Commodity Report Autumn 2023

AUTUMN 2023

Commodity Report

All content correct at the time of publication, August 2023

Contents

2

Outlook

2

Inflation & Exchange Rates

3

Energy

4

Shipping

4

Fuel

5

Dairy

7

Meat & Poultry

9

Fish

10

Fruit & Vegetables

12

Grocery

14

Drinks

19

Non Food

20

All content correct at the time of publication, August 2023

Food price inflation in UK falls for fifth month in a row

Food price inflation slows to lowest level this year - BRC

Outlook Food price stability on the horizon?

After two years of significant

The Bank of England are continuing

inflation, it looks like things

with their policy to try and pull down

have started to slow down in

the rate of inflation through the use

some

predominantly

of monetary policy and interest rates

due to more stable (yet still

areas,

are expected to rise further to 5.5%

historically high) energy prices

in September before potentially 6%+

and falling freight costs which

by late 2023/early 2024. However,

have

of

at present, the data shows that core

finished products. The reliance on

impacted

the

cost

inflation on commodities such as food

imports and red tape around Brexit

remains high. Some experts predict

has arguably meant the UK has fallen

that this policy, prioritising inflation

slower than the rest of Europe. There

levels over that of economic growth,

are some factors which remain on a

could lead to a recession in 2024, but

knife-edge, geo-political issues such

this remains to be seen.

as the Russian war in Ukraine could

UK shop price inflation falls to lowest level in almost a year, data shows

All content correct at the time of publication, August 2023

tip the balance on grains and energy in either direction, so close attention is being paid to this. Switching off the ‘Crude Oil tap’ could lead to pressure in fuel costs which could weigh heavily towards the end of the year.

It is important to note that whilst some headlines are of food price inflation falling, it does also mean that the level at which prices are increasing is lower than previous levels, but overall, they are still increasing rather than decreasing.

3

Inflation & Exchange Rates

Falling gas and electricity prices provided

Food and non-alcoholic beverage prices

the biggest movement to the overall

rose by 0.1% between June and July 2023,

figure, the Consumer Prices Index (CPI)

compared with a rise of 2.3% between

annual inflation rate for housing, water,

the same two months a year ago. This

electricity, gas and other fuels was 6.8%

resulted in an easing in the annual rate

in July 2023, down from a peak of 26.7%

to 14.9% in July 2023, the slowest annual

in January 2023 and 12.0% in June 2023.

rate of growth since September 2022.

This fall is largely because of the lowering

This is down from 17.4% in June 2023

of the Office of Gas and Electricity Markets

and from a recent high of 19.2% in March

(Ofgem) price cap in July 2023.

2023, which was the highest annual

Food Inflation: why is it falling slower than other nations?

There has been a slight resurgence in the Pound since the turn of the year where it sat at around the $1.20 level. It remains to be seen what impact the expected further interest rate increases may have on currency markets.

rate seen for over 45 years. Alcohol and tobacco continued to increase from 9.2% to 9.3%.

The Pound Sterling looks quite favourable when compared to the last 12 months.

4

All content correct at the time of publication, August 2023

Energy

Shipping

Gas prices fall at record rate after lowering of energy price cap

World Container Index

In the month to July 2023, gas prices fell by 25.2%, largely because of the lowering of the Office of Gas and Electricity Markets (OFGEM) price cap in that month. This was the largest monthly fall in gas prices since at least 1988, when data was first collected. In the same period electricity prices fell by 8.6%.

The latest Drewry WCI composite index of $1,832.48 per 40-foot container is now 82% below the peak of $10,377 reached in September 2021. It is 32% lower than the 10-year average of $2,683, indicating a return to more normal prices, but remains 29% higher than average 2019 (pre-pandemic) rates of $1,420.

The latest monthly falls, meant the annual inflation rates for gas and electricity fell.

From 1 July 2023 the energy price cap is set at £2,074 a year and OFGEM have announced a further fall to £1,923 from October.

All content correct at the time of publication, August 2023

5

Fuel

Latest unleaded petrol prices UK average

149.06p

no change forecast 14/08/2023

Supermarket average

145.29p

Motorway average

172.61p

As the oil price has jumped for the second

OPEC+ Countries. The total shortage is

consecutive month, to $85 per barrel, a

around 3.66 million barrels per day, which

high not seen since April 2023, Motorists

experts believe will push the price of a

can expect to see an increase at the

barrel of oil above $90. in 2024, there is

pumps moving forward, undoing the

already a proposal for deeper cuts by an

decreases seen in Q2.

additional 1.4 million barrels per day.

The average price of a litre of Unleaded

Motor fuel prices fell 24.9% in the year to

in the UK is 149.06p, with no change

July 2023, compared with a fall of 22.7%

forecasted. However, the average price

in June. Average petrol and diesel prices

of a litre of Diesel in the UK currently

stood at 143.2 and 145.2 pence per litre,

sits at 150.50p, with an increase forecast

respectively, in July 2023, down from 189.5

imminently.

and 197.9 pence per litre, respectively, in

Russia and Saudi Arabia stuck to their word and reduced production between 300,000 – 1,000,000 barrels a day, that added to the reduced outputs from other

July 2022. It is important to note that since July, fuel prices have risen by 7p in the average cost in August, the largest price hike in 23 years.

Latest diesel prices UK average

150.50p

likely to rise 14/08/2023

Supermarket average

147.15p

Motorway average

172.93p

Petrol prices expected to rise as oil cost climbs above $90 a barrel

Source: RAC Fuel Watch

6

All content correct at the time of publication, August 2023

Key Commodity Pricing

prices down

All content correct at the time of publication, August 2023

stable

prices up

mixed dependent on product area

7

Dairy MILK Prices are quite stable, following a period of deflation. Major processors are holding their prices paid to farmers which should hopefully bring a bit of normality to market conditions. The price now being paid for dairy cows has also started to ease, which perhaps discourages some farmers who were thinking of selling up and cashing in. However, Q4 could be unpredictable, and it remains to be seen what direction pricing will travel.

BUTTER Prices continue to be stable, around the £3,700 per tonne mark for bulk raw material (prior to packing, shipping and margin). Some retailers have passed on very slight reductions in recent months although, they are still making fantastic margins in this area (average retail price around £1.89 per 250g block for salted).

BULK CREAM Pricing has not changed much in recent weeks. It remains to be seen whether butter and cream are set for a re-bound or whether they will continue to stay at current levels.

8

All content correct at the time of publication, August 2023

CHEDDAR

HALLOUMI

Prices remain subdued. Mild is currently around the £3,500 per tonne level with mature at £4,000. There is not a lot to suggest that prices are set to increase however the milk price is slowing and certainly at some point processors and producers would like to see some value back into the market. If this is to happen, it is likely we won’t see this until Q4.

Halloumi prices spiked 30% on the back of the PDO announcement (Protected Designation of Origin).

This means that for a cheese to use the name Halloumi, it is now mandatory that it is made in Cyprus from a specific blend of Cypriot Cow, Sheep, and Goat’s milk and contains mint. Any product not compliant cannot use the name Halloumi. Historically in the UK retail Halloumi has had the mint included, but Foodservice large format products haven’t, this changed from the 1st September 2023.

MOZZARELLA Prices are following a similar trend to Cheddar. Bulk mozzarella sits at £2,850 per tonne as other young European cheeses have dropped slightly in recent weeks. Interestingly, weekly traded European mozzarella prices did show a slight uplift in the last two weeks, but at this stage isn’t strong enough to suggest that the price is ready to start on a long-term upward trajectory.

The summer period can see a lull in trading activity (holiday season, etc) and some believe in September, when buyers re-enter the market, there may be activity which ignites a strengthening in the market.

All content correct at the time of publication, August 2023

EGGS

FETA Feta prices spiked on the back of the Halloumi PDO. Increasing with highs of 33% and currently sitting around 21% higher versus last year.

Feta is prepared and matured for a minimum of two months, it must contain a minimum of 43% fat, using a mixture of 70% minimum sheep milk whilst the rest can only be goat’s milk, up to 30%.

The milk can only be sourced locally from a specific region of Greece, not from imported milk.

9

Meat & Poultry PORK Spanish pork prices remain at all-time high levels (Mintec Data). Prices have been reported stable on the current price since 5th April, up 22% YoY. German pork production continues to decline as sentiment towards profitability and risk from African Swine Fever (ASF) remain.

The May 2023 census preliminary figures report a continued decline in all metrics, with herd figures reaching lows not seen since 1990 and a significant drop in the number of pig farms.

The decrease in new pigs indicates that the declining trend in the pig population will continue, and the pork production capacity will be hit further and more significantly in the coming months.

Following a massive decrease in pork meat imports during H1 2022, China’s pork imports increased in H1 2023 compared to the same period of the previous year. According to preliminary data from the customs administration, the volume of imports, including by-products, increased by around 180,000 tonnes, or 13%, to 1.54 million tonnes.

Import expenditure indicated an even stronger increase of 31% to €3.46 billion; this can be attributed to elevated global pork prices.

10

A devastating outbreak of avian flu is wreaking havoc in South America, resulting in the deaths of millions of wild birds worldwide. The highly infectious H5N1 variant, has spread to every continent except Oceania and Antarctica. South America, in particular, has been hit hard, with Peru reporting a staggering 200,000 wild bird deaths from the disease.

CHICKEN Brazil’s poultry exports have experienced a remarkable growth of 8.5% in the first half of 2023, reaching a total of 2.629 million tonnes of chicken meat. This impressive surge in exports occurred despite the persistent threat of avian flu, with 63 confirmed outbreaks in the country.

FRESH CHICKEN Defra has reported figures on fresh chicken in July 2023 as their biggest fall this year, down by 4.1 million compared with July 2022. This is a YoY drop of 3.7%

KEEPING THE PRICE HIGH WITH VOLUME LOW

FROZEN CHICKEN Pricing on frozen cooked product has held versus Q2 2023. Product coming from Thailand still commands the premium with Avian Flu issues on chicken coming out of Brazil.

Fresh chicken numbers in 2023, compared with 2022.

All content correct at the time of publication, August 2023

Fish COD Russian caught Cod processed in China is seeing a slow decline in pricing but is still around 30% higher than the unsustainable low pricing seen in 2021. Pricing is down around 30% YoY, however, that is unsurprising as this time last year showed record high pricing as we were still in the heights of the Ukraine war.

Russian exports to China are flat, however, whilst they look to recover markets that were lost to them in wake of the Ukraine war, this is pushing the decline in price (IntraFish)

HADDOCK

Cod is seeing a price decline due to demand of other seafood exports because of the lower demand in Salmon

Russian caught Haddock processed in China is on a steady decline, around 16% lower in Q3 vs Q2 2023. This should not be confused with Russian caught Haddock, which is imported directly into the UK as frozen at sea fillets, which is subject to the 35% tariff imposed by the UK government and mainly supplied to fish & chip shops.

All content correct at the time of publication, August 2023

SALMON

TUNA

Norwegian Salmon pricing remains erratic. Whilst there have been small moments of lower pricing, it has increased dramatically, though not quite to the peak prices seen in August 2022. Exports of salmon are significantly down versus 2022, which is driving the higher cost price.

Skipjack tuna increased in price, reflective of the seasonal three-month ban on fishing devices in the Western Central Pacific Ocean between June – September.

Salmon is seen as a luxury protein source, so whilst it is currently more expensive than the alternatives such as beef, poultry and tuna, many consumers are reaching to the lower priced options, meaning a downturn in demand.

In May 2023, the Norwegian Government confirmed the tax rate of 25% on salmon farms, which is backdated to January 2023, however the industry will not start to pay this until 2024.

That said, the Norwegian Government are still unclear on how the tax will be implemented and are convening an independent Price Council to determine the market value of the traded fish.

This has caused a stir in the market, with many organisation’s insisting that the tax should be based on the price the product actually brings, rather than an average. This is causing a lot of unrest in the market and will likely push some of the current producers out of the market and lower the domestic capacity.

PRAWNS Pricing of Cold Water Prawns are seeing a slow decline in Q3, but prices are set to rise again in Q4 - a result of the incomplete Free Trade Agreement between Greenland and the UK, Brexit and reduced 2022 quota levels.

These have also contributed to a UK decline in demand for cold water prawns with exports to European Countries on the rise.

11

Fruit & Vegetables

Minimum of 15% shortage vs demand with no fall back. Demand on peas has been growing as seen as a cheaper alternative vegetable during inflation pressures.

Autumn and Winter crops remain challenging. The frailty in the UK’s food system is increasingly apparent, with agri-food inflation at 19.2% (UK inflation being 6.8%). This is being caused by a drop-in farming support by the government and a big switch into other easier grown cereal crops.

Hot & dry summer in North of Europe has delayed root crops of

Extreme floods in EmiliaRomagna region, Italy has caused 100% crop damage on

Consecutive poor harvests cause stock shortages on

Unusual weather in Northern France, Netherlands, Belgium & UK affects

Cauliflower, Brussel Sprouts, Leeks

Spinach, Cauliflower, Beans, Onions, Broccoli, Peas

12

Pears, Apples, Apricots, Peaches, Cherries

Pea crops

All content correct at the time of publication, August 2023

CANNED TOMATOES

POTATOES

Following record high prices last year, prices remain similar YoY. Whilst the huge increases in energy costs last year have calmed down, it has been offset somewhat in higher prices for the raw material being paid to the farmers.

Potato prices are relatively high, double the price of last years early crop. Potato yields are down by 3% since June 2023, with projected yields at 34.4 tonnes per hectare, 1% higher than the five-year average (Mintec)

TOMATO PASTE Slight ease in tomato paste prices due to increased availability vs 2022. Despite this, there is no doubt that prices for chopped, plum and paste will remain relatively high versus previous years and versus a five-year average. It seems we may be in a new price bracket for these types of canned goods for the foreseeable future.

Mintec

FROZEN CHIPS Prices are much higher year on year. To give some comparative levels, most chip manufacturers in recent years will have paid anything from €140-€250 per tonne to their farmers for potatoes. The current market prices are around €500 per tonne. What this means is that when a chip producer negotiates a price with their farmers, the farmers are seeing the prices available of €500 per tonne on the open market but being offered much less than this on contract.

There are benefits to farmers contracting of course, i.e. a guaranteed sale for their product, but it means chip producers are paying a much higher price for potatoes otherwise they simply will not get what they need. This is being passed on to the end user with frozen chips at record price levels.

All content correct at the time of publication, August 2023

13

Grocery DRIED FRUIT & NUTS Raisins & Sultanas Processors are currently holding off on all offers for new crop until the extent of severe weather damage (causing mildew issues on the vines) has been calculated, but initial assessment is anything from a 20-30% yield loss versus 2022 which means price increases will come. Turkey is also increasing minimum wages by 34% which will add to the pricing

Apricots Estimates for the Turkish 2023 Apricot harvest are now only 62,000 Metric tonnes, down from 95,000 last year, this is mainly due to the Earthquake in the main growing region followed by frost and hail damage, the total expected world crop has dropped from 170,000 to 133,000 tonnes, a 22% decrease. Producers are holding off giving prices for the next crop until the harvest is complete so, we expect some large increases to come through as reserve stocks in Turkey were damaged when buildings collapsed during the earthquakes.

Coconut Pricing has been relatively positive over the last few months on the back of the slow edible oil markets. This is creating high stocks at the processors, however, high temperatures and low rainfall are causing a lower yield for the next crop, which will lead to higher prices for 2024.

14

ORANGE JUICE The Global Orange Juice concentrate market is in turmoil. The US crop was hit by hurricane Ian in September 2022, followed by citrus greening of the Florida crop. As a result, the US have been buying Brazilian crops at high prices, but subsequently Brazilian crops are now being affected by citrus greening. As such, they are calling Force Majeure on contracts with European buyers of their products.

Orange Juice packers are now paying raw material prices of around $4,500 per tonne versus $2,600 at the start of the year.

Demand is strong and producers can sell everything that they have – it is a situation of supply greater than price.

All content correct at the time of publication, August 2023

WHEAT

DURUM WHEAT

Wheat markets have moved off a perceived bottom and we may be in for a period of increased pressure on pricing. The market has become more volatile since mid-July with the Grain Corridor collapsing and Russian attacks on Ukrainian wheat infrastructure.

How are the harvests?

Ukraine producing impressive yields (the highest they have ever grown), but fewer hectares have been planted (30-40% less) as a result of the Russian invasion.

Durum wheat market has made a sudden turn due to weather conditions affecting crop in June and Canada.

Scotland harvest is underway in mid September. Weather will be key in the coming months as quality is beginning to be impacted and increased premiums are coming through.

Durum wheat prices had been looking positive, falling from the record highs during the end of 2021 and 2022. However, the latest weather conditions has meant the market has turned and pasta producers are very nervous - a stark contrast to 2-3 months ago.

Southern England limited wheat has been cut and samples are being reviewed.

UK has not reached the required pricing levels to encourage export.

In addition, reports in North America suggest that the crop may not be enough to meet export demands and there are concerns with the quality, heavily impacting pasta production.

England there has been a dry winter, wet spring, sunny start to summer, but the mid summer weather and winds has meant some wheat is being affected in the field. Hopefully this is only limited, as key harvest is approaching.

All content correct at the time of publication, August 2023

CORNFLOUR Cornflour pricing is stabilizing as corn prices have dropped by 27%, to lowest since August 2021. Year on year prices have decreased 33%.

Decreases are predominantly as a result of lower energy costs and raw material availability as more farmers are growing corn whilst profit opportunities are high.

The market is still waiting for official statistics from Canada, which will clarify the overall market issue. Until that time, prices have started to increase on the back of this news.

15

RICE The world is facing largest rice shortage in 20 years and as such is having a hard-hitting effect on pricing.

20% of worlds rice is grown in India

Shrinking supply of rice due to severe flooding and extreme heatwaves have meant poor crops in China, Pakistan, US, Europe

Increase demand for rice due to wheat prices increasing

The Indian Government has banned exports of rice (expect Basmati) to ensure supply for their own citizens.

16

All content correct at the time of publication, August 2023

SUGAR

COCOA Demand and availability has pushed the price of Cocoa to highs not seen since 2016 El Niño weather event.

Cocoa prices have risen heavily over the past two months due to the recent heavy rain in West Africa that has accelerated the spread of black pod disease. This has led to the Ivory Coast (the world largest Cocoa grower) announcing no further forward sales of cocoa will be allowed until they have the final harvest volumes.

All content correct at the time of publication, August 2023

17

Edible Oils

OLIVE OIL

Rapeseed, Sunflower, Soya & Palm Oil Most edible oil prices have fallen since the end of Q1 2023, except olive oil. However, there has been a slight rebound in the last 2 months, as tensions escalate in the Black Sea region. There have been some concerns on Rapeseed as there were dry weather conditions in the Canadian Prairies, which could push prices up. European rapeseed supply has been downgraded from 21-21.5 million metric tonnes to 20.45 million metric tonnes. This is as a result of crops concerns in France and Germany.

Keep on eye on crude prices as this could impact edible oil prices

18

The Malaysian Palm Oil stocks are at a 5-month high, albeit unexpectedly, however the El Niño weather phenomenon is likely to impact conditions moving forward.

All content correct at the time of publication, August 2023

Drinks TEA In March 2023 Typhoo UK announced they were to close the Moreton site, as has been lossmaking for four years in a row. This created a deficit in the market for production for some of the UK’s biggest retailers both in foodservice and retail.

The Typhoo site closure has put pressure on remaining suppliers in the UK market, with lots of rationalisation and arguably too few quality producers to satisfy demand. The phrase ‘too cheap for too long’ seems to be commonplace now as the real price of tea is commanded and a rebase of costing models across the industry has taken place.

All content correct at the time of publication, August 2023

COFFEE Multiple factors drive the coffee market, a few being the increasing demand for certified coffee products, the acceptance of singleserve coffee brew systems by consumers, and the constant innovation led by the top players in the coffee market.

Over the last few years, consumers have become more aware of the manufacturing of the products they buy and where their purchases are coming from. Consumers are looking for certified coffee products to ensure the credibility of their coffee purchases.

Moreover, advancements in technology (like tabletop machines and traceability tools) are creating bean-to-cup solutions.

19

Non Food PAPER The price of pulp has dropped 15-25% dependent on type.

Despite the fall in raw material prices, producers cannot allow paper prices to fall as they are not prepared to operate at a loss, this is due to lower demand which puts a bigger burden on the share of fixed costs in production. The manufacture of paper and paper products index in the EU fell by 13% YoY in May 2023. The market is hoping the lack of movement will force producers to cut prices as we enter Q4 2023.

NITRILE BUTADIENE (RUBBER) Prices have dropped by 27% this year, which will start to filter through to the cost of Nitrile Gloves.

PET Polyethylene pricing has been dropping this year, down 36% so far. The drop in demand and energy costs lowering should lead to lower cost of packaging for the food industry as the new batches of products feed through into the market at lower prices.

LME ALUMINIUM Demand for aluminum has dropped, which is good for catering foil, giving it a small decrease year-on-year of around 5%.

This should feed through to the market over coming months.

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All content correct at the time of publication, August 2023