Price Points

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

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

3 October 2018
Brexitgrainsingredientsmeatmeet the expertpricingsugar

Meet the Expert

Who: David Read

What: Chairman

Where: Prestige Purchasing

 

DOWN! Meat rides the roller-coaster

image credit: Getty Images

The meat category of the CGA Prestige Foodservice Price Index (FPI) has fallen this month by 2.1%, showing deflation of 5% compared to last year.

Before we celebrate too much, this decrease is due to an increase in slaughter levels. The hot summer weather impacted grazing pastures, leading to feed costs rising, which in turn has prompted farmers to take precautionary action to relieve demand for livestock feed. So don’t expect this fall to be sustained for long.

And pork could well be a future problem category. African Swine Fever is affecting the Chinese pork market, where bans on transportation of pork have seen price swings of up to 40% as the market braces itself for a supply gap of 2-3m tons.

More alarmingly for British producers, we have now seen confirmation of infection in wild boar in Belgium, putting pig farmers in much of Europe on high alert.

UP! Wheat in short supply

It’s a well-known fact that the dry summer of 2018 affected production of a very wide range of crops covering several categories. Wheat yields in particular were significantly down on prior years in Europe, and the FPI for breads and cereals shows a 4.3% increase month on month in prices.

Stock-to-use ratios for major exporters are nearing record lows, with some predictions estimating a drop in the UK’s wheat crop yield of 10% on last year, leaving a potential shortfall of 2.5m tons.

To make matters worse, wheat will in some cases be used as animal feed after the summer’s hot weather reduced the availability of natural silage. Expect further increases in bread and cereal costs in the months ahead.

DOWN! Sugar continues its sweet descent

Food Spark readers might well conclude that the marginal increase in the FPI for sugar this month signals the end of an extended period of falling prices that began in the spring of this year. But you would probably be wrong, as it’s likely to be a seasonal movement and not necessarily reflective of the overall trend.

India and Thailand have had record production in 2017-18, with global production forecast to yield an 11% increase year on year. A 17m metric ton surplus of sugar is predicted for 2018 and is likely to keep sugar prices low for the foreseeable future.

Sugar cane is like grass, it can be cut back and harvested for several years in a row, without the need to dig up the crop in order to plant another, which means that production can’t be so easily adjusted in times of falling prices. 

ONE TO WATCH! Battered olives

image credit: Getty Images

Trump’s trade cudgels are now hanging over Spanish olives, with the implementation of tariffs on Spanish olives ranging from 8% to 27%. The US alleges that the EU uses CAP (Common Agriculture Policy) to subsidise olive production, then dumps cheap olives on the American market. These exports are almost a third of Spanish olive production, so if unresolved there may be something of a glut later this year.

There are wider concerns amongst the EU farming community that this is just the thin end of the wedge and could set a dangerous precedent for a much wider trade war on the EU’s exported foodstuffs. Provided we get a tariff-free trade deal with the EU as a part of Brexit, that could be good news for prices. 

ONE TO WATCH! No-deal Brexit

Leaving the EU without a withdrawal deal is more than a distinct possibility after the recent Salzburg summit. The government’s focus is on securing the implementation period until December 2020 to allow more time. This is not yet agreed, and the possibility of a cliff-edge exit is (according to Mark Carney of the Bank of England) uncomfortably high.

It’s not widely publicised, but HMRC border teams are currently planning for a no-deal scenario. The EU has not accepted the Chequers proposal as it is currently written, and the likelihood of our parliament accepting it seems even more remote. Sensible operators are now intensifying their planning based upon a no-deal outcome, in order to prepare for increased ingredient prices.

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