Price Points

Cost watch: what’s going up and what’s going down in April

Prestige Purchasing’s chairman, David Read, gives a glimpse into the financial future.

28 March 2018
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Meet the Expert

Who: David Read

What: Chairman

Where: Prestige Purchasing

 

UP! Rain on the plain in Spain doesn’t ease the pain

We’ve talked about the rise and rise of wheat in previous bulletins – and it’s still going up.

The cost of wheat has been escalating steadily for a while now, as supply has undershot demand on global markets. In the States, the southern US plains have been gripped by drought. In Europe, the recent cold and snow had limited impact on winter crops, but it has delayed the sowing of the spring crop in many countries.

On the upside, while the arrival of Storm Emma was unwelcome for many of us, it was appreciated by northern Spain, where the wheat crop experienced some much-needed relief from the winter

We expect the tightness of the UK wheat supply to continue to push prices up, and there is a further upside risk if there are further adverse weather events in the months ahead.

ONE TO WATCH! Risks to fruit and vegetable yields

This time last year suppliers were scrambling around trying to buy lettuce, as storms tore through southern Europe (particularly Spain) and decimated ground crops.

Twelve months on we have a severe drought, especially in regions of southern Spain and Portugal. The situation has become so concerning that 15,000 growers and farmers held a demonstration in Madrid in March demanding action from the government to combat the water shortage.

If things do not improve, expect spring and summer fruit and vegetable prices to firm considerably.

DOWN! Milk continues to churn

The Alice in Wonderland world that is the dairy supply market continues to operate in an unstable way.

Over the past few months, milk prices have fallen due to excess supply, with many wholesalers introducing large reductions in farmgate prices among their farmers. This is unlikely to improve over the next month as the spring flush arrives and milk volumes increase further.

Milk production now finds itself in a rather precarious situation not too dissimilar from what was seen in the price crash of 2015/16, with many suppliers and wholesalers pushing to reduce milk prices while farmers complain that margins are already too tight for comfort.

The conflict is best summed up by DEFRA announcing that dairy is now the most profitable farming sector and Arla confirming an 8% sales increase, whilst at the same time farmers are angrily complaining that they cannot bear further price drops due to the hard winter and narrow margins.

Just like the last price crash, once we reach summer (and production volumes return to normal, all-year-round levels) we may see the repercussions of farmgate price reductions as farmers leave the market, driving an increase in milk prices at the end of this year.

image credit: pong-photo9/iStock/Thinkstock

UP! Salmon is leaping again

Spot prices for both Scottish and Norwegian farmed Atlantic salmon steadily increased in February. Norwegian Salmon prices reached £6.31 by the end of the month, showing a 32% increase in comparison with the first week of February and 10% increase year-on-year.

A tight supply is one of the main reasons for Norwegian salmon price increases, followed by the weakened exchange rate. Harvesting levels are currently low, pushing the prices up. Moreover, increasing demand from Asia is adding pressure to the supply chain. We believe that supply will be limited until harvesting of matured fish starts in early summer.

UP! Meat murder

The now famous Russell Hume controversy continues to develop this month, as we see new figures from the FSA about the scale of the problems in British meat supply, with two-thirds of meat-cutting factories incurring at least one incident of major non-compliance over the past three years, averaging 16 infractions per week across the country.

This latest release has caused some to criticise the government for reductions in FSA funding over the past decade and highlighted the dangers of light-touch self-regulation.

We are seeing price rises as supply tightens, and expect this to continue for a while until the market settles.

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