Volatility in soft commodity markets across the world is set to bring opportunities for UK agriculture, but farmers should not take higher prices for granted, a report by HSBC has warned.
Low global wheat stocks and changing patterns of consumption in emerging economies like China and India has driven the cost of food up by 6% in the past year.
But while arable farmers are set to continue to benefit from the surge in global wheat and cereal prices, these prices could plummet once wheat stock levels are restored, HSBC’s latest ‘Taking the Pulse’ report said.
The report, which looked at the current factors influencing UK agriculture, said the present shortage in world wheat stocks was due to reduced plantings after years of poor prices.
If global plantings increased by 3%, it would take at least two years for world stocks to be restored, giving arable farmers in the UK at least another year of buoyant wheat prices, it said.
However, senior HSBC economist Mike Beresford-Smith said there was nothing to stop prices falling once stocks were rebuilt.
“The outlook for wheat being used for biofuels is looking frosty, and demand for wheat is not growing quickly, despite changing consumption patterns in India and China.
“They actually don’t much wheat or use it to feed livestock. In reality, there’s nothing in the long term that will keep the market where it is.
“The message for UK farmers is not to take these prices for granted. There’s a temptation to say the bad times are over, but input costs are rising too.
“Farmers need to make sure they understand their production costs and look at opportunities for taking good forward prices for their wheat.”
While Mr Beresford-Smith said the picture for UK agriculture looked better because of the cereal price increase, he said livestock sectors were being hit “very hard”.
“We are moving into a period of a big divide between the ‘haves’ and the ‘have nots’. Cereal farmers will see prices much-improved, but everyone else will see less profit.
“The key is for farmers to look at their costs. This is no time for them to become complacent.”