Spring 2021 edition
The EU agricultural sector has shown resilience during the COVID‑19 crisis. Higher retail sales and home consumption partially compensated for losses in foodservice. With a dynamic global demand and the reopening of foodservice expected once the vaccination campaign is sufficiently advanced, prospects for EU agricultural markets are favourable in 2021.
The spring 2021 edition is accompanied by an EU survey, which aims to discover more about readers of the short-term outlook and how it is used.
Market outlooks are provided for the EU-27; EU-28 historic data is maintained and updated as revisions are received. In addition to the short-term outlook, the Commission also publishes associated documents, including statistical annexes and balance sheets.
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 foodservices, assuming a progressing rollout of the vaccination.
There has been some debate about the start of a new commodity “supercycle” in recent months, especially looking at metals and feed prices. Such a “supercycle” begins when abnormally strong demand meets structurally long adjustment times of the supply, in the magnitude of decades. However, the drivers for the current surge in agricultural commodity demand – for example, China reconstructing its pig herds leading to massive feed imports – are likely to be short-lived. It is therefore premature to qualify the current situation as the start of a new “supercycle”.
Prices for the main arable crops have been rising in recent months driven by high demand and uncertainty around declining global stock to use ratios for certain commodities. According to the Agricultural Market Information System’s latest data, 2020/21 global ending stock-to-use ratio for maize and soya beans could decline by 10% and 25% respectively. Concerning wheat, the ratio is keeping up with a 2pp increase year on year (39%). For sugar, the stock to use ratio is at a 9 year low (38%).
EU trade flows are expected to decline in 2020/21. Wheat exports could fall by 27% year on year while maize and soya beans imports could go down to 16.5 million t and 14.6 million t respectively. Sugar exports could decline to a historic low of 0.8 million t. Instead, rapeseed imports are estimated to remain high due to the limited recovery of the EU domestic production and a firm demand, particularly for vegetable oils.
The 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. EU oilseeds production is projected to reach 30.4 million t, after two consecutive years with low levels, despite a timid recovery of the rapeseed production. EU vegetable oil demand could increase by 1.5% year on year, assuming the economic recovery continues.
In 2020/21, the EU olive oil production could reach close to 2.1 million t. Increase in Spain should more than compensate for the decline in remaining EU countries. Retail sales could further support a domestic consumption growth in 2020/21 (+3%) while EU exports could remain stable, supported by an increase of shipments to the US. This, combined with lower imports due to decreased availability in non-EU countries, should help to reduce stocks further and continue supporting EU prices.
EU wine production is expected to remain stable in 2020/21, at around 157 million hl. Production fell in Italy and Portugal, while there was growth in France, Germany and Spain. EU domestic use could increase, driven by an increase of ‘other uses’ of vinified production, including crisis-distillation. This, together with increasing exports, notably driven by the lifting of US tariffs on EU wine, should result in a reduction of the high wine stocks.
EU orange production amounts to 6.6 million t in 2020/21. The share of oranges used in processing could increase. Demand for fresh oranges is expected to remain at a high level. EU production of apples remains stable at 11.5 million t in 2020/21. EU exports are expected to continue to decline due to the strong domestic demand and resulting high prices.
Milk and dairy products
The EU dairy sector proved its resilience during the COVID-19 crisis in 2020. In 2021, more milk is expected to be produced in the EU, driven by an increase in yield (+2%), more than compensating the continuing decline of the EU dairy herd.
The good global and EU demand is expected to improve even further with the re opening of foodservices, especially in the second half of 2021. It could continue supporting EU dairy prices, translating into higher EU raw milk prices paid to farmers.
The EU cheese and butter consumption could particularly benefit from the foodservice recovery while retail sales of those products are expected to remain at a higher level compared to the pre COVID-19 period. EU SMP and butter exports could grow (6% and 4% respectively), notably driven by competitive EU prices. The EU drinking milk consumption could remain high compared to the average of last years, as the foodservice recovery might not be complete regarding canteens and cafes. It would remain, however, below 2020 levels as stockpiling behaviour should not be repeated.
EU beef production is expected to slightly decrease in 2021, due mainly to a structural adjustment in the beef and dairy sector combined with lower demand. Exports to high-value markets should continue to increase thanks to recent trade agreements (e.g. Canada, Japan).
The outbreak of African Swine Fever in Germany mid-September resulted in immediate import bans of pigmeat imports from Germany by key partners: China, South Korea and Japan. Nevertheless, other EU countries filled the gap and EU trade proved resilient, resulting in continuing high export levels.
The poultry sector continues to grow slowly in the EU. Although trade is expected to pick up again, COVID-19 measures in the EU and Avian Influenza put an important downward pressure on the market.