What effect is Covid-19 having on commodity markets?
The big driver is currency. Any country’s exchange rate represents the confidence placed in that country to perform economically, relative to other countries. Unfortunately, our currency has fallen (in common parlance, it really has `tanked’) losing over 10% of value in less than a week – and that is despite all the positive financial measures recently put in place by the Chancellor. Whilst they may appear supportive to us, sadly they are not convincing international currency traders – so our exchange rate has fallen.
Our weakening currency is shown by the graph above, the axes of which have been very seriously extended and modified over the last two weeks (such has been the quantum of movement), as they have for other two graphs. Wheat was coming down until 10 days ago, both for old and new crop. And then the currency fell off the cliff.
There is no immediate shortage of wheat, but consumer panic buying in several European countries, has meant that more bread needs to be baked, and more wheat is needed, and the price has gone up, rocketed up – by £20 in two weeks.
Soya has had a few more issues to contend with, so currency is not the only issue. Dock workers in Brazil have held the country, and the soyabean exports, to ransom, demanding a higher wage, and slowing loading. In Argentina, some have had concerns about going onto foreign ships for fear of picking up COVID19- money has sorted that out. Soya is up £85 in two weeks!
Sunflower is up, Wheatfeed prices are higher, but we do not know how much higher, as nobody will sell it! Vitamin prices have rocketed as supplies from China have dried up, and are currently limited from Europe.
All the factors above, that have affected conventional prices, have also affected organic prices, it is just that they do not graph so easily.
All this is going to mean higher feed prices in the coming months. Much, much higher!
At a time when the retailers are clamouring for every egg laid, and they are in tight supply, this is a time for firmer egg prices. That argument is even more valid when feed prices are going to be 15% higher! There may be a reluctance from retailers for higher prices in these difficult times, but there will be no egg sector without a responsible and accepting approach from retailers.
Poultry meat producers have a 6 week cycle, 5 weeks growing their birds, and one week to clean down and turn around. They will not put birds down if there is not a positive margin to be made. The dynamic is so different in the egg sector; by the time the commitment is made for replacement pullets, the farmer is committed to those birds, until they leave their farm two years later. All farmers need to operate their enterprise for a reasonable profit, forcing a loss in the name of COVID19 is clearly unsustainable, instead we need to look beyond the implications of today’s crisis, and plan for a good and beneficial future for UK agriculture.
You can read more about what preparations and what effect Covid-19 has on Humphrey Feeds and Pullets here.
If you have any questions, please do not hesitate to contact me on 07785 222279 or martinh@hfandp.co.uk
Martin Humphrey
