Brexit boost for UK farmers but global food prices set to remain low

British farmers have received a temporary export boost from a weak pound but are faced with low food prices during 2017, according to leading global food and agribusiness bank Rabobank.

Consumers will be buoyed by the prospect of generally low food prices globally – a result of record yields in the US and high global stock levels.

The depreciation of sterling since the Brexit vote in June has pushed up the price of food imports by as much as 16% but it has also helped exporters, with British grain sales abroad at their highest level for almost 20 years, which also benefits farmers.

However, UK farmers face uncertainty and potentially tariffs on their exports from 2018 if the government fails to negotiate new free trade deals.

This comes as Rabobank launches its Global Outlook 2017 report report which looks at the prospects for 13 crucial food and agricultural commodities.

The price of grains – including wheat and corn – are likely to remain under pressure due to large stocks worldwide, according to Rabobank. While this is good news for consumers generally, the UK continues to face higher import costs for other food products as a result of a weak pound, though there are signs sterling has begun to strengthen again.

Stefan Vogel, Rabobank’s head of agri commodity markets and an author of the Global Outlook 2017 report, said: “Some farmers in the UK have undoubtedly recieved a boost from the weaker pound, making their exports cheaper to international buyers. But for British consumers the picture is more mixed.

“While we expect global prices to remain low as a result of large food reserves, most notably in China, in the UK much depends on how sterling performs, with a weaker pound increasing the price of food for a net importer like Britain.”

Rabobank predicts that the UK’s dairy farmers are set to enjoy a strong 2017, with milk prices supported by both EU intervention in removing excess supplies and rising demand globally, particularly from developing nations.

The EU has boosted the milk market by removing 4m tonnes of liquid milk from the market, while prices are also impacted by strong global demand from developing countries increasingly consuming Western-style diets.

Globally Rabobank expects inflation to rise during 2017, meaning flatter food prices which offer a ‘hedge’ against increasing prices elsewhere. However, the bank warns that although food prices are likely to remain low, China’s huge reserves create uncertainty.

The world’s most populous country has large stocks of many key commodities, with estimates suggesting it holds 60% of global cotton supplies, over half of corn, 40% of wheat and 21% of soybeans. If China decides to begin exporting some of its reserves, this could depress the prices paid to farmers, according to Rabobank.

Stefan Vogel added: “Record global stock levels mean prices are likely to remain stubbornly low – good news for consumers but less so for the world’s farmers. Yet China remains a wildcard. It exerts a colossal influence on world food prices and with huge stocks of many of the most important commodities – including corn, wheat and soybeans – any decision by China’s policymakers to begin selling down these reserves would have a profound effect on world markets as Chinese imports would decline.”

Elsewhere, Rabobank predicts that coffee prices (currently 163.3 USc/lb) are expected to decline significantly, with an especially bearish outlook on arabica coffee, while robusta coffee prices are expected to be supported by a large production deficit. However, lower prices are unlikely to find their way through to consumers.

First published in 2010, Rabobank’s Global Outlook report looks closely at the prospects for the following year of 13 key food and agricultural commodities. Outlook sets out quarterly price forecasts with the ‘base case’ representing the most likely price trajectory in Rabobank’s view and ‘high’ and ‘low’ cases accounting for volatility in the market.

NB: All commodity prices correct at time of publication.

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