Germany Agribusiness Report Q3 2016: New research report available at Fast Market Research

The German agricultural system benefits from high levels of competitiveness, strong infrastructure and a very good farming industry knowhow. Grains, dairy and sugar will all stand to benefit this year and beyond. In the livestock sector, pork producers will be under pressure due to strained relations with Russia. Sugar and milk production will expand due to the removal of quotas . Over the short - term, the unexpected decline in milk prices due to the removal of the quota and lower demand from export markets is hurting smaller dairy farmers, a situation that Berlin has vowed to address promptly by offering subsidies and considering a temporary dairy production quota to help stabili s e national milk prices.

Key Forecasts

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Corn consumption will grow by a healthy 3.5% in 2015/16 to reach 1.07mn tonnes.

Poultry production will grow by 2.2% in 2015/16 to reach 1.64mn tonnes.

We are estimating wheat production to decline by 3.7% in 2015/16 to reach 25.57mn tonnes, whereas sugar will grow by 5.0% to reach 27.52mn tonnes.

Corn production will grow by 11.6% in 2015/16 as the crop recovers from two consecutive years of negative growth.

Industry Outlook

In March 2015, the EU put an end to its 30-year old milk quota. Milk quotas were introduced to ensure that oversupply of milk did not emerge from the EU. With the abolition, strong milk producers such as Germany are free to produce high amounts of milk with strong levels of efficiency and agricultural effectiveness to capitalise on global demand for milk. We suspect that German milk farmers will welcome this opportunity in the long run to produce high amounts of milk and exploit their comparative advantage while looking to find international markets for their dairy produce. Over the short term, the unexpected decline in milk prices in Germany is beginning to threaten some smaller dairy farmers. As the country has an overproduction of milk, prices have plummeted from a high of EUR0.42/kg half a decade ago to around EUR0.20/kg. Farmers have said that they require a minimum of EUR0.35/kg to remain competitive. Berlin has vowed to immediately address the situation and has established a EUR100mn relief plan for dairy farmers with financial difficulties. Furthermore, Berlin is considering a temporary domestic production quota to curb supply to maintain prices. We believe that milk prices move in cycles and will eventually return to a stable equilibrium. The trade embargo with Russia and lower demand from China are temporarily hurting the milk industry. We believe that Germany's dairy sector is one of the most competitive and efficient in the world and will recover in the next few years.

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