Grain fears subside as production rises

EUROPE will not run out of cereals, despite dire predictions by some commentators. The latest report from the European Commission on the prospects for agricultural markets and incomes suggests an increase in returns to growers in the medium term and rising production.

Last year cereal production in the EU was estimated at 256 million tonnes. However, in 2007 consumption exceeded production by ten million tonnes, with the gap being filled by imports. Exports from the EU were relatively modest at 16.9 million tonnes while of the 265.6 million tonnes consumed 165.2 million tonnes were utilised as animal feed.

In 2010 production is projected to reach 293.6 million tonnes, rising to 305,000 million tonnes by 2014. Consumption will also grow, but at a more modest rate, and is expected to hit 272.9 million tonnes in 2010 and over 285 million tonnes in 2014. On current trends the EU will actually have end stocks in 2014 of 56 million tonnes, compared with the 40.4 million tonnes last year.

There are several reasons behind the prospects of rising production, not least the reforms of the Common Agricultural Policy and the ending of intervention buying for maize. In addition the ending of set-aside – the measure through which farmers were obliged to take land out of cultivation to avoid surpluses having to be placed in store at taxpayers' expense – has seen more land devoted to cereal growing.

Here in Scotland the high prices achieved towards the end of last year have led to more land being ploughed than for a very long time. In addition, some predominately livestock farmers have reduced numbers of both cattle and sheep and expanded the area under crops.

Production in the newer EU member states is also expected to rise considerably as technical efficiency improves and farm sizes become larger. The land in parts of Hungary and Poland is ideally suited to growing crops and as newer varieties are adopted yields will rise.

The downside for arable farmers throughout the EU is the high cost and even limited supplies of fertiliser. Some of the major fertiliser manufacturing countries, notably Russia and China, have placed restrictions on exports and this is having a major impact on the market, with compounds in the UK now typically costing £300 per tonne, about double the price of last spring.

Meanwhile, the Paris-based Strategie Grains is forecasting that wheat production in the EU during 2008 will be in the region of 128 million tonnes, which is well up on the 111.6 million tonnes of last year.

Consumption of wheat is expected to be about 118 million tonnes, up on last year as livestock farmers switch from using maize.

Barley production, hugely important in Scotland for the malting and brewing industries, is expected to show a modest increase of 900,000 tonnes to 61.54 million tonnes in the EU.

Spring plantings throughout much of Europe and North America are running behind schedule following unseasonable weather on both sides of the Atlantic. This may yet affect yields.

However, the futures markets have slipped in recent days with London now quoting £145 per tonne for November wheat – down £4 on the week. The European market quote for the same month is down by 4.50 to 200.50 (£160.40) per tonne. This may tempt UK farmers to trade in euros, with sterling at a record low.

In Chicago wheat for September is rated at $337.18 (£168) per tonne – down by $14.33. But there has been little change in the value of maize for the end of the current year with $245 per tonne.