Key trends across the main 2017 agricultural sectors

It’s been a relatively stable start to the year, despite a few fluctuations in currency – mainly caused by the inauguration of Donald Trump and his subsequent decision making. Even so, most commodities remain relatively firm. We take a look at some of the most significant developments below. 

Cereals

Spot feed wheat prices hit their highest level since June 2014 in February, supported by strong domestic demand, tight EU supplies and weak currency. However, the oversupply of milling wheat has eroded premiums to nil in some parts of the country.

Looking forward, record wheat and barley output in Australia is likely to weigh on global markets, while European crops have come through the winter in good condition. Brazilian maize production is forecast at a new record high, along with global grain stocks, all of which is likely to limit any further upside in value.

That said, international trade flows may be subject to change, according to developing US policies.

Oilseeds and pulses

Oilseed rape reached a three-and-a-half year high in January, following last year’s small UK and EU crop. However, imports of Australian canola started to arrive in February, subduing domestic demand.

Australia harvested a record canola crop, which will weigh on world markets. In general, tight global rapeseed supplies are being offset by bumper soya bean crops: That trend looks set to continue even though EU rapeseed production is forecast to recover slightly, from 20m tonnes to 21.56m tonnes this year. 

In the pulse sector, a large Australian crop and poor Egyptian demand have eroded human consumption values, although feed beans remain in demand. Spring planting decisions are so far uncertain.

Beef

Beef prices have drifted since the start of the year, with a fine balance between supply and demand in England offset by ample chill room stocks in Scotland. However, cull cow values have enjoyed their usual seasonal increase as processors seek more manufacturing beef post-Christmas.

Looking ahead, beef and veal supplies for this year are forecast to be moderately down on last year due to lower carcass weights and reduced adult cattle slaughterings. Export demand for cow beef could come under pressure as France continues to increase its production. 

Sheep

Typically, lamb prices increase sharply in early spring, but they weakened in January due to sluggish domestic demand and declining French values. Retail demand is struggling, with purchases well behind last year.

Although the 2016 lamb crop was larger than 2015, poorer pasture meant lambs were slower to come forward, which left more lambs to be slaughtered in 2017. Throughputs have now starting to rise, although tighter weekly supplies sent deadweight prices higher at the end of February.

Despite an increase in the size of the breeding flock in 2016, poorer condition ewes and increased disease such as Schmallenburg mean the 2017 lamb crop is expected to decline. 

Pigs

Pig prices have eased very slightly since the start of the year, pulled two ways by weaker German markets versus tighter EU and domestic supply. The slightly stronger pound has weighed on UK values since New Year, as has subdued demand following Christmas. Two years of low prices – in 2015 and 2016 – mean production is set to be tight in H1 2017, which with tighter EU supply and the weaker pound should support prices in the near term. 

Milk

UK farmgate milk prices continue to recover, although the rate of change seems to be slowing due to weaker wholesale butter and cream values (down 3% and 10% respectively between December and January). 

EU-28 weighted average farmgate prices reached a two-year high of €33.05/100kg in December, in response to declining milk production (-3.4% Oct-Dec, year-on-year). Global milk supplies are expected to remain below last year in most of the key exporting nations in the first half of 2017, with the possibility of some growth in the second half of the year. However, high EU stocks of skimmed milk powder mean exports remain crucial.  

Other:

Poultry and eggs

Avian influenza has been the key challenge for the poultry industry this winter, with free-range birds having to be housed. As EU flocks were culled egg production fell, leading to a 16% rise in EU egg prices since November. However, UK egg prices haven’t enjoyed the same increase, with free-range prices under particular pressure in January. UK broiler placings hit 1bn for the first time in 2016 but turkey placings fell by 1m head. 

Potatoes

Tight GB and EU supplies (due to last year’s smaller crops) have seen free-buy prices edge up since the start of the year. Stocks are tight, with seed on the Continent particularly short, which could limit plantings this season. GB seed remains plentiful.  

Inputs

OPEC’s agreement to curb production has been relatively successful so far, with crude oil prices relatively stable at around $56 a barrel since the new year. However, production is still ahead of consumption, and with oil stocks at a record high any drawdown looks some way off. 

Fertiliser prices have strengthened ahead of the spring usage period, with a global urea shortage sending EU ammonium nitrate prices higher. UK supplies are tight, so domestic prices could follow suit once the application period gets under way. Blended values remain relatively unchanged.