COMMODITY REPORT

AUTUMN 2020

COMMODITY REPORTAUTUMN 2020

Economic Outlook

The general outlook continues to remain volatile in many commodity markets. This is linked to two key areas, which are:

1) The fluctuations in supply and demand throughout the ongoing global pandemic.

2) Brexit, and whether the UK government can agree a free trade deal with their single biggest trading partner (the EU), with time

edging ever-closer.

The Eat Out to Help Out campaign has been a big success for most operators and this has seen volumes rise quickly throughout

August, sometimes at a faster rate than manufacturers could manage. Covid-19 social distancing measures within production

environments, alongside slower global supply chains, have also resulted in some disruption.

COMMODITY REPORTAUTUMN 2020

Brexit

Brexit is high on everyone's agenda again, even with a Free

Trade Deal. Legislation and Import Administration, which will

be imposed from 2021 onwards, are likely to make trade

more difficult and inevitably add some cost. Without a Free

Trade Deal, there will be additional tariffs on many key

products. There is a page further on which gives an

overview of what these may look like.

September 12, 2020

Shoppers will face ‘frightening’ price hikes in the event of a no-deal Brexitunder the UK’s proposed tariff policy, food suppliers have warned.

It follows Boris Johnson’s claim this week that a no-dead exit would be a“good outcome” for the UK as it will provide “full control over our laws,our rules, and our fishing waters.”

Food tariffs will rise by an average of 20% if there is no EU trade deal,according to the BRC, though products such as olive oil could see increasesof at least £1/litre. “You cannot possibly hit people with that level of foodinflation” said Walter Zanre, MD at Filippo Berio UK. The small margins inthe food industry mean the full costs will be passed onto consumersaccording to Zanre, with the olive oil producer facing tariff costs of morethan £13million each year on its UK sales.

Environment secretary George Eustice confirmed on Radio 4’ Todayprogramme this week that tariffs will apply in both imports and exportswith the EU in the event of no-deal.

Source: The Grocer

Suppliers warn of ‘frightening’ price hikes in no-deal

COMMODITY REPORTAUTUMN 2020

Brexit Tariffs Update – August 2020Potential Brexit Tariffs – Customer Impact

UK Tariffs in the event of no deal with the EU

Product Tariff Approx. Customer Increase

Butter £158/100kg 35%-40%

Cheese £139/100kg 35%-40%

Bacon £57/100kg 15%-20%

Fresh Chicken £85/100kg 20%-25%

Frozen Vegetables 14% 14%

Frozen Potato Products 14% 14%

Canned Tomatoes 14% 14%

Canned Fruit 20%** 20%**

* Information can be found at: https://www.check-future-uk-trade-tariffs.service.gov.uk/tariff

**Vary dependent on product

COMMODITY REPORTAUTUMN 2020

Exchange Rates

The Pound versus the Euro has been very consistent in recent

months, holding somewhere around €1.10 - €1.15. In the past week

however, it has fallen to around €1.08. This is seemingly down to

nervousness in currency markets over a decision by Boris Johnson to

introduce the Internal Market Bill, which would change the terms of

the previously agreed and signed Withdrawal Agreement. Markets

are seeing this as a significant barrier to any free trade deal.The Pound versus the Dollar had improved since April but again has

gone backwards for the same reason already mentioned. Considering

that it was as low as $1.15 back in March, this is still some

improvement. The Pound did fall as UK lockdown was implemented

but has since strengthened. This is more to do with the Dollar

weakening as cases spiral in the US, interest rates are zero and US

treasury bond yields are less than 1% (the first time in over 10 years).

COMMODITY REPORTAUTUMN 2020

Fuel Costs

The fuel market in the current Covid-19 climate is extremely

complex and, up until this point, fuel prices have experienced

significant volatility. Since lockdown eased in June/July, fuel prices

have shown some signs of recovery, with prices staying quite steady.

The Brent crude oil is rebounding slightly at $39.12 per barrel at the

start of October 2020 (13% increase from end of May). The average

UK petrol and diesel price per litre (ppl) at the end of September

2020 was 114.60ppl and 118.11ppl respectively. There is no sudden

change forecast for petrol, however diesel has been indicated as

very likely to decrease soon.

COMMODITY REPORTAUTUMN 2020

August 8, 2020

The spectre of food price increases is hanging over the fresh produce category, despite the easing of lockdowns in both the UK and mainlandEurope, a major importer has warned.

Low flight capacity among the major carriers has forced fruit & veg importers to rely on more expensive modes of getting produce into the UK. Theissue had been further compounded by the lack of clarity from government over post-Brexit trade arrangements, said fresh-cut fruit supplier BlueSkies.

The business, which relies on air services to fly its produce from sites across the globe, warned the sector expected increased costs to continue asscheduled flights had not come back online as quickly as it had hoped.

"It is a little more expensive to operate," said Blue Skies CEO Hugh Pile. "We have been using freighters and ghost flights, which are moreexpensive than using an airline carrying passengers."

Although costs had started falling from a peak of 50% higher than normal in May, it was still about 25% more expensive to ship produce, Pileadded, due to the need to often bring produce by road to the UK from the European airports that had welcomed the ghost flights.

He stressed Blue Skies remained in a "strong" position, despite these logistical challenges. However, he warned the added complexity of shippingproduce to the UK could ultimately lead to more difficulties once the UK's Brexit transition ended in December.

"One point of clarity that's needed is on the freedom of movement of produce. We need confidence in a seamless customs process for freshproduce. We all know the strict nature of grocer depot times."

More detail was also required on labour and tariffs, he added, with Blue Skies negotiating tenders with retailers.Source: The Grocer

Import costs likely to hike fresh food prices

KEY COMMODITY PRICING

TunaFISH

&

SEA

FOO

D

Chicken PorkMEA

T &

P

OU

LTR

Y

Butter Milk CheeseDA

IRY

Wheat Rice Tomatoes (Canned)

Sugar Edible Oils Shell EggsDR

Y

STO

RE

Potatoes Fruit & VegFRU

IT &

V

EG

Coffee Cocoa

BEV

ERA

GES

FISH & SEAFOOD

Tuna SalmonFarmed Salmon prices had started to pick up in May and June but have since

come down further again and are currently at the lowest levels this year.

Wild salmon prices, such as that used in canned salmon, are expected to

remain firm, with the harvest looking down year-on-year. The latest estimates

are that red salmon harvest numbers are down about 17% and pink down

57%. This was expected for pink salmon, as the harvest numbers increase one

year and fall dramatically the next. It does however mean prices are expected

to rise.

September 12, 2020

The issues tuna fishing companies are having with coronavirus preventionmeasures is driving up the prices for skipjack in hubs in Thailand andEcuador, as well as yellowfin for delivery to Spain, sources toldUndercurrent News.

On top of the COVID-19 issues for catches, two of the most significant tunasupply fisheries have partial seasonal closures in place.

The closure on catching on fish aggregation devices (FADs) in the Westernand Central Pacific Ocean (WCPO) runs from July 1 for the bulk of the fleetbut also remains in place for some countries in the region in October. Then,on July 29, a big chunk of the eastern Pacific Ocean (EPO) fleet will tie-upas part of one of two annual closed fishing periods in that are...

As a result, prices for whole-round skipjack delivered to the hub ofBangkok, Thailand, have risen to $1,400-$1,450 per-metric-ton for deliveryin early August, compared to $1,200/t for July deliveries, sources said.

Source: Undercurrent News

COVID-19 issues for tuna catchers see skipjack prices rise fast

MEAT & POULTRY

Pork

Pork prices are proving quite difficult to read at the moment. Across

Europe there is a backlog of pigs, which are at larger weights than

usual. This has led to increased slaughter numbers. The backlog has

been caused by the recent fall in demand. That said, bacon prices are

stable, particularly as business has picked up in August with the Eat

Out to Help Out scheme proving very successful.

The outlook is that prices will only move in one direction given that

the Chinese authorities have agreed for EU countries to export there

again. It is seen that this could start to see pigs taken out of European

circulation, however the key question that underpins all of this is

whether demand will fall towards the end of the year.

August 27, 2020

Since our last update, EU pig prices have remained relativelysteady. Combined challenges in processing capacity, as well asheavier average carcase weights, has weighed on markets.

Source: AHDB

EU pig prices remain stable

MEAT & POULTRY

Chicken

Poultry prices have recovered well from the pandemic and

currently are only about 3% behind this time last year. The

general feeling is that as a lower cost protein (compared to

beef and fish for example), chicken has fared reasonably well

price wise.

DAIRY

Milk Prices

The dairy market is generally quite firm, with most

processors at least keeping milk prices the same and

with a good number increasing their price paid to

suppliers/farmers for September onwards. Arla and

Muller are staying the same, with Freshways,

Pensworth, Glanbia (cheese) and Saputo/Dairycrest

all increasing their prices. Many will recall in the

previous report, farmers pouring milk away and

requiring government support to keep going, so the

prospect of higher prices will be welcome news for

farmers.

August 27, 2020

Three milk processors have announced farmgate price rises as the dairyindustry recovers from the coronavirus crisis.

Rising commodity valuesPeter Meehan, senior commodity analyst at financial services network StoneX(formerly INTL FCStone), said that the value of dairy commodities is risingslowly.

“After six consecutive weeks of price stability, the European butter quotationfinally made a move, albeit small, to the upside this week (+0.2%).

Skimmed milk powder and cream prices have also risen in recent weeks anddemand for milk has not been outstripped by rising production, he said.

Source: Farmers Weekly

Milk prices creed up as dairy commodity values rise

DAIRY

Butter

Butter prices have seen an increase over the last few weeks, however the general feeling in the market is that buyers are hesitant to

cover longer volumes due to uncertainty around demand in Q4. Pricing currently sits around £3,000 per tonne for bulk butter.

At the moment there is nothing significant to suggest that prices will change drastically from a supply and demand point of view. The

biggest factor weighing on dairy markets are potential UK Government Tariffs, which may see imported butter with a tariff of

approximately 40p per 250g pack (there is a summary of key tariffs at the back of this presentation).

DAIRY

Cheese (Cheddar and Mozzarella)

Cheddar prices have increased a little over the last few months, but in general remain very steady. Again, the key factor is whether

cheddar ‘imported’ from Ireland or the rest of Europe will carry a tariff of £1.39/kg.

French Brie, Spanish Goats Cheese, Italian Grana Padano and Cypriot Halloumi, the list could go on. Many of these items are also at

risk of significant tariffs should the UK Government fail to reach an agreement with the EU. Mozzarella is in tighter supply, not least

because a lot of the mozzarella that arrives into the UK is from European sources.

Continental cheese is closely linked to Brexit and currency exchange. If we achieve a trade deal and the pound strengthens, we should

see decreases, and vice versa.

The UK can only produce 60% of the cheddar to meet the UK’s demands. The balance is imported – based on this, there are strong

assumptions that a deal must be achieved on Cheese.

DAIRY

Shelled Eggs

Shell eggs were one of the product areas

in huge demand throughout lockdown,

especially with the surge in home baking.

Retailers couldn’t get everything they wanted

from the UK and had to look to European shell

producers to keep shelves full. Demand for

home baking has fallen away slightly as

lockdown measures have eased. With retailers

still keen to switch out of colony caged into free

range, this is likely to keep the demand

pressures on. There may be some increases in

supply as more birds are being farmed, this was

initially to deal with the influx of avian flu across

Europe and the UK last year.

August 27, 2020

Sales of eggs have surged by more than a third as their soaring popularity among Brits continues togrow during the coronavirus pandemic.

Year-on-year retail value sales for shell eggs in the mults rose by 37% to £294m during the 12 weeksto 12 July [Kantar]. Volumes rose by 28% during the same period.

The figures follow a period of “exceptionally high demand” for shell eggs, as Sainsbury’s put it in May,after it was forced to source eggs from Spain and Italy to keep shelves full.

But amid reports of Sainsbury’s moving to slash prices on its unwanted imported eggs over the pastmonth (with boxes selling for as little as 37p in some stores), shoppers, retailers and foodmanufacturers were largely looking for “the reassurance of higher production standards” of UK-grown eggs, suggested the British Egg Industry Council.

This was reflected in a 28% or 2.5 billion egg increase in UK production over the past decade to a totalof 11.39 billion eggs last year, according to BEIC data.

“Consumers want the eggs used in products to be British and, at long last, retailers andmanufacturers have recognised this,” said BEIC chairman Andrew Joret. He added the number of eggs(in shell or product format) imported was now at its lowest level since 2011.

Source: The Grocer

Sales of eggs increase 37% as consumers opt for British produce

DRY STORE

Wheat

It is safe to say that flour prices will be higher for the

new season based on the poor wheat crop. Throughout

lockdown, flour was one of the key in demand lines,

with retailers selling 16kg bags just to keep up with the

demand for family baking. Current wheat prices are

well over £170 per tonne compared to £135 per tonne

at the same point last year.

September 2, 2020

This year’s dire wheat crop in the UK has left farmers and millers with concernsthat bread prices may rise.

Farmers have faced heavy rain during winter and one of the driest springs onrecord, according to Tom Bradshaw, vice president of the National FarmersUnion (NFU). Establishing crops was difficult and winter drilled crops lackedany spring growth.

“The combined weather pattern has resulted in the UK’s lowest wheat crop areain 40 years this summer and we expect yields to strike a similar multi-decadelow. This demonstrates the volatility that can be experienced across a farmingyear and why food production and food security must be taken seriously,” headded.

Source: British Baker

Britain faces rise in bread prices from dire wheat crop

DRY STORE

Rice

Rice prices have headed in different directions in terms of pricing, dependent on the variety. Standard long grain has increased, as can

be seen from the graph below. Rice was a key ‘store cupboard’ item throughout lockdown and the pricing jumped dramatically during

that time. It has fallen back slightly since but is still certainly higher than the same point last year.

On the contrary basmati prices have fallen slightly versus last year. This is possibly due to it being more premium and associated more

with the 'out of home' market, where there demand simply wasn’t there.

DRY STORE

Tomatoes (Canned)

Canned tomato prices have risen for the new season. The market has very much gone in two directions. Retail sized tins (i.e. 400g)

sold very quickly, with larger catering sized tins moving much slower. This had led to many factories only producing what has been

contracted for 2020-2021, meaning there is less ‘free stock’ in the market. The factory preference is to produce retail tins, where the

demand is seen as ‘secure.’

There have been additional costs this year for producers too, such as paying farmers a higher price for the raw materials, along with

the additional costs of storing and financing the remaining stock.

The packing season is only really getting started now and reports are circulating that the crop is in a disastrous state due to poor

weather conditions. If this is the case, it could still impact the availability of product.

DRY STORE

Sugar

Sugar prices have increased year on year. There is expected to be

a 15% reduction in beet sugar yields this year. This is due to the

driest May on record and infestation of yellow disease, which

renders the product unusable.

The sugar market is potentially about to undergo a significant

change in the event of no free trade deal with the EU. A no deal

situation would mean that European beet sugar imported into

the UK would be subject to a £350 per tonne tariff. In effect, this

could make the market a duopoly with only two main producers.

Edible Oils

Edible oil prices have started to increase in price again as

demand has improved. Prior to lockdown, rapeseed oil in

particular was expected to remain firm. However the lack of

demand in the out of home markets meant pricing fell to

artificially low levels. The underlying market conditions suggest

that pricing will stay higher providing people continue to eat out

of home.

BEVERAGES

Coffee

Coffee volumes have taken a real hit throughout

lockdown. Even in August, takeaway coffee volumes are

down 51% year on year, as city centres see much less

footfall than pre-Covid 19.

As many key commodities did, prices fell month on

month throughout May and June. Since then, prices have

increased in the World markets for July, August and

September. In real price terms, Arabica is very similar to

last year, however Robusta (the cheaper of the two bean

varieties) has fallen about 10% year on year.

September 4, 2020

Why the chains and independents at the heart of Britain’s high streets are indeep trouble.

It’s the multibillion-pound industry that kept on growing, based on a bean thatBritons couldn’t seem to get enough of: coffee.

Until, that is, the pandemic struck. As is the case with many businesses hit hardby coronavirus, the ubiquitous coffee chains that have powered city centres andhigh streets across the UK are in deep trouble.

This week, Costa announced it is cutting more than 1,500 jobs. Pret a Manger islosing almost 3,000 staff and closing 30 outlets – while independents from TheExploding Bakery in Exeter to Kaffeine in central London have reported a slumpin customer numbers

Source: The Guardian

From cool beans to has-beens? The Covid threat to Britain’s coffee shops

BEVERAGES

Cocoa

Cocoa prices remain stable at the moment. There was an expectation of

a price increase, but reduced demand for more ‘luxury’ type products

has meant prices have flatlined.

In 2019, the world’s 2 largest producers, Ivory Coast and

Ghana, convinced major buyers to implement a ‘living wage differential.’

The graph to the right shows that farmers and growers account for less

than 5% of the value of the market.

In what is being called an ‘OPEC for cocoa’, by stopping supply of cocoa

for a period of 1 month, this drove prices up around $400 per tonne and

major processors unilaterally agreed to pay the additional pricing

mechanism. This will start from the 1 October 2020, which is likely to

see prices rise early next year, as this gets passed on to the consumer.

FRUIT & VEGETABLES

August 1, 2020

The UK faces fruit & veg shortages and price hikes due to a lack of clarity on post-Brexit trading and labour provision, industry bodies have warned.

The government’s proposed plans for future trading with the EU would “damage” the UK fresh produce industry, said Fresh Produce Consortium CEONigel Jenney.

“We are not confident government departments will adopt the most effective solutions to support the UK fresh produce industry,” Jenney said.Despite intense lobbying by the FPC, the government had not yet provided “essential information which was missing from the Border OperatingModel and the Northern Ireland Protocol”, he claimed.

Importers needed to know now which products were deemed to be ‘controlled’ or ‘high risk’ and therefore needed pre-notification and checks, headded, in addition to more detail on where consignments would be cleared and whether facilities would be resourced properly “to avoid delays andincreased costs”.

“Businesses which have only ever traded with the EU will be coming new to many requirements and will need government support. Not all may usean intermediary to do their customs declarations.”

Jenney also added his voice to mounting concerns over a projected labour shortfall for the 2021 growing season in the UK, with time now running outto recruit sufficient numbers. A lack of progress on both labour and trade would ultimately have the potential to “create shortages and increase pricesfor consumers”, he warned.

Source: The Guardian

Uncertainty threatens UK fruit & veg supply

FRUIT & VEGETABLES

Potatoes

Potato prices have fallen year on year, due to oversupply in the market. Up until recently, demand has been almost non-

existent. Eat Out to Help Out has increased demand, but as yet it's unknown to what extent this will remain.

Many chip factories had a lot of stock remaining in warehouses and had to throw product away as the quality deteriorates over

time.

In keeping with the Brexit theme, frozen chips from Europe which is where most low-cost producers are based, have a proposed

tariff of 14% in place from 1 January 2021.