EU and Australian drought boosting global grain prices, says Rabobank

Cost rises and tighter supplies will put EU beef producers under increasing pressure.

An estimated 23 percent drop in Australian crop production and 10 percent fall in EU wheat production this year is supporting global grain prices but is expected to put additional pressure on EU beef and dairy producers, Rabobank said.

Wheat futures on the Chicago Board of Trade exchange climbed by 8 percent from $4.88 per bushel in 2017 to $5.28 per bushel in 2018, driven by drought in Europe, Australia and Argentina, senior analyst at RaboResearch Food & Agribusiness, Michael Magdovitz, told Agri Investor.

The European Commission estimates a sharp fall in the EU-28 wheat crop this year from 152 million tons to 138 million tons compared with 2017. The bloc’s beef production and consumption is also expected to decline to 2030, the Commission’s outlook report reveals.

The fall caused EU prices to spike in the summer and curtailed its exportable capacity, warned Magdovitz. There is also limited availability in Russia.

“Australia won’t be able to cover core demand in Asia which is expected to be met by the US, Black Sea region and Canada instead,”, Magdovitz added, pointing to an estimated 23 percent fall in the country’s winter crop in 2018-19. “If there is another low harvest next year, the impact could be severe.”

Rabobank warned that “EU beef and dairy production was and remains being impacted by the drought”, with tighter supplies squeezing producer margins. In Belgium, for example, whole corn and rapeseed areas could not be harvested this year due to drought, creating a very serious lack of feed on livestock farms and leading to reflections on the development of a climate insurance system, a spokeswoman from the Belgian Federation of Wallonian Farmers said. The EU beef and veal market observatory already shows that prices for the former are down on last year’s.

As for the UK, Tom Forshaw, an analyst at the Agriculture and Horticulture Development Board, said, “Input prices are rising in the UK and beef producers are likely to come under some pressure as a result of drought, as there is less forage which will have to made up with bought in feed. Some producers may look to de-stock slightly as a risk management strategy to reduce feed costs and also to mitigate the impact of Brexit which is creating great uncertainty. But margins are likely to be challenged and costs per head increase.”

In view of the increasing weather events and climatic risks, a report by Valoral advisors on “Impact investing in the global food and agricultural investment space” confirms focus is being put on producing innovatively and sustainably using digital precision agriculture and big data technologies to allow more efficient input use as well as smart irrigation use to optimise water use in agriculture.