1. Commodity Update - February 2016 (Trading Board)

2. Exchange Rates Overview
As with the Euro, the Pound has also fallen against the Dollar over 3 months and 12 months. There has been a slight rebound throughout January but the UK currency remains volatile against other major currencies with the EU referendum yet to have a firm date.
The Pound versus the Euro has fallen significantly over the past 3 months by around 7.5% and slightly less so over the past 12 months. This is affecting and will affect goods traded in or purchased from the E.U.
As of 7th February 2016

3. Key Commodity Information
Dairy
Beef, Lamb and Pork
Eggs and Poultry
Fish
Bakery
Fruit and Nuts
Ingredients
Snack & Beverages
Fuel & Energy

4. Dairy
Milk Prices – EU milk supply remain high after the removal of quotas last year. Exports to China have fallen with a slowing down of the Chinese economy and therefore the supply of milk remains high and prices stay low. Major producers such as Arla have reduced again the price paid to farmers from 1st February and the suggestion is that milk prices will stay low for the immediate future. The NFU (National Farmers Union) continue to lobby government and protest at a lack of protection for farmers, with the milk price/cost ratio believed to be around 0.65 (the price paid to farmers for milk covers 65% of the production cost).
Despite the pressure being put on major processors and supermarkets, UK daily milk deliveries for the two weeks ending 30/01/2016 averaged 39.2m litres/day, which is 0.7m litres/day (1.8%) higher than the same period last year. Daily deliveries for this period were 2.3m (6.2%) higher compared with the 3-year average.

5. Dairy
Market Prices (Bulk) – Wholesale markets were generally quiet in January as most deals are covered towards the end of the previous year however since October butter prices are down around £125/tonne (6%) and both cream and skimmed milk powders are down around 10%.
Mild cheddar hasn’t been quoted for 3 months due to low spot activity indicating many buyers have contracted and are covered for now, however mild cheddar is believed to be under pressure as UK producers are faced with competition from cheaper EU imports, where prices are believed to have been quoted around £1750-£1850/tonne.
The falling value of the Pound has prevented prices falling further but with low milk prices it could be a buyers market in the short to medium term. The Spring flush is the next point which is likely to have a significant impact on wholesale prices.

6. Beef, Lamb and Pork
Beef and Lamb – UK prices are quite low at the start of 2016 and recent news that beef and lamb production will increase by around 2% this year means that prices aren’t expected to rise any time soon. These commodities rely heavily on retail consumption and 2015 failed to see the traditional Christmas uplift and therefore rising prices. Lamb prices are also low as UK exports (due to a strong Pound) remained low, leaving increased domestic availability.
Pork – Global pork prices remain low at the moment, supply outstrips demand as Russia remains a ‘no-go’ market and many UK processors turn to cheap European imports. The UK industry is believed to be under threat as slaughter numbers continue to fall (6.5m in 1980 against 4.4m currently). UK production now accounts for about 40% of UK consumption as processors look to countries such as Spain and France where imports are significantly cheaper. The European Commission recently introduced a ‘private storage scheme’, which effectively paid farmers to store product and therefore drive up prices. The scheme has now been halted as market prices have stabilised, albeit at low levels, opposition to the scheme believe it may simply be a short term fix which causes further problems when the stock is released onto the market.

7. Eggs and Poultry
Eggs – Prices have started to fall since the end of 2015, the issue of Avian Flu caused egg prices to rise throughout 2015, however whilst it is a Worldwide issue and the UK has seen a number of cases, the issue is much more widespread throughout Europe and the US.
Chicken – Prices from Thailand, the major exporter of frozen chicken (along with Brazil) into the UK have fallen for the majority of 2015, albeit rebounding slightly at the start of Due to the cost and availability of licenses from Thailand, a number of processors are increasingly looking to cheap imports from Poland and the Ukraine in order to maximise licence costs from Thailand with higher more added value products.
Fresh chicken prices from Holland and Poland have fallen throughout 2015 however as these purchases are mainly in Euros, the currency change recently has meant finished GBP prices are pretty consistent.

8. Fish
Tuna – Tuna prices continued to fall towards the end of 2015 on the back of large supplies. Since the start of the year however prices in the Western Tropical Pacific Ocean (such as Thailand and Philipines) have seen increases of around $ /tonne and now stands at around $1150/tonne, the main reasoning for the increased prices is vessels staying in port as fishing became uneconomical. Other Oceans such as the Eastern Tropical Pacific Ocean (Ecuador, etc) are expected to follow suit with higher pricing and it remains to be seen whether these recent higher prices continue, for the time being it is hard to see tuna reaching the highs of 2013 ($2400/tonne).
Coldwater Prawns - Coldwater prawns have continued to fall in price after the highs of Falling retail demand due to the record prices combined with substitution of warmwater variants where possible has meant that prices continue to fall however still high against previous levels.
Cod and Haddock – Atlantic Cod prices have seen some increases since the start of the year, however currency movements have also affected Pacific Cod to the level where the premium between Atlantic and Pacific is not as great as it was, it may be that Pacific prices start to ease going forward as exports to the EU are down. Haddock prices now stand around $2000/tonne which is probably at it’s lowest since pre-2013 when the prices started to hit record highs. There is approximately a $1000/tonne premium for cod over haddock now, which may be enough to prompt switching from cod into haddock where possible.
Salmon – Farmed salmon has been turbulent and some recent prices have been extremely high, some reports are claiming the highest levels for 5 years, low harvest numbers and continual issues of Salmon ‘lice’ in Norway are causing this, in addition the unpredictable currency which is being ‘factored’ in by processors.

9. Flour & flour based mixes
Bakery
The UK wheat harvest was above 16 million tonnes for the second year in a row, which led to very cheap wheat prices. In addition the bumper crops of the last two years has meant that the UK (the third largest EU producer of wheat) now has a surplus of 3.22 million tonnes, in part due to reduced export volumes. There are concerns that the low prices of wheat will encourage farmers to plant other crops which may have the cyclical effect of higher prices going forward.
UK Wheat Pricing comparison
Products affected:
Flour & flour based mixes
Bread
Biscuits
Cakes

10. Fruit and Nuts
Pineapple – Pineapple prices will be significantly higher this year, poor weather conditions in Thailand and the Philipines caused by the ‘El Nino’ weather pattern has meant that raw material prices have continued to rise throughout The dry weather has led to lower yields and some manufacturers have rejected raw material already due to quality issues.
Apple – As well as the obvious knock on effect on pineapple juice concentrate caused by the above, apple juice concentrate is also higher going into 2016, caused by reduced crops and poor yields in Eastern Europe, this may change if the Chinese apple crop is favourable.
Vine Fruits – Prices of Sultanas and Raisins in Turkey are higher than at the same time last year, in addition as with most vine fruits, the currency changes has led to further increases recently on these lines. The major reductions in price going into 2016 have been prunes and apricots.
Nuts – Walnut prices have come down for 2016 and California is now seeing some rainfall which is having a positive effect on almond prices, which have started to fall. The concern remains however that if the rain becomes excessive it may damage 2016 production of almonds. Hazelnuts have also fallen in price from record levels.

11. Ingredients
Sugar – Sugar prices look to have reached the bottom with the expectation that 2016 will see world demand outstrip that of supply. The futures market has already increased and some companies such as ABF have announced that they expect to see bigger returns from sugar this year.
Oils – Soyabean oil production in 2015/16 is forecast at a new record level of 51.5m tonnes, up 5% y-o-y. As the most produced oil, soyabean oil production is an important driver in the vegetable oil market, this may prevent rapeseed oil prices rising too much in the near future, but the currency markets will affect finished can prices.
Rice – Basmati prices remain pretty steady whilst long grain white rice from Thailand is at the lowest price in Dollars since This is the complete opposite of Arborio rice which continues to see rising demand and with a limited supply area the prices for Arborio only seem to be increasing with many buyers switching to an Arborio ‘style’ round grain rice, due to it’s reasonable cost savings of at least 10%.

12. Snacks and Beverages
Coffee – Brazil's coffee production is set to rebound to a new record high this year. Forecasts for this bumper crop have been helped by favourable weather in the nation’s leading Arabica growing regions. Arabica coffee output is set to soar by up to 58%. Brazilian output of Robusta coffee is similarly set to grow although at a lower rate of 1.8% to 8.0%, or 11.4 million to 12.1 million bags, limited by continued drought in Espirito Santo, the top state for growing the variety. The two varieties have been falling in price continuously since the start of Tea – The average auction price rose 34 percent to $2.73 a kilogram last year at the Mombasa auction. Whilst prices did rise throughout the year, they have started to fall albeit from a high level at the start of There are concerns that the growth rate in infrastructure of some key producing nations such as Kenya, will see farmers sell prime land for buildings and apartments as opposed to the relative low returns from tea production. Chocolate – Cocoa prices in November 2015 hit a 4-year high, at £3,422 a tonne, since then prices have dipped to £2,844 a tonne, however the relative view is that cocoa prices are still very high. Cocoa ‘grind’ refers to the amount of cocoa beans being ‘ground’ into butter and powder and this figure continues to rise, stressing that demand remains firm, particularly from non-Western economies. There is some expectation that the dry weather will at some point tail off and 2016 production is expected to outstrip supply by 93,000 tonnes, the largest surplus in the last 6 years.
Coffee Arabica and Robusta pricing
Cocoa Bean pricing

13. Fuel and Energy
Gas and Electricity - Wholesale gas and electricity prices in the UK hit a five-year low at the end of The big six energy firms remain under pressure to reduce prices. The main reason for lower prices is a general reduction is global commodity prices. Electricity prices have fallen at a lesser rate than gas, however the forecast for forward pricing of wholesale gas indicates that prices are expected to stay low, whether or not they are passed on to consumers remains to be seen.
Fuel/Oil - Oil collapsed from above $100 per barrel in June 2014 to a 12-year low of $27.10 per barrel last month (January), pressured by oversupply and a 2014 change of policy by OPEC to focus on market share rather than support prices. Other factors such as a slowing down of the Chinese economy and the lesser reliance on OPEC nations has meant that crude oil prices are extremely low.