Significant recovery in EU milk prices is not expected until 2021, although farmers can continue to expect a volatile ride, according to a European Commission report on the outlook for EU agriculture.
The report predicted a slow recovery from the current low commodity prices in 2016 because world supply is expected to continue growing and stocks have accumulated.
The Commission noted, however, recovery could be accelerated by the expected decrease in production in New Zealand, driven by unfavourable weather conditions and very low prices paid to farmers.
But it said: “Given that it takes two to three months between changes in commodity prices feed into changes in the price for raw milk, the EU milk price is not expected to increase significantly in 2016.”
Until 2020, the average EU milk price is expected to oscillate between €0.32 and €0.33/kg (about 23-24ppl at current exchange rates. This compares with an average EU price in 2015 of around €0.30/kg.
This projected average price is lower than the one predicted in last year’s report, although low energy and feed costs will help soften the blow for farmers, the report predicted.
“After 2021, the milk price is expected to increase, along with dairy commodity prices, the oil price and feed costs,” it said.
The report noted, however, that the significant price fluctuations experienced since 2007 will continue over the next 10 years, in response to impacts of weather on production, changes in energy prices and exchange rates, animal health issues.
Butter and cheese prices are expected to rise to around €3,800/tonne in 2025, while skimmed Milk Powder prices ‘can only increase from 2015’s bottom (intervention) price’ and could average €2,500/t in 10 years’ time.
The average EU Skimmed Milk Powder price reached intervention level in August 2015 as the need to channel additional milk into SMP and butter to compensate for the loss of the Russian market, combined with lower SMP import demand in Algeria and China, hit price levels.
In contrast EU butter prices remained 30 per cent above intervention price, a reflection of the ‘sustained dynamic demand for dairy fat’ in the EU and world markets, especially in the USA.
The decrease in commodity prices led to an average EU milk price slightly above €0.30/kg (about 21.6ppl) in 2015, 20 per cent below 2014 levels.
The market imbalance underlying the current low EU price levels for dairy products and milk was driven mainly by a surge in world supply at a time when China was purchasing less and Russia has banned imports from the EU, the USA, Norway and Australia.
However, over the long-term, the sector will continue to expand in response to growing world demand (forecast to grow at nearly 2 per cent per year) and domestic demand, facilitating the recovery to ‘moderate’ price levels in the next few years before prices ‘rise further’.
Milk supply in the EU is expected to increase by 13 million tonnes in the coming years, a rate of about 0.8 per cent a year), driven by this growing world demand and sustained domestic consumption.
In addition the EU’s share of world exports should grow slightly, taking advantage of its good potential to increase production, while producers in New Zealand are more constrained by availability of natural resources.
In the next 10 years, around 50 per cent of the additional milk produced in the EU will be channelled into powders (mainly SMP), mainly for export, and more than 30 per cent into cheese, mainly for domestic consumption.
Cereal prices are expected to remain relatively low, recovering towards 2025 to close to €190/t (£136/t) for ‘common wheat’.
Upward price spikes are likely for periods following a production shortfall in a major producer.
The global market for arable crops has been marked by several consecutive years of record supply, which have led to stock replenishment and a strong drop in prices from the 2012 peak.
However, in 2015 cereal prices remained between €150/t (£107/t) and €180/t (£129/t) on the back of solid world demand, which is expected to remain steady in the medium term.
EU cereals production is expected to grow further, to around 320m t by 2025 but cereals export potential will be constrained by a reduction in arable land.
The expiry of sugar quotas in 2017 will have a profound impact on the EU market.
The EU sugar price is expected to approach the world market price, forcing the sector to become more competitive and reducing the incentive for trade partners to export to the EU.
Despite lower prices, production of white sugar is expected to increase to close to 18 million t in 2025, 5 per cent more than in the years preceding quota expiry.
Population and economic growth in developing countries are expected to support higher meat demand and contribute to higher EU meat exports.
World meat consumption is expected to increase by 15 per cent between 2015 and 2025, equivalent to a year's total meat production in the EU.
Thanks to economic recovery and slightly lower prices, overall per capita meat consumption in the EU recovered by a 'staggering' 1.8 kg in 2014.
The rise is expected to pick up to 2016, to 67.6 kg (retail weight), before resumption of the previous downward trend.
EU beef production continues to be driven mainly by dairy herd developments. After the increase in 2014 and 2015, it is expected to fall back into decline albeit at a slower rate, to 7.6 million t in 2025.
After decreasing over several years, sheep and goat meat production and consumption are expected to stabilise at the current level thanks to improved profitability and demand remaining steady despite higher prices.
Following a strong recovery in 2014 and 2015, pigmeat production is expected to expand by less than 2 per cent by 2025 as compared with 2015.
Against slowly falling internal consumption, pigmeat exports are expected to grow steadily, supported by sustained world demand and slightly improving prices.
EU poultry meat production is expected to expand by close to 4 per cent by 2025, while consumption could increase only marginally.
Driven by promising growth in world import demand, EU exports are expected to reach 1.6m t by 2025 ( up 15 per cent). But prices will be under pressure as a result of increased competition from Brazil and the USA.