Outlook for agri markets suggest sterling will stabilise

Volatility in the currency movements of sterling seen over the first half of the year are expected to ease, according to a Europe-wide report.

Uncertainty around the outcome of the UK general election in June, as well as the beginning of the negotiations on Brexit, had led sterling to fall sharply against the euro. The depreciation began with the UK electorate’s decision to vote to leave the EU in June 2016.

A depreciation of sterling against the euro makes Irish and other EU agricultural exports to the UK more expensive, with British consumers facing higher inflation as a result. The weakening of sterling would also encourage Britain to buy less goods from abroad and to export more instead.

However, according to the European Commission’s ‘Short-term Outlook for EU Agricultural Markets’, sterling will remain stable against the euro for the rest of the year, helping to smooth fluctuations in trading patterns between the two currency areas.

Outlook for milk prices

EU milk prices were also highlighted in the report, which noted that prices had stabilised at around €33/100kg – supported by a decline in EU milk collection, strong demand for butter and cheese, and strong exports given the lower supply from South America and New Zealand.

According to the report, the difference between the prices of butter and skimmed milk powder (SMP) has never been so wide, with EU butter prices reaching an historic level of €5,000/t in mid-June. This was driven by the scarcity in supply across the EU and globally.

The report said that a number of factors would affect EU milk price trends over the next few months, including a change in world supply.

“After a milk season with unfavourable weather and very low prices leading to a reduced milk collection in New Zealand for the second consecutive season, the strong rise in milk prices could favour a significant recovery in milk collection there at the September-January seasonal peak,” the report said.

In addition, the US supply is expected to increase by around 2%. EU milk collection has started to fall in line with the milk season, but more milk than last year is expected in the second half of the year.

“Moreover, the high SMP stocks continue to be a feature of market reality. However, domestic and global demand – especially from Asia – is good, and this will help support world market prices.”

The full outlook can be accessed here.