Autumn 2021 edition
A combination of factors, including the recovery of the EU, US and Chinese economies, have contributed to the current commodity prices surge. Energy prices, particularly for natural gas in Europe, are hitting new highs. This is having a strong impact on the prices of fertilisers, which have almost doubled in a year. The disruption to supply chains caused by the spread of the COVID-19 Delta variant, particularly in Asia, adds to the tensions on commodity markets. These are some of underlying factors shaping the Autumn 2021 Short-term Outlook.
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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 COVID-19 vaccination campaign in the EU has reached a plateau, with 73.4% of adults being fully vaccinated. Containment measures are easing and savings allow for a rebound in demand. As illustrated by the first half of 2021, recovery prospects are good, with the real GDP of the euro area expected to be 4.8% than its 2019 level in 2023.
However, inflationary pressures are becoming stronger: energy, raw materials, fertilisers and, most strikingly, freight have seen sharp price increases during the first half of 2021. While the European Central Bank remains optimistic on that front, market developments in these sectors should be monitored closely.
The total 2021/22 EU cereals production is projected to be 294.8 million t, a 5.0% increase year-on-year (+4.9%/5-year average), due in particular to the recovery of wheat production, which is estimated at 132 million t (+7.9%/5-year average).
While there are some concerns regarding quality, this good harvest could provide enough supply of wheat for feed use. However, high cereals prices together with favourable conditions for pasture in the EU (with the exception of the Iberian peninsula) are expected to keep the use of cereals for feed stable at 162.2 million t.
EU oilseed production is estimated at 30.4 million t in 2021/22. This 10% annual increase, after the drop in 2020/21, should ease the EU market by providing larger availabilities, although rapeseed supply is expected to remain tight due to low initial stocks.
The EU 2021/22 sugar beet yield forecast is much favourable than last season and also 3% above the 5-year average, at 75.1 t/ha. With the EU sugar beet area estimated at 1.5 million ha, EU sugar beet production could reach 113 million t, 13.6% more than the outgoing season.
Despite stronger flows to the US, EU export growth remains modest but above average in 2020/21. 2021/22 EU olive oil production is forecast to be at the level of the last campaign (at around 2 million t). Restocking in some export destinations and reopening of foodservices should contribute to higher exports, while EU consumption could decline due to lower availabilities and above-average prices.
With an expected increase in total EU apple production of 10%, the share of production used for fresh consumption is expected to continue to grow slightly. Production for processing is expected to jump by 30% in 2021/22, driven by a high availability of apples and low prices.
High per capita consumption driven by growing health awareness among consumers since the COVID-19 pandemic, together with a decline in production, are expected to lead to an increase in imports of fresh oranges (+3% in 2021/22). Both imports and exports of processed oranges in the EU reached their lowest levels since 2001.
Milk and dairy products
Despite favourable weather conditions for EU pastures, EU milk production remained stable between January and July. With stability remaining in Q3 and higher Q4 deliveries, EU milk collection could grow by around 0.3% compared to 2020. Increasing cows’ slaughterings has resulted in a smaller dairy herd (-0.9%), and could be compensated by growing yields (+1.3%), but slower than anticipated due to lower purchased feed affordability.
Stable EU cheese prices and recent increases in other EU dairy prices, supported by Chinese demand in particular, continue to support the price of EU raw milk , which has remained rather flat since April. With an expected slowdown of Chinese demand, potentially lower demand in some more price-sensitive markets, and more EU milk supply in the coming months, the seasonal winter increase of EU milk price is likely to be limited.
Cheese, together with cream, continued to be the main processing options, supported by good EU exports. However, more butter and SMP are expected to be produced in the upcoming months to cover domestic demand, as EU prices are currently less competitive in world markets (especially in price-sensitive markets in Africa and Asia that reduced their demand). Drinking milk production is expected to get back to the pre-COVID-19 declining trend but exports of fresh dairy products should increase.
EU beef production is expected to decrease moderately in 2021, mainly due to a reduction of the cow herd in the beef and dairy sectors, combined with lower demand from food service. Exports to high-value markets, such as Japan, Norway and Hong-Kong, are increasing, while exports to the UK show a notable decline due to trade frictions.
The current oversupply situation in the EU pigmeat market drives a decrease in price amid high feed costs. However, that situation is expected to fade away by the end of 2021, as the production increase should slow down. Export increases to several destinations are expected to continue compensating for the reduction of exports to the UK.
Lasting effects of Avian Influenza (AI), reduced foodservices demand and high feed costs are hindering EU poultry production, which is expected to decrease by about 1% in 2021. EU trade partners apply AI-related bans, which negatively impact exports in 2021. The prospects for a largely positive trade balance in 2022 are not overshadowed by the forthcoming entry into force of the UK’s SPS checks.
The EU sheep meat market faces strong global and domestic supply shortages (EU production +1.3%), leading to relatively high prices. Exports from New Zealand are partly redirected to Asia, while simultaneously facing higher shipping costs. The current trade situation between the EU and the UK continues to add downward pressure on exports and imports.