MBH AgrárTrend Index: the evaluation of the situation of the food economy has strengthened back to the level of the beginning of 2022

By: STA Date: 2023. 08. 02. 10:00

After the strengthening experienced in the first three months of 2023, the prospects for Hungarian agriculture improved further in the second quarter, the actors of the sector overall believe that the domestic food economy is moving in the direction of balance, according to the MBH AgrárTrend Index, MBH Bank’s Agricultural and Food Business from its analysis published quarterly, which is prepared by interviewing the actors of the agrarian sector. Although the wheat and barley yields fell somewhat short of expectations, they are still significantly better than last year’s average, and even looking back five years, they exceed the average yield. In the case of corn, which suffered extreme damage due to the drought last year, this year there was only a drought in a small area of the country during the critical growing season, so the outlook is promising at the moment. The first half of the year went well for animal breeders, and based on this, they can look optimistically towards the near future. The tourist season is so far mixed, but it still had a positive effect on the reduced demand for food in stores.

“After last year’s extremely difficult year, the weather is better this year, and production costs have decreased, including energy, pesticides, seed prices, and transportation costs. Despite this, the economic environment for production – inflation and interest levels – is still not favorable, and interest-subsidized products continue to be a source of help. According to our current expectations, however, by the first half of next year, when the Rural Development Program tenders are announced and a HUF 3,000 billion support program is launched in the Hungarian agriculture and food industry, the costs of market-based financing may be reduced to an appropriate level. Thus, with the cooperation of credit institutions, including MBH Bank, which is a leader in financing the sector, a wave of modernization can begin, which is urgently needed to increase the efficiency of the Hungarian food industry, among other things, to be able to achieve better results by using less energy,” said Dávid Hollósi, the Managing Director of MBH Bank’s Agricultural and Food Business Branch. “Our most important task is to help the sector to strengthen sustainability, efficiency, competitiveness and profitability.”

The confidence indicator strengthened back to the level of early 2022

The value of the MBH AgrárTrend Index, an agri-food industry confidence indicator that precedes official statistics and is prepared based on the situation assessment of customers, interprofessional organizations and the bank’s analysts, increased to 31 points on the 48-point scale in the second three months of 2023. Most recently, at the beginning of 2022, it was at a similarly high level that the Russian-Ukrainian war began to have an impact on the global and domestic food economy through the risks to food security, the jump in energy prices and the drastic increase in the price of input materials. The current value represents an increase of 1.2 points compared to the period from January to March, and a year-on-year increase of 1 point. In the second quarter of 2023, the outlook improved in almost all sub-sectors, but primarily the position of animal product lines continued to strengthen. And although there is still no sub-sector that would reach the equilibrium level of 35 points, which represents a growth path of 3-5 percent and stable price and income conditions at all points, some product paths came very close to this.

The outstanding wheat and barley crops were missed, but field crop growers can still have a really good year from corn

After last year’s large-scale drought, the weather in Hungary has been favorable so far this year for the arable sectors producing the largest output of domestic agriculture, and according to expectations, it will continue to be so. The drought of 2022 did not leave a mark on this year’s crops, however, the wheat and barley harvests were somewhat lower than expected in terms of quantity and quality. The barley harvest has been completed, the farmers harvested approximately 2.2 million tons of crops. The average yield was 5.5 tons per hectare, which exceeds the five-year average yield of 5.4 tons per hectare. An average yield of 5.5 tons per hectare is also expected for wheat, which is significantly higher than the five-year average yield – 5.2 tons per hectare. Maize, which was largely lost there last year due to the drought, is in good condition this year. During the critical growing season, there was a drought only in a small area of the country, mainly in the Southern Great Plain, so the prospects are currently encouraging, an average yield of 7.5-8 tons can be expected. which would correspond to the average of the past years. “Currently, the purchase prices are significantly lower than last year, and many people produced with fertilizer purchased at an expensive price at the end of 2022, which could have worsened their efficiency. On the other hand, those who waited and bought this year can expect better profitability,” said Csaba Héjja, senior analyst of MBH Bank’s Agricultural and Food Business. He added that the price of some crops began to rise on the international stock exchanges as a result of a serious drought affecting agriculture in Europe and some parts of the world, and in mid-July Russia withdrew from the agreement allowing the export of Ukrainian grain by sea. “In light of all this, it can be a good strategy to store the freshly harvested crop for a short time, but we emphasize: it is still not the task of the producers to speculate with stocks,” he pointed out, adding that it is very difficult to follow the movement of grain prices on the world market.

Balanced animal product lines

Although the performance of the food industry is significantly lower than last year – according to the latest data, output decreased by 15 percent -, the cost and sales conditions of livestock breeding and husbandry developed well in the first half of the year. Milk production is an exception to this: although prices in the sector decreased to a large extent, they started down from a very high level. The restoration of the balance of supply and demand can lead to improvement in this area as well, because the weather has also been good for the production of fodder for dairy cattle, farms that produce fodder for the animals in their own cultivated areas have significantly more and better quality fodder . This year, the pork product track is performing excellently. In addition to the fact that feed and energy costs have decreased significantly, sales prices are still on an upward trajectory. “In the previous quarter, we said that 2023 could be the year of livestock breeding, but now it seems that pigs are the main winners,” said Csaba Héjja.

Horticultural production is shrinking slightly, but the outlook is good

The weather conditions were not bad for horticulture either, mostly satisfactory sales conditions were observed, although the decrease in store demand also affected the producers, who are in direct contact with the retail chains. In the case of wineries, the demand is also satisfactory, this year promises to be especially good. Although the price of bottles has increased as a priority cost item, they have to pay a lower tax on bottling compared to other players in the food industry. The National Council of Mountain Villages has published its forecast for this year’s grape prices, according to which prices are expected to be slightly higher than last year, but significant differences can be seen in each wine region. Food inflation may decrease to single digits even before December As of August 1st, the food price stop has been abolished, and instead, customers will be able to meet measures such as an increase in the mandatory promotion rate to 15 percent, a change in the pricing of promotions, and an online price monitoring system. The latter are already operating, according to MBH Bank’s agri-food industry analysts, the experiences are basically favorable from both the merchant and consumer sides. The introduction of price stops may give some relief to traders, as they incurred significant losses last year. Since the price caps were introduced in February 2022, HUF 100-120 billion could have remained with households, according to the calculations of the bank’s experts, which is 2.5-3 percent of Hungarian food retail sales. However, in the event of their sudden termination, there would have been a risk that inflation would accelerate by 1-1.5 percent. However, due to the aforementioned measures and market processes, the derivation of official prices is not expected to have a significant effect on the food inflation index. MBH Bank’s agricultural and food industry experts believe that although the price of several products will be lower thanks to the measures, the drop in demand in stores will not ease for the time being, so they expect a further decline in the volume of food retail sales for the rest of the year. “As a result of the combined effect of these factors, the food inflation indicator may decrease to single digits even before December,” they predicted.

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