European animal feed manufacturer ForFarmers, announcing results for the first six months of 2017, says a recovery in livestock markets is driving growth in its European markets. But factors such as the Brexit uncertainty holding back its UK operations mean that growth is set to slow over the rest of the year.
The co-operative has a 6% share of the EU feed market, and operates across Holland, Belgium, Northern Germany and the UK.
"Our customers are currently in better financial shape than a year ago, when milk and pig prices were under pressure," notes ForFarmers Group chief executive Yoram Knoop. "Farmers, especially in the Netherlands and Germany/Belgium, are buying more high quality feeds again to increase their production.
"There is large uncertainty in the United Kingdom about the consequences of Brexit for the agricultural sector. Farmers are therefore more hesitant in, among others, growing the size of their herds, which were reduced last year. In spite of this, the market in the United Kingdom appears to be recovering slowly."
ForFarmers noted that the financial situation of dairy farmers has improved throughout Europe, with an average 20% increase in milk prices across its EU markets. This follows "undiminished international demand for dairy products combined with a decreasing supply in 2016". In turn, the previous period of low prices saw herd size reductions, which have not yet recovered to previous levels.
During the second half of 2016, swine prices increased to their current, much higher than long-term average level. This has been helped by strong demand from China.
But the European poultry sector has suffered from an outbreak of Avian Influenza. Despite this, the sector has shown growth with continental egg prices higher in the first half of 2017 than the same period of 2016.
ForFarmers saw its operating profit in the January-June 2017 period rise by 18% to E38.7m on revenues that were 3.7% higher at €1.11bn. The group handled 4.73m tonnes of all feeds, including 3.3m tonnes of manufactured compounds and blends, respective increases of 3.6% and 6.2%.
"Volume growth in the Netherlands and Germany/Belgium was higher than the volume decrease in the UK," it said. "As of mid-2016 the financial situation for farmers in Europe has significantly improved due to enhanced milk and swine prices, which partly explains the volume growth in compound feed within total feed."
But the company does not expect first half growth rate to persist across the whole year. Looking ahead, the company expects the new measures to reduce environmental phosphate levels, introduced in March, to start to constrain cow numbers in the Netherlands by as much as 5%.
That country market, as well as Belgium, could also be affected by the fipronil contamination of eggs crisis that broke in the last week, although the effect on production and feed demand is hard to estimate at this early stage, the company expects it to impact on feed sales. It also anticipates that the recovery in UK livestock production will take longer than expected, particularly for the cattle sector.
"In the second half of 2017, geopolitical developments will influence the markets in which ForFarmers is active" says Mr Knoop. "Raw material prices and developments on the currency markets are difficult to predict. Milk and swine prices are at a historically high level.
"Swine prices have however started to decline at the end of the second quarter in 2017 - Chinese pig meat production is increasing and there is more international competition for European exports. Whether European exports of pig meat to China will remain at the current level is therefore not likely.
"Demand for pig meat in Europe is slowly dropping and consumers have an increasing preference for poultry."
By Jamie Day