By Lisa Kallal
DOW JONES (LONDON)
Higher grain prices are beneficial for farmers in England and Wales, but are also raising input costs for livestock producers, according to the National Farmers' Union outlook report released Tuesday.
Profits in the domestic livestock industry are already either small or non-existent, NFU said.
Economists predict continued tight global grain and oilseed supplies, which mean prices will remain at high levels.
Feed costs are "a major concern" for the poultry industry, the report added.
"In the poultry meat sector, most producers are still operating at a loss, despite a modest price increase towards the end of 2006," NFU said.
It added that egg producers were hit with a 6% rise in input costs in 2006, but in contrast egg prices remained flat. NFU said organic and free range producers are currently breaking even, but cage producers are operating in the red.
Higher feed costs are also eating into pork production margins and lower pig prices in mainland Europe are starting to spillover to the U.K.
Stable domestic beef demand is expected to create a tight supply/demand balance and keep prices above 2006 levels. "However, with feed prices continuing to increase, most beef enterprises will still fail to cover their costs," NFU said.
England and Wales sheep exports have also been hit in recent months due to strength in the sterling versus other major currencies. The NFU forecasts a 6% fall in sheep production this year.
Potato prices remain relatively high and the NFU expects them to stabilize near current levels.
Despite a modest upturn in milk prices in the fourth quarter of 2006, the NFU report said output isn't expected to match quota.
Expectations for lower energy prices is seen helping offset some of the higher input costs, NFU said.