Bullish trend in the global grain market has applied upward pressure to the EU grain prices. The Mintec Category Index (MCI) for EU cereals rose by 12% m-o-m in August to reach EUR 228/MT. Livestock farmers and meat producers across the EU are concerned as rising feed prices would reduce their profit margins.
The wet weather in the EU has slowed down the harvest in some regions and led to some concerns about wheat crop quality. As a result, the EU wheat price increased by 14.5% m-o-m to EUR 241/MT in August. Apart from issues in the EU, dry weather in the Northern US has delayed the wheat crop harvest generating a bullish sentiment in the global market. Elevated wheat prices have also added upward pressure to other grains like maize and barley. The EU maize price rose 6.8% m-o-m in August to EUR 216/MT.
Feed cost forms a significant part of livestock production, varying from 50-70%. Surging feed grain prices in H2-2020 and H1-2021 resulted in high feed costs. This increased the overall cost of pig, cattle, lamb, and chicken production, which either translated into reduced profit margins for farmers and processors or high meat prices (making EU meat uncompetitive on the global market). Consequently, livestock farmers and meat processors across the EU are currently concerned about the rising feed costs and weak demand for some meat categories. In the cattle market, structural adjustments due to the COVID-19 crisis reduced beef production, which resulted in high beef prices. The demand for beef is decreasing as consumers have been switching to other meats such as chicken. For pork, diminishing demand from China has aided bearish sentiment in the EU pork market. According to market participants, rising feed costs and weak demand would result in negative profit margins for farmers and processors and curb meat production in 2022.