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USDA GAIN: Oilseeds, Cotton, Sugar, Grain and Feed


19 April 2012

USDA GAIN: EU-27 Grain and Feed Annual 2012USDA GAIN: EU-27 Grain and Feed Annual 2012

The weather has already made its mark on the MY2012/13 crop and is likely to remain the focus over the coming months. A severe cold spell in late January and early February caused above average winter losses in some parts of the EU27, especially France, meaning some fields will need to be resown to spring crops. A prolonged dry period through March and into April will also become a concern if rains are not forthcoming ahead of harvest. In spite of this, 284MMT of grain is forecast to be harvested this year. Feed grain consumption is forecast little changed, albeit masking a switch away from wheat towards corn, barley and the minor grains, while industrial grain usage is again forecast to rise. Overall, the balance suggests a similar availability of grain for export as compared to MY2011/12 but much will depend on the ultimate size and quality of the EU27 harvest.
USDA GAIN Report - Oilseeds, Cotton, Sugar, Grain and Feed

Commodities

Corn

Corn production in MY2011/12 is expected to have just surpassed 64.5 MMT following an excellent harvest across the EU27, and contrary to the expectations of many market commentators in the main producing countries of France, Germany, Spain, Italy, Hungary and Romania. In MY2012/13, the planted area is forecast to rise to 9.2 MHa with the main increases in France, Germany, Bulgaria and Romania. This is in part due to improved seed supply in the latter two countries but also due to fields of wheat and barley being replanted following winterkill and strong underlying demand for corn. The Spanish area is forecast lower based on lower irrigation water availability. Overall, with yields not currently expected to match those seen last year, production is put only marginally higher at 65 MMT. With the exception of the Iberian Peninsula, the current dry period afflicting the EU27 is not of too much concern, as yet. Indeed, 2011 saw very dry conditions at this time. That said, as with the other crops, timely rain will be needed to ensure there are not yield losses.

Corn imports are now expected to reach 4.25 MMT in MY2011/12. Spanish imports of corn were reduced following increased imports of feed wheat due to the aforementioned carryover of wheat import licenses from the previous season. MY2012/13 will not see a repeat of this scenario so Spanish, and EU27 imports overall, are forecast to rise 1 MMT. Ukraine and Serbia will be the main suppliers but increased imports also expected from the likes of Russia and Croatia.

Demand for corn in the FSI sector is expected to rise 500 MMT in MY2011/12 and by a similar amount in MY2012/13. With usage in the starch sector forecast unchanged, the increase is accounted for by bioethanol production - principally in Hungary but also in Spain, where it replaced wheat and barley - and biogas production. Feed consumption, expected up in MY2011/12 reflecting the larger crop and an increase in on-farm feeding, is currently forecast to rise a further 1 MMT in MY2012/13 due to the increase in available supplies.

Wheat

EU27 wheat production is currently forecast to fall 3 MMT to 134.5 MMT in MY2012/13, 16 MMT below the record harvest achieved in 2008. Despite an initial increase in the planted area in Germany, Spain, Hungary, Italy and France, losses and a consequent switch to other spring crops in the likes of the latter and a reduced planted area in Bulgaria, the Czech Republic, Romania and Scandinavia, means the total area planted to wheat is forecast to have fallen to 25 MHa.

With the exception of Hungary, Romania and Bulgaria where dry conditions delayed or limited plantings, and in Scandinavia where wet conditions had a similar impact, favorable conditions across most of the EU 27 last fall were followed by a mild start to winter.

Late January saw the onset of a very cold period with significant snow fall in the east and sustained cold conditions elsewhere. These conditions prompted speculation in some countries, especially France, of a repeat of the disastrous crop of MY2003/04. While these fears do not appear to have been realized, in early April, the French Ministry of Agriculture estimated wheat winter kill losses at 362,000 hectares, of which 12,000 hectares are durum wheat. A number of other countries are also thought to have experienced higher than normal winter kill but Bulgaria and Romania are the only ones currently reporting significant damage. They are used to challenging winters and are expected to simply increase plantings of spring crops such as corn and sunflowers. That said, an increase in spring plantings of alternate crops is also expected in Germany, through Poland and into the Czech Republic and Hungary. Generally, damaged crops are not expected to be left to produce lower yields.

Only in Spain and Portugal do any significant concerns remain at this time - conditions were very dry at planting and, following the driest winter ever recorded in Spain, rain is needed to prevent significant wheat losses. That said, this need for rain is increasingly being shared by other Member States following a very dry period through March and into April. This has reduced otherwise improved soil moisture. The wheat crop is still reported to be generally good but the situation warrants close monitoring, especially in France, the UK and Germany where the dry weather is also reducing fertilizer efficacy. In Italy, following a significant decline in size last year, the durum wheat crop is forecast to recover.

Overall, sentiment is good but with the EU27 entering a critical yield determining weather period, this could change. Any downward movement in yield expectations or reduction in likely quality will be the subject of interest to the market given the tight EU27 balance this season.

Total EU27 wheat consumption is forecast to decline marginally in MY2012/13, mainly due to a reduction in feed use. Other grains are expected to be more price competitive while the increase in on-farm consumption seen in MY2011/12 is not expected to be repeated. Industrial use of wheat is forecast to rise once more following a slight decline in MY2011/12. That was mainly due to reduced demand in the starch sector. However, MY2012/13 is forecast to see static demand in the starch and milling sectors with the bioethanol sector providing the underlining support to consumption demand. A second wheat-based bioethanol plant, capable of processing 1.1 MMT of wheat per year, is scheduled to open in the UK this summer. This will double the UK?s potential capacity but it should be noted that the opening of this plant has been subject to a number of delays while the other UK plant is currently closed but scheduled to re-open in June at the earliest. This uncertainty means the UK number could be subject to downward revision. Elsewhere in the EU27, increased wheat usage in the bioethanol sector is foreseen in the Netherlands.

MY2012/13 wheat imports are currently forecast to reach 6.5 MMT, down 1 MMT on MY2011/12. In that season, importers carried over unused quota allocation for MY2010/11, boosting imports in the first quarter, mainly into Spain. This will not be repeated next season. Throughout the first quarter of 2012 the EU27 has fully used its 572,000 MT U.S. specific TRQ of medium to low-quality wheat. Concerns about the upcoming crop along with favorable price relations have triggered U.S. wheat imports under TRQ, which consist of SRW for both feed and milling purposes.

EU27 wheat export expectations remain at 17 MMT in MY2011/12. In mid-April, with just two and a half months of the season to go, just over 12.75 MMT of export licenses have been granted. The EU27 exported a record 25 MMT of wheat in MY2008/09. This was followed by 22 MMT in MY2009/10 and nearly 23 MMT in 2010/11. That said, last season saw the Russian export ban and restrictions on Ukrainian supplies seeing France, the EU27?s primary wheat exporter, reporting a very strong pace of exports, mainly to its traditional markets in North Africa. In MY2011/12, the EU27 has faced increased competition on third country markets, most recently from the U.S. into North Africa.

EU27 wheat exports in MY2012/13 are also forecast to reach 17 MMT, despite a reduction in forecast global demand. The competitiveness of U.S. wheat is expected to wane at the beginning of the season while Black Sea origin wheat, still expected to present significant competition, is forecast to be lower in volume than this season following the challenging winter.MY2011/12 is now expected to see some recovery in stocks, reflecting the reduction in the competitiveness of EU27 wheat on third country markets. However, the tight balance in MY2012/13 means this increase is forecast to be short lived.

Barley

The total EU27 planted barley area is forecast up 400,000 Ha in MY2012/13 with notable increases in France (spring barley replacing winter wheat killed by frost), Italy and Denmark. Overall, the EU27 barley crop is currently forecast up 2.5 MMT at 54 MMT. As compared to wheat, a larger proportion of the EU27 barley crop is spring sown so there are more unknowns at this time but the common factor is the current dry weather afflicting much of the EU27. Rains in April and May would do much to alleviate any concerns, especially in Spain.

Total EU27 barley consumption, is forecast little changed in MY2012/13 with feed usage up 500,000 MT and overall FSI usage static.

Up to mid-April, 2.58 MMT of export licenses had been granted and MY2011/12 EU27 barley exports are currently expected to reach 2.8 MMT with a decline of 400,000 MT forecast for MY2012/13. MY2011/12 opened with no intervention stocks. As such, all barley is now in private stocks. The tight balance in MY2011/12 is expected to see the season close with just 5 MMT with a further marginal reduction forecast for MY2012/13.

Rye

Rye is predominantly planted to less fertile sandy regions. The main producing and consuming countries for rye in the EU27 are Germany and Poland, accounting for about three quarters of the total EU27 rye market. MY2012/13 is currently forecast to see a continuation of last year?s much reduced planted area but improved yields with production forecast up over 500, 000 MT at 7.4 MMT, albeit still 600,000 MY below MY2010/11.

Almost half of the rye production is used in animal feeds and increased usage is forecast in MY2012/13 as an alternate to other grains, especially wheat. FSI had been rising slowly but steadily year-on-year as a growing share of rye was converted into bioethanol and in the form of rye-whole-plant silage in biogas digesters, mainly in Germany.

Sorghum

MY2007/08 saw significant interest in the sorghum market when tight supplies of feed grains saw EU27 importers - mainly in Spain, the Benelux and France – dramatically increase their purchases of mainly U.S. sorghum to nearly 6 MMT. This opened the market?s eyes to the possibility of utilizing sorghum in the feed ration and has increased the possibility of future imports. While MY2011/12 is expected to see very limited imports, in MY2012/13 300,000 MT could be imported with Spain being the main destination once this year?s US sorghum crop is available and provided that the sorghum-corn spread proves to be favorable.

Oats

The four main producers of oats in the EU27 are Poland, Finland, Spain and Germany accounting for 50 percent of the production. The importance of oats is diminishing in EU27 grain production although the organic industry still has an interest in this grain for crop rotation purposes and growing demand for food and feed use. Nonorganic farmers are gradually reducing their oats area such that the total production area is in long term decline.

After very poor yields in MY2010/11, this season saw a crop of 7.75 MMT. A similarly sized crop is currently forecast for MY2012/13.Trade in oats is almost exclusively intra-EU with the minor export volume to non-EU27 countries originating from Finland and Sweden. The destinations are mainly Switzerland and the U.S. - the latter has traditionally been the largest market for horse feed – but total trade in recent years has been limited to little more than 100,000 MT. Total annual FSI use is consistently around 1.75 MMT, a small portion of which - less than 50,000 MT - is used for the production of bioethanol and biogas. The rest is fed to animals, a forecast 5.9 MMT in MY2012/13.

Mixed Grain

Mixed grain numbers include triticale and the threshed, dry seeds of wheat, barley, corn, oats, rye and sorghum grown and harvested in the same field. The main producing countries are Poland, Germany and France, together accounting for 85 per cent of the production. MY2012/13 is forecast to see a marginal increase in production to 14.75 MMT but on a recued area. Triticale is almost exclusively used in animal feeding. However, a growing portion of triticale is used in bioethanol and biogas production in Germany and Poland, accounting for an estimated total of about 450,000 MT. Following the large build up in stocks in MY2009/10, principally in Poland and used as feed the following year, these have now stabilized at just under 1 MMT. Any increase in feed usage forecast for MY2012/13 will see a reduction in carryover stocks.

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