LOOKING BACK: QUARTER 2 RECAP

The last quarter saw inflation soften from 3.4% to 2% CPI. Therefore, this period has been far less volatile compared to 2023, however inflation remains prevalent across certain categories.

Availability issues continue, with poor weather conditions affecting UK agriculture, hindering planting of spring crops. This will have a knock-on effect on yield and quality of produce within various categories, such as grains and vegetables.

It continues to be a challenging market. Let’s take a look in more detail and explore what we foresee in the next quarter.

MEAT AND POULTRY

Beef prices have steadied and started to decline since reaching an all time high early last quarter. Beef production was the primary concern, with December 2023 having the lowest production rates seen in over 5 years. Supply has started to stabilise in recent months, and demand remained resilient just before the start of the summer season. As the barbecue season demand begins, processors are starting to pay slightly higher prices to secure cattle.

Heavy rainfall has had a devastating effect on lambing across the UK during 2024. If lambs do not have dry ground to lie on, hypothermia can fatally impact their newborns. This has had a knock on effect for slaughtering, with supply down 40% YoY, resulting in significant inflation over the past 12 months.

YoY Deadweight Lamb prices:

SEASONAL FRUIT AND VEG

The combination of El Nino and climate change has led to significant droughts and storms, severely impacting the fruit and vegetable category. Citrus fruits, melons, passionfruit and avocados have been affected the most. Extreme weather and heavy rainfall have also made harvesting challenging for many crops, particularly root vegetables.

Parsnip supply has been extremely limited, with supply ending prematurely in the UK. Meanwhile, Spanish producers have been focusing on local markets, resulting in minimal exports. Shortages of parsnips are expected to continue.

POTATOES

The 2024 potato crop is experiencing one of the worst seasons in decades, marked by poor quality and low availability. This trend is expected to continue until the main harvest in September.

The primary cause of these issues is the extremely unpredictable and unseasonable weather over the past 12+ months. Typically, planting occurs around March/April, however some growers in the East and South East are still completing plantings.

Similar challenges are being faced across Europe, where recent heavy showers have deteriorated conditions. Many crops that were planted have been left unharvested due to waterlogged fields, resulting in low quality or complete rot.

FISH & SEAFOOD

Salmon inflation has emerged as the core driver of rising prices, particularly evident in the last quarter. Month on month, prices have surged to their highest levels in recent memory. The scarcity of premium salmon is a key factor propelling this inflation, stemming from issues such as winter sores and stunted growth due to cold weather conditions.

The UK has experienced 12 named storms since the beginning of the year. These severe weather events have hindered fishing activities, resulting in a low supply of fish and higher prices for the limited quantities.

As we transition into June, the shift towards milder weather has brought much needed relief to the market. Warmer conditions have increased species availability and have allowed fishing patterns to return to normal, enhancing fish supply and stabilising prices.

LOOKING AHEAD: QUARTER 3 OUTLOOK

ENERGY

The conflict between Israel and Palestine continues to be a primary concern in the energy market. While the confrontation is contained for now, any escalation or involvement from other countries would impact global supply and send prices upwards.

The EU is discussing a potential ban on trans-shipments of Russian Liquified Natural Gas (LNG). If enforced, this could pave the way for a ban on Russian LNG imports to the European market. A halt in Russian LNG to the EU market would tighten supply and result in supply shortage fears, particularly over the winter.

UK power prices increased in line with higher UK gas prices –24.5% MoM. Increases can be attributed to Norwegian maintenance, alongside a lower number of LNG cargoes docking at UK terminals compared to previous years. This is largely a result of increased LNG demand from China, diverting cargoes away from UK and European terminals.

Looking ahead to the next quarter, geopolitical risks remain a key factor for global gas markets in 2024. Russia’s invasion of Ukraine and tensions in the Middle East continue to create concerns around potential sabotage on critical infrastructure, such as pipelines and production assets. EU and US gas demand for household consumption will be lower over the summer due to less reliance in the warmer months.

POTATOES

Many potato varieties are expected to face shortages in the coming months, and so called ‘spudflation’ is anticipated as growers contend with the wettest 18 months since 1836.

What this means in the short and medium term:

• Force Majeure: With a reduced planting area and depleted stocks, growers are now purchasing from the market, where prices are approximately 30% higher. Suppliers can no longer absorb current costs, prompting many to look further afield to fill the supply gap, albeit at higher prices.
• Availability: Certain varieties, such as Maris Pipers are being removed from supply. Other varieties, such as Black Hearts, are experiencing quality issues. Retail is also being affected with fewer potatoes per pack.
• Frozen Lines: Chips are primarily sourced from Belgium, which has also faced hailstorms and reduced planting. Consequently, chip contracts for next year are likely to be impacted, leading to tight availability.

PORK

Weaker pork demand has been noticeable over the past 3 months, with export volumes from the UK at their lowest since 2015, aiding softening pig prices in 2024.

Pork prices may fluctuate heading into summer, with seasonal demand in Europe expected to spike following the usual summer trend and due to sporting events such as the UEFA Euros.

FISH & SEAFOOD

Economic and political factors, such as rising wages, transport rates, import fees, and Brexit-related border checks are causing upwardcost pressures.Global trade has been impacted by the US ban on Russian fish products, which has increased demand for alternatives such as Norwegian cod.

Sea Bass currently offers better value than gilthead bream due to low stocks in Greece. Prices for both are expected to stabilise over the next quarter.

Salmon prices have remained firm, with expected price reductions potentially delayed until autumn. Issues with production grade fish have impacted supply.

Trout prices are stable, with increased transport rates being the main cost factor. Sea-reared trout is being recommended due to resilience and quality, providing a viable alternative to salmon.

Halibut supply has been inconsistent, leading to increased prices due to higher input costs and transport rates. Demand from the USA has further impacted prices.

Plaice is now in season with improved yields. Megrim (Cornish sole) is recommended as an economic alternative.

Lobsters are coming into season, while mussels will be more difficult to source due to spawning. Mackerel and sardines are expected to appear in markets.

DAIRY

Chinese demand significantly influences the global dairy market. In 2023, Chinese dairy imports declined by 12%, attributed to a 4.6% increase in domestic milk production compared to the prior year.

Additionally, the economic recovery post-COVID in China has been slower than anticipated. This sluggish recovery is evident in the housing market, where the Chinese government has recently established a $41 billion fund to support the purchase of unsold housing, addressing a three-year downturn in the real estate sector.

Rabobank forecasts an additional 8% decline in Chinese dairy imports this year. As the world’s largest dairy market, China’s demand is crucial in determining global dairy export prices. This year, global prices may either remain stable or see fluctuation as countries attempt to offset the reduction in Chinese exports.

By 2025, it is expected that countries will scale back dairy production due to the diminished demand from China, aiming to enhance profitability on dairy products.

FRUIT & VEG

Wet weather has caused a widespread shortage of potatoes, with UK supply falling around a million tonnes short of demand. We anticipate significant variability in crop quality, with issues such as silver scurf, pit rot and wet rots increasing.

The shortage of seed potatoes is expected to limit the crop planted for the upcoming season, likely mirroring this year’s supply challenges. With a 7% reduction in seed area across France, Belgium, Germany, Denmark and Holland, these problems are likely to persist across Europe.

With weather beginning to improve, we are committed to leveraging the Best of British range wherever possible. With the exception of potatoes, we anticipate a promising season for other British produce including asparagus, Isle of Wight tomatoes, berries, lettuce and rhubarb.

WHEAT

The “Euronext milling wheat“  futures price increased by 26% over the past month and 33% in the last quarter. This increase is attributed to a growing supply risk premium, due to extreme global weather conditions. Frost in Russia, alongside prolonged dry spells in the Black Sea area, and declining crop conditions in Western Europe, have highlighted the current vulnerability in global wheat supply.

• EU Tax on Grain Imports from Russia
  The EU has also introduced a £95 per metric tonne tariff on grain imports on Russia, taking effect on 1 July. As a result, there may be an increase in demand for Canadian wheat. This tax on Russian grain imports could lead to a further rise in global wheat prices.

• Tight Global Supply
  Farmers in Russia are concerned about the need for reseeding frozen fields, resulting in slower sales and shipments, leading to potential shortages and rising prices. The direction of the Russian wheat market will heavily depend on accurate assessments of crop losses from extreme weather and reseeding efforts.

Combined wheat production of Russia and Ukraine could decline by 15 million metric tonnes YOY. This is particularly concerning for importers, as it affects the availability of the world’s most competitively priced wheat.

FINAL WORD

Regency continue to proactively mitigate availability issues and supply risk, putting solutions in place to reduce impact, such as product switches and recipe re-engineering.

When analysing the affects that inflation has on your businesses purchasing, it's important to understand that inflation affects not only the price of goods, but also the quality and availability - this is something that our team of procurement experts can assess in detail, to ensure our members are always achieving the best outcomes in all areas. To find out more about ways in which we can help save your business time and money, get in touch.

Source: Foodbuy