NFU economists forecast arable stability but feed cost pressures for livestock

UK - Farmers and growers in England and Wales can look forward to a year of consolidation, in which most market prices either stabilise or show modest increases at the same time as lower energy prices take some of the pressure off input costs. That is the central projection of the NFU’s economics team, in their latest Farming Outlook report.
calendar icon 6 February 2007
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However, higher cereal prices are translating into higher feed costs, so adding to the difficulties of the livestock side of the industry, where profits are already either small or non-existent.

The report also includes a detailed analysis of the importance of the so-called “non-trade concerns” (NTCs), such as the environmental role of agriculture, food security and farming’s contribution to rural communities, which are becoming an increasingly controversial element in the talks aimed at liberalising world farm trade.

For cereals and oilseeds, the report predicts a continuing tight world market situation, leading to market prices stabilising at something close to current levels. Although energy costs are expected to ease in response to lower oil prices, overall costs are expected to be higher than a year ago. The outlook for the sugar sector will continue to be defined by the progressive reduction in prices resulting from the process of sugar reform and the ensuing restructuring.

Milk production is estimated to have fallen by one per cent in 2006 and despite a modest up-turn in the fourth quarter of 2006, output is not expected to match quota. Against steadily rising demand for cheese and liquid milk, and with stronger commodity markets, there is obvious scope for a very necessary increase in producer prices, especially with higher feed costs continuing to erode margins.

Beef production rose by 10 per cent in 2006, largely because of the return to the market of over thirty month cattle, but also because of heavier carcase weights. The NFU is forecasting a further modest production increase of around 1.5 per cent in 2007. UK beef exports, which performed well towards the back end of 2006, are expected to show continuing growth. That, plus stable domestic demand, should mean a relatively tight market balance, with prices not expected to decline below 2006 levels. However, with feed prices continuing to increase, most beef enterprises will still fail to cover their costs.

In the sheep sector, the all-important export market has been hit hard in recent months by the pound’s strength. The NFU is forecasting a six per cent fall in production, with demand remaining relatively strong. Again, higher feed prices will be a major factor in inflating costs.

The price of pigs in the UK increased during 2006 and remains almost 20 per cent higher than the level on the continent. However, feed costs are eating into margins and the weaker market on mainland Europe is beginning to impact on the UK market.

Feed costs are also a major concern for poultry farmers. In the poultrymeat sector, most producers are still operating at a loss, despite a modest price increase towards the end of 2006. It is a similar story for egg producers, with costs up by six per cent during 2006, with no off-setting increase in the price of eggs, leaving organic and free range producers breaking even and cage producers making losses.

2006 was a good year for potato growers. Prices remain relatively high and the NFU expects them to stabilise at around current levels in coming months.

The horticultural sector has been enjoying mixed fortunes, with an encouraging increase in demand being balanced by significant energy-related cost increases. The NFU expects costs to ease in response to lower oil prices, but not to go back to where they were before the hike in the oil market.

The exchange rate of sterling will be a potent factor in the fortunes of every sector. While some easing of its present strength against the Euro and the US dollar is anticipated, this will ultimately depend on the nature and timing of the Bank of England’s decision on interest rates.

Source: TheCattleSite News Desk

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