Introduction
The last quarter has been a turbulent one in most markets due to adverse weather conditions, particularly in the US. Pork prices hit a high in December of 13.4% after a period of relative lows from July to October. Beef has seen a steady decline since a peak in May finishing at a low of 6.8% representing an overall drop of 3.8% from December 2011. Dairy prices have moved back up after plummeting in August and finish the year at 0.9% whilst Fish and Cereal prices have fluctuated significantly, finishing on 4.5% and 2.9% respectively. Overall, however, the total RPI has remained fairly constant ending the year on 3.1% and maintaining a year average of 3.6%.
Beef
There have been signs of strength in the December market with beef, in particular, proving to be markedly resilient to the economic climate with prices having risen to 10 p/kg dwt (2.7%) since the beginning of November.
Total expenditure on beef and beef products in GB showed a 4% increase between these periods to £1,994 million for the year ending 28 October 2012. This increase in the value of sales has come about despite a decline in the volume of beef sold on the domestic market and can therefore be seen a result of an increase in the cost per kg of beef as opposed to an increase in sales.
While all major beef cuts have shown a decline in volume sales between the two periods there has been a variation in the performance of particular cuts of beef. For example sales of beef roasting joints experienced a 13% decline in sales year on year whilst sales of beef mince showed the lowest level of decline with a 3.2% drop in sales
Pork
After a turbulent year pig prices closed at the end of December on a relatively quiet note. The Deadweight Average Pig Price (DAPP) nudged up a shade and now stands at a record high, closing the year at 161.09p compared with 147.63p a year ago.
This compares with a spot price of 163p/kg at the start of January representing a value reduction of almost £8 per pig. Similarly, piglet prices are continuing to reflect hopes of better finished pig prices in the months ahead and the latest Agriculture and Horticulture Development Board (AHDB) 30kg ex-farm piglet average stood at £46.19/head at the end of the year compared with £39 in mid September.
Fish
The UK Government has secured a deal that is good for both the health of our seas and the UK fishing industry at last year’s annual round of fisheries talks. In negotiations that went through the night and into the morning, the UK managed to fight huge cuts to quotas across a number of different fish stocks. These proposed cuts, which the UK successfully pushed back against, were not backed up by scientific evidence, and could have contributed to an increase in the discarding of perfectly edible fish.
This positive news follows another major success, achieved during the first day of negotiations, when the UK successfully stopped a cut in the number of days that fishermen are allowed to spend fishing at sea.
Elsewhere, Anglesey Aquaculture Ltd, the only producer of sea bass in the United Kingdom, has hailed its first year of business as an overwhelming success. Produced exclusively at Anglesey Aquaculture’s state-of-the-art recirculation fish farm in Anglesey, North Wales, the branded “Anglesey Sea Bass” has this year become a highly sought after product in the restaurant, catering and retail trades.
Dairy
Dairy prices rebounded last quarter and have made up much of the price lost this time last year, especially within the diary powder market with skimmed milk powder now up on the year. Milk supply in the northern hemisphere reached its seasonal minimum, and diary product availability has tightened as a result.
According to latest industry estimates, a break-even cost to produce milk is 32 pence per litre (ppl), yet milk prices achieved on farm are as low as 25ppl, and typical liquid prices are between 29ppl and 31ppl. DairyCo estimates suggest milk production will be down by 7.3% this year as a result of the various pressures on-farm including the difficult weather conditions.
Cereals
Global maize and wheat prices are up significantly over the past 12 months as crops were damaged last year by drought in both the US and Russia. World production has dropped by more than 5% from last season for both crops, and this drop will reduce the level of stocks available as consumption has remained strong.
Elsewhere
Sugar and coffee prices are both down, whilst tea prices rose sharply and the cocoa market has become more normal, with butter now trading at a premium over powder. The sugar market has seen two consecutive seasons of record global production and coffee production this season has been very good for an ‘off’ year in its biennial cycle.
Meanwhile, the latest figures from the Potato Council show that in the week to 14 December, the wholesale price of UK grown potatoes was £245.63 per tonne, more than double the £114.17 price a year ago. Growers in the UK have been forced to deal with prolonged rain and waterlogged grounds which negatively affect the quality, quantity and price of potatoes.
In the fruit market, banana prices remain steady, however with unexpected weather conditions affecting yields – particularly Hurricane Sandy in the US – the future is a little uncertain. Similarly, the pear market has also experienced adverse effects due to US weather conditions and the actions of growers themselves and prices have increased.
Finally, Clementine market prices have been impacted by good supply and prices have been lowered from their peak in October. Supply levels dropped slightly last month, however are expected to increase and meet demand once again in the near future.
In other news…
A huge chocolate train steams into records books
Belgian chocolatiers have created the world’s largest vintage steam train made out of chocolate, in an attempt to boost the country’s internationally renowned chocolate industry.
The 110-foot detailed sculpture of steam-powered locomotive created by chocolatier Andrew Farrugia is made up of 2,755 pounds of chocolate and took 784 hours to complete.
The train, which is displayed near the Eurostar train platform atBrussels’ Gare du Midi, was created to promote the country’s chocolate industry in the face of shrinking European market.
Conclusion
The forecast for 2013 food price inflation continues to indicate a steady rise in prices across most commodity groups. Poor local weather conditions for farmers, higher input costs, sluggish sales forecasts in combination with weak economic outlook across Europe is squeezing margins for all participants. Much of that wet weather has caused the flooding of the fields so a good deal of re-drilling will be required when the soil is dry enough to support the tractors and drilling equipment.
Where a few commodity groups appear to have weakened in their rate of inflation, such as lamb, chicken and edible oils, these may well adjust as producers compensate their supply to manipulate the price. Subsequently, this can lead to vulnerability in the market place due to speculative trading and restrictive practices from the supply chain.
We, here, at Partners In Purchasing will continue to keep a close eye on all pricing changes, negotiate to mitigate inflation, defend supplier contracts and ensure our clients are well prepared to protect margins wherever possible.
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