Food commodities update

Food Commodities

Commodity Heatmap

The next heatmap, showing Q4 movements, will be published mid-late January

Commodities heatmap January 2024

Key commodity update: Dairy

In May 2023, the average milk price was down 4.8% from the previous month; around 30% higher than five years before. Whilst some dairies maintained prices, others announced drops for July, reflecting varying responses to the market.

Milk production trends are also evolving. The AHDB forecasts milk production to reach 12.46 billion litres in the 2023/24 season. A 0.5% increase over the previous year. The rate of decline in the milking herd is slowing, with the smallest annual drop of 0.5% since 2018.

There has been a rise in production thanks to the Spring flush. July 2023 witnessed a  1.9p decrease in the market value of milk, primarily due to declines in wholesale prices for products such as butter. Demand has been lower, partly stemming from reduced consumer spending from the ongoing cost of living crisis and consumers migrating to more plant-based products.

Key commodity update: Eggs

Free range eggs were once again allowed to be labelled as ‘Free Range’ after hens were allowed back outside on 18 April in the UK, after being kept indoors due to avian flu. However, avian flu and rising production costs are still impacting farmers.

food commodities egg shortage

In the UK, at the end of June, 204 million dozen eggs were packed. A reduction of 8.2% compared to the same time in 2022. Whilst supply has decreased, demand has increased. Thanks to the ongoing cost of living crisis, eggs have become a quick, easy and relatively inexpensive choice. Egg consumption is growing in the UK by about 3% a year. Due to multiple factors, eggs have become 43% more expensive than a year ago and nearly 80% more expensive than five years ago. 

With fewer UK eggs available, some suppliers have moved to procure eggs from European countries. In the UK, the imports of eggs nearly doubled from January to May. In May this year, the UK imported 10% more eggs than in the same month last year.

The increase in imported eggs raises the question of quality. The British Lion Stamp is a mark of quality in the UK. Since its launch in 1998, it has drastically reduced the presence of salmonella in UK eggs due to its stringent food safety controls across the production chain. All hens are vaccinated, and a ‘passport’ system ensures that all hens, eggs and feed are fully traceable.

Key commodity update: Pork

In the first quarter of 2023, EU pig meat production was reduced by 7.7%, which caused prices to rise, reaching a historic high of +30% compared to June 2022 and +21% since January 2023. The price increase was due to increased input production costs such as energy and feed. These increased costs caused some farmers to reduce their number of sows, reducing availability further. Due to these factors, there is likely to be a 5.5% drop in pigmeat production in 2023 compared to 2022.

A shift towards cost-effective options like poultry is evident as high prices influence consumer preferences. Analysts forecast a 4.5% drop in EU consumption per capita in 2023 due to reduced availability and high prices.

Key commodity update: Beef

UK farmgate beef prices exceeded £5 kg for the first time in history and peaked in May 2023. High prices were due to tight supplies, high production costs and strong demand. Prices have begun to ease but are still 15% higher than the five-year average. The decrease in prices is due to lower consumer demand due to the cost-of-living prices and consumers looking for more cost-effective proteins.

Beef shortage

Uncertainty remains in the market as it is not clear if the ending of the Black Sea Initiative will affect the global supply of grains coming out of Ukraine. If supply becomes restricted, prices of beef will likely be affected negatively and again rise.

Key commodity update: Lamb

Following record highs in prices this May, lamb prices are now on a seasonal descent; 17% since last quarter, although they remain a noteworthy 12% above the five-year average. One reason for the high prices is the increased input costs, including feed and fuel. The UK flock size is still recovering from the effects of the “Beast from the East” storm. Flock levels are still below pre-2018 levels.

Lamb shortage

The Department for Environment, Food & Rural Affairs (DEFRA) indicated a 1% growth in 2022 in flock levels and 2023 lamb stocks look likely to remain stable due to the wet and cold spring. Due to these sustained higher costs, demand from the UK has reduced as consumers face the current cost-of-living crisis. However, due to cultural and religious significance, there is still high demand from Europe. Potentially, this could cause an increase in the percentage of lamb in the UK exports, which might lead to future spikes as seasonal British demand increases in spring 2024.

Key commodity update: Chicken

As consumers gravitate towards more affordable protein options, the demand remains robust for chicken. Even with other prices dropping, chicken remains one of the cheaper options. 

Prices rose earlier in the year, but the inflation rate has begun to ease due to decreases in fuel and other production costs. Yet we must note that prices are still 24% higher than the five-year average. Flock sizes are slowly beginning to increase following the effects of the avian flu outbreak. Despite passing the peak, according to the World Organisation for Animal Health, the threat is still present for farmers, so they remain cautious about growing flock sizes.

Another crucial development is the year-long extension of tariff-free poultry imports from Ukraine to the EU. This extension should further boost EU poultry imports to keep up with demand. Whilst this is positive news for the price of chicken, there are also uncertainties because of the conflict in Ukraine. The IMF’s Chief Economist has said that the collapse of the Black Sea Initiative could potentially trigger up to a 15% surge in global grain prices. Consequently, this could exert negative pressure on chicken prices in the future.

Key commodity update: Salmon

The farmed Norwegian salmon industry has faced significant challenges following the Covid-19 pandemic, resulting in extreme volatility and soaring prices. The pandemic’s impact on the industry led to reduced production owing to a decreased workforce, disrupting the 2-3 year life cycle. Norway produces over 36% of salmon consumed globally, so these challenges have impacted the global market. Consequently, prices reached all-time highs in March 2023, three years after the initial lockdowns in Europe. However, prices have eased since then. 

food commodities salmon shortage

One contributing factor to the price decline is the reduction in key cost components of salmon production. The expenses associated with fuel and feed, crucial for raising healthy salmon, have decreased, providing some much-needed respite to producers.

Despite the easing of prices, we must note that the current prices are still 8.4% higher than the five-year average, showing that the market has not fully stabilised because of the challenges. The high prices caused demand to reduce from Europe, as consumers turned to alternative species, allowing for inventories of salmon to replenish.

Usually, this would cause prices to stabilise, but now the Norwegian government has confirmed the 25% ground rent tax on aquaculture in addition to corporation tax, the stabilisation of prices is uncertain. As the second largest contributor to the Norwegian economy, their government has introduced the tax to improve social benefits to communities where aquaculture farms are based.

Key commodity update: White fish

The conflict in Ukraine has caused a reduction of Russian Alaskan pollock exports, decreasing by over 90% compared to last year, because of limited fleet activity.

Food commodities Cod shortage

China accounted for 64% of the pollock exported by Russia between 2019 and 2023. Attempting to capitalise on this demand, Russia responded by reducing catch quotas for Chinese trawlers in its waters, aiming to boost purchases from Russian suppliers. However, the alterations have led many Chinese buyers to seek alternative sources like the USA, causing these prices to increase because of the additional demand. 

Furthermore, whitefish prices, including cod and haddock, have surged due to import tariffs on Russian produce, which formerly constituted over 40% of the global whitefish catch. Consequently, buyers have turned to alternative sources such as Iceland and Norway. Although cod and haddock quotas in these waters expired in July, high European frozen fish inventories should mitigate potential price hikes. Lower Barents Sea catch quotas in 2023 will tighten the cod and haddock supply.

The stock of spawning cod is at its lowest since 2008. As a result, The Institute of Marine Research has proposed additional quota reductions in 2024, indicating the possibility of further market volatility. Current prices are 9% higher than the five-year average.

Key commodity update: Potatoes

UK Potato growers have faced numerous challenges leading up to the 2023 harvest. From high energy and fuel prices earlier in the year to the driest February since 1993, followed by the wettest March in 40 years. 

Potatoes shortage

The volatility of the weather delayed the planting of potato seeds leading to a delayed harvest. Market insights from World Potato Markets reveal a shrinking potato cultivation area, with the projected total GB potato acreage for 2023 expected to plummet to 101,723 hectares from 117,466 hectares in 2020. Due to the challenging weather conditions, this area is likely to yield less. 

Recent figures from the UK’s Department for Environment, Food & Rural Affairs (DEFRA) have revealed a disheartening 6.4% decline in potato production for 2022/23 compared to the previous year, amounting to a significant 4.8 million-tonne decrease. This concerning trend has prompted some farmers to consider less risky crop alternatives like wheat, sugar beet, or rapeseed, potentially leading to there being another drop in potato production figures in 2024.

While falling energy and fertiliser costs might offer some hope, the elevated input costs incurred earlier in the year are already embedded in the 2022/23 crop, contributing to the persistence of high potato prices.

Key commodity update: Wheat

Previously, we discussed the Black Sea Grain Corridor, formed in 2022. Its purpose was to allow the export of foodstuff, including grain, from Russia and Ukraine. The aim was to provide more stability for the international grain market. Russia exports the most wheat globally, accounting for more than 18% of international exports. Combined with Ukraine, in 2019, both countries accounted for 25.4% of global exports.

Wheat shortages

At the beginning of June, prices fell to £189 per metric tonne, its lowest since July 2021, thanks to the security provided by the Black Sea Grain Corridor. In June, the Kakhovka dam in Southern Ukraine burst.

The area near the dam is home to massive agricultural fields, causing concerns about the production of wheat and its effects on the global market. In the days following the dam breaking, prices rose 26% to £230 per metric tonne. This July, Russia pulled out of the Black Sea Grain Corridor agreement. 

After the announcement, global prices increased by 6%. By the beginning of August, prices had dropped back down to a similar price to where it was before the grain corridor announcement. However, this is still 29% higher than five years before. With all the contributing factors, the future of the grain market remains unclear.

Key commodity update: Rice

The Indian government’s recent decision to ban the export of non-basmati rice took effect on the 20th June 2023. The ban has been implemented to reduce escalating domestic prices due to concerns over crop damage and transportation disruption caused by monsoon rains. Non-basmati constituted roughly half of India’s rice exports for the 2022/2023 season. As India accounts for 41% of the world’s rice exports, this will affect the global market hugely. The impact of this decision is likely to be felt most acutely in Asia and Africa, regions heavily reliant on Indian non-basmati rice imports.

Rice Shortages Asia

El Niño is declared when sea temperatures rise 0.5°C above the long-term average in the tropical eastern Pacific. Current forecasts suggest temperatures could rise by 2.3°C in December 2023 above this long-term average.

Historically, El Niño occurrences have triggered below-average rainfall in regions including India, which would negatively affect rice yields and intensify the strain on growers to meet global demand. Rice growers in India heavily depend on the monsoon rains for agricultural success. With prices already sitting 5% higher than the five-year average, these forecasts ring alarm bells for further price hikes.

Key commodity update: Sugar

Brazil is the largest exporter, contributing 43% of worldwide exports. India and Thailand account for 26.5%, indicating a significant reliance on these nations for global supply.

Sugar Commodities

Favourable weather conditions have boosted Brazil’s production, enabling sugar mills to operate at maximum capacity from June through July. The crushing rate is at the highest it has been in the past decade. Due to the abundance of crops, crushing operations could continue into November or December, weather dependent. In stark contrast, India has encountered challenges, receiving only 71% of its usual monsoon rainfall, causing poor-quality sugar cane crops and reduced yields.

As a result, the Indian government placed a cap on exports reducing these by over 44% compared to last year. Forecasts suggest a further compromised  crop next year, hinting at a possible reduction in the export cap, thereby  tightening global availability. Similarly, Thailand predicts a significant 20% drop in sugarcane production. With global market dynamics remaining highly volatile, predicting price movements becomes complex. Increasing demands for alternative sweeteners will also affect future prices.

Key commodity update: Plant-based dairy

Buying habits are being affected by an increased demand for plant-based dairy products. The European region is the largest producer of vegan cheeses, making up more than 32% of the market. The largest consumers within this region are Germany, contributing 27%, and the UK, closely following with 18%. We’re seeing increased popularity of veganism and an ever-heightened awareness of sustainability, as well as rising cases of lactose intolerance and other food-related allergies.

Plant-based dairy commodities

In 2023, the size of the global vegan cheese market reached a valuation of US$ 3.2 billion and is forecasted to grow by a further 16% from 2022 to 2030. Despite consumers purchasing more plant-based dairy alternatives, plant milk costs about twice as much as traditional cow’s milk. Factors causing the price difference include prices of raw ingredients (oats, almonds and soy), factory operations, labour and transportation. While inflation has impacted prices, the profitability of plant milk remains higher. Plant milk holds around 12% market share, with some consumers switching back to dairy due to taste, cost, and nutrition concerns. The continued growth of the plant milk industry might eventually drive prices down, but affordability remains a key challenge. 

Key commodity update: Oil

The vegetable oil market has been volatile since last year, with the sunflower oil supply severely impacted by the war in Ukraine. Low availability and a stop on Ukrainian exports caused buyers to move to alternative oils, driving market prices higher as demand for these, such as rapeseed, increased. With diminished demand for sunflower oil, prices have fallen, and production levels are estimated to be high, including those from Ukraine. That said, there is still caution within the market as continued attacks by Russia on Ukrainian ports have raised concerns over exports, which could cause sunflower oil prices to rise.

Oil commodities

Taking advantage of the higher prices of the previous year, farmers have planted increased volumes of rapeseed which has led to high availability across Europe at the start of the year. Rapeseed oil prices fell 8% lower than the five-year average in April. Back in the spring, there were some concerns over the yield of rapeseed crops across areas of Europe, due to the dry weather. However, with the heavy rainfall experienced in the UK, Germany and France of late, there are now concerns that harvesting during the wet weather will detrimentally impact the quality and yield of the crop. It is too early to assess the full impact, although expectations are a diminished supply and price rises.

With a continuous rise over the last year, CPI olive oil prices are circa 122% higher than twelve months previous and 152% higher than the 5-year average. High 

demand for olive oil through 2022 due to the lack of sunflower oil led to sharp price increases. As the olives are harvested from October to March, recent droughts in olive oil-producing countries such as Greece and Italy could result in lower production volumes. With Spain being the largest producer and exporter of olive oil, reports suggested a decreased production in July and further shortages in the 2023 harvest. This could result in demand far outweighing the drastically low supply of olive oil.

As olive oil prices continue to rise, this could further increase the demand for sunflower oil as buyers choose this as an alternative.

Key commodity update: Coffee

As with all crops, the weather plays a predominant part in determining the quality and yield of the plants and ultimately the harvest. Currently, there is a focus on the El Niño Southern Oscillation and the impact this is having on crops and our food supply. The El Niño Southern Oscillation – known as ENSO – is the balance between the surface temperatures of the sea, specifically the Pacific Ocean, and the temperature in the atmosphere. The relationship between these two factors produces variations of above and below-normal temperatures.

El Niño manifests as above-average sea temperatures, leading to drier and warmer climates in Central America and Southeast Asia, the main growing regions of coffee. In contrast, La Niña shows sea temperatures below average; South America and Southeast Asia are typically wetter, and although cooler in South America, it is typically warmer in Southeast Asia. The United Nations officially declared El Niño with continuing warnings for extreme heat as July 2023 was recorded as the hottest month globally. 

For coffee, El Niño weather is having a mixed impact. The Brazilian ‘Arabica’ harvest increased by 12.3% from last year, the second-highest harvest for the past five years. A key producer of Arabica, Brazil accounts for 34% of global coffee crops and 27% of global coffee exports, making it the largest coffee producer worldwide.  Arabica trees in many growing regions continue to recover from severe frosts, high temperatures, and below-average rainfall in 2021/22 and 2022/23, coinciding with La Niña weather events.

The Brazilian market price has tumbled in 2023, now 37.3% lower than 12 months previous. However, this follows extreme increases of 185% over the past two years, leading to prices remaining substantially higher than in 2020/21 – the last harvest not impacted by La Niña.

Global ‘robusta’ crop production fell by 1.2%, with the Indonesian crop reducing by 20%. Southeast Asia accounts for 54% of global robusta production. Excessive rain during cherry development lowered yields and caused sub-optimal conditions for pollination, impacting the 2023/24 crop. Reflected in market prices, which are now 1.2% higher than last year and, like Arabica, follow two years of substantial inflation.

Coffee plants need even rainfall, no frost and fertile soil in which to grow. Drier and warmer climates expected from El Niño could be detrimental to the 2024 Arabica harvest, causing poor quality and yield conditions, leading to global price rises.

With Arabica production equating to 55% of the total market share, and being the highest consumed bean in the UK, the El Niño impact could significantly impact UK import prices.

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