Northern Ireland Grain Trade Association

Protection For Feed Prices Running Out

Whilst price volatility has continued on the world markets in recent weeks, farmers here have been protected to a degree, by Northern Ireland compounders acting as a buffer. The forward buying patterns of the NI Grain Trade Association members have meant that they have had feed stocks in hand and have literally been trading  below full market prices for the last ten to twelve months. Furthermore a time lag in price increases over the winter period has helped avoid some of the more extreme price spikes.

But as winter contracts are unwound it is inevitable that farmers are going to experience an increase in their feed bill. Feed compounders will now be operating at the  full market price to replace stocks and this will make summer rations more expensive than current levels. Recent events such as the political unrest in Libya and the catastrophic earthquake in Japan have caused commodity prices to swing dramatically within a single day, and prices remain at the high end of historic levels

After a period of weaker sentiment, Thursday saw world corn and bean markets trading sharply higher due to tight stock estimates from the US Department of Agriculture. Speculators have driven some of the volatility as they move money in and out of commodities in an attempt to hedge price inflation. The underlying fundamental demand has kept prices supported with concerns around supply, obviously security of food supply concerns all governments against a background of world population growth but it was of specific concern this year due to the drought in Russia and floods in Australia.

Currently the market is looking for confirmation of large world crops before any possibility of easing prices. This will also mean a very reactive market to any weather scares as the growing season progresses towards harvest. Continued demand from developing countries such as China is supportive at a time of tight supply and will only serve to exacerbate market nervousness, driving prices higher. 

The Northern Ireland Agri-Food Supply chain is not immune from world raw material market price rises. Being a global event, the impact will be felt equally by farmers around the world, whom all need to achieve cost recovery. As importers and feed compounders the NI Grain Trade Association members are the first to see the impact of higher prices - with compound price rises unable to keep pace with the world markets, there are tough times ahead for farmers facing the reality of summer contracts.

Retailers will face the same demand from all their suppliers, local or international, to address rising input costs. It is only a question of how long they can resist the call and what damage is done to the local industry as a consequence. Farm gate prices need to reflect these increased production costs and the retail sector must be supportive by ensuring that sufficient returns are passed back down the supply chain or they are in danger of severely damaging the long-term viability of the Northern Irish food supply chain. Indeed, our government must recognise that in times of austerity, national governments will hoard, rather than export food into the world market.  Where will the supermarkets turn to then, when the local supply base has been too crippled to step into the breach?