RAW MATERIAL UPDATE JUNE 08

As can be seen from the table above raw material prices continue to be unstable, with cereals showing a marked decline – on the back of optimistic harvest predictions, and the fact that there is still a significant amount of old crop to be moved before this years harvest.
Global oil and energy prices along with high demand for food leading to the continued hardening of protein prices: However the view looking forward to autumn is somewhat easier with almost all materials with the exception of urea showing weakness. The coming northern hemisphere harvest is awaited with great interest.

The recent UN summit on the world food situation has done little to solve the current problems and shortages, but it has highlighted to governments worldwide the need to increase production, calling into question the ethics and efficiency of Bio fuel production, along with a changing view (not globally accepted yet) that GM crops must play a part in helping to avoid what could become a massive humanitarian disaster.
This must be good news for farmers, especially those in temperate areas with relatively stable climates.

RAW MATERIAL PRICES AND IMPLICATIONS

Since the last comprehensive report posted on this site in August 07 the raw material market has continued to rise, almost exponentially. The reasons for this are many, but all are here for some time to come.

The continued growth in the economies of countries such as China and India with massive populations to feed, with people themselves wanting more food, better food, and more food choices. When these extra demands globally are put in the context of little or no food stocks held anywhere in the world means that the sellers hold sway. It is also quite amazing that given these two facts most of the developed world’s governments are rushing headlong into producing food crops to process into Bio Fuels. It is now widely accepted that one major weather event, would rapidly lead to major food shortages throughout the world.
So whilst we will have fuel for our vehicles we will either be short of food, or must be prepared to pay much more for that food. Although a recent report from an all party committee of MPs points to the folly of this strategy, however this needs balancing by the current governments concern (or lack of it) for food security, being as it seems quite happy to see more and more food and food products imported into this country.

So as we can see some of the reasons for these massive rises are indeed global, however one other issue is causing great pressure and difficulty, and that is the EU and its stance on GM crops. This has meant the virtual disappearance of North American Maize Distillers and Maize Gluten from the market. Also has been the activities of city speculators who have latched on to rising prices and money making opportunities through the futures markets.

The raw material implications for compound feed therefore remain bleak and the following market price table gives a clear indication of that:-

In the space of two years there has been a 97% increase in prices, and in the last twelve months a 38% increase. This will inevitably lead to a feed price rise this spring in the order £35-£40pt.

Not good news and not what farmers want to hear, however as food prices to the consumer do increase this must eventually benefit the primary producer, as has been seen recently in the dairy sector.

Howard Blackburn
Managing Director       
22/01/08

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