and goat meat, EU production declined significantly in the first half of 2020. Overall, production in 2020 and 2021 will respectively drop by 3% and 2%, assuming smaller herds, fewer ewes and a stagnating domestic demand.

Milk and dairy

The overall EU milk collection should grow by 1.4% in 2020, thanks to an increase in milk yield, favourable pasture conditions until July and affordable feed.

The dairy herd is expected to decrease, mainly due to increased slaughtering in the second half of the year. In 2021, EU milk production could grow at 0.8%, driven by yield growth on one side and further dairy herd reductions on the other. Following the Covid-19 outbreak, direct sales are expected to continue growing with higher demand for local food and short supply chains.

Competitive EU prices of skim milk powder, whole milk powder and butter continue supporting EU exports. For all three of these dairy products, export demand is growing in 2020, reaching particular high levels for skim milk powder (850,000t) and butter (320,000t), supporting production growth.

EU consumption of cheese continues to be negatively impacted by foodservice closures, which could result in a slight decline of 0.2% in 2020. Still, EU exports are expected to grow by 5% with a positive global demand, resulting in a production increase of 0.7%.

Crops

Total EU cereal production is estimated at 274.3 million tonnes, 6.8% below last year, with soft wheat production down to 115.5 million tonnes, and maize production at 63.1 million tonnes, mostly due to adverse weather conditions that weighed on yields.

Trade over the 2020/2021 marketing year is expected to decline, in particular due to wheat exports falling to 24 million tonnes, a 35% decrease year-on-year. Maize imports would increase, driving overall cereals imports up slightly.

Exports for olive oil are to reach new records for 2019/2020, around 820,000t. In the EU, an increased production in Italy and Greece, as well as a record harvest in Portugal, accompanied by strong retail sales during lockdown, should support an overall consumption growth of 3%.

Regarding the fruit and vegetable sector, EU production of apples is forecast at 11.5 million tonnes for 2020/2021, 2% below the five-year average.

EU production of oranges is estimated at slightly above 6.2 million tonnes for 2019/2020, 5% less than the previous year. Overall consumption is declining, 2% lower than the previous year.