A dramatic slump in wheat and corn prices over the past month has given hope of a respite to food suppliers weighed down by relentless commodity price increases.
All grain prices have taken a tumble. Bread milling prices in the UK have slipped from about £200 a tonne to £170 over the past month; and maize, which is largely imported, slipped from just over £200 a tonne to about £175.
A surprisingly high estimate for US corn stocks from the US Department of Agriculture was the latest trigger. The revelation that inventories were 20% higher than previously thought a likely result of buyers switching to alternative feed stocks due to high prices led Goldman Sachs to slash its 12-month forecasts for US corn and wheat prices by about 20% last Friday.
Another market fundamental influencing the downward trend has been the better than expected grain harvest in the northern hemisphere, after the dry spring weather, leading analysts to predict a respite to rising input prices.
Agrifood consultancy EFFP said last week it believed UK food price inflation would fall from a peak of 7% in the summer to below 2% by the end of 2012. The recent size of the price movements would have manufacturers looking closely at their buying options, said Jack Watts, a senior analyst at the Agriculture and Horticul-ture Development Board. “Some companies will see it as a buying opportunity but others may feel prices could fall further.”
One bakery executive said: “We’re sitting tight. It certainly changes things after such a long period of prices going up.”
But some suppliers will have had their hands tied as they have already negotiated contracts, said Alex Waugh, director general of milling association NABIM. A more sustained drop might be needed before manufacturers could take full advantage, he added.
However, the FDF was keen to downplay the significance of the recent price movements despite their size. “It isn’t advisable to read too much into short-term variations in commodity prices. They still remain significantly higher than the long-term average,” said Andrew Kuyk, FDF director of sustainability and competitiveness.
Watts predicted prices could rebound as global grain supplies remained tight in historical terms. “We are in unchartered waters for forecasting,” he said, adding that a lot depended on the global economic situation.
The battering to global share prices caused by the Eurozone debt crisis and fears of another recession had played a big role in the price reductions, Watts added. “Traders have been selling out of grains to subsidise the losses they’ve made on the equities in their portfolios.”