Currency compounds market pressures

It has been a year like no other for markets, which have been impacted by a swathe of disrupting factors that have led to difficult trading conditions and prolonged volatility.

Recent currency moves in response to the UK government’s mini-budget have resulted in the value of sterling dropping to historic lows, particularly against the US dollar, which is the world’s reserve currency.

With most global transactions taking place in dollars for the likes of animal feed materials, fertiliser, oil and gas, the weakening of the pound has placed further pressure on raw materials and energy prices.

Since February, the value of sterling has dropped by around 20% and this is having the biggest impact on higher value products like soya and fertiliser. Taking an approximate price for soymeal of $600 per tonne, the weaker pound by itself has added around £116

onto the cost per tonne, as illustrated by the chart.

Electricity and gas prices are both substantially higher than the same period last year with the effect of the plunging pound liable to make these increases even more pronounced.

This is having a significant impact on feed manufacture, particularly for the more energy intensive pelleted products. Higher energy prices had already been adding to the cost of feed manufacture by anywhere between £10-£20 per tonne, despite businesses taking steps to improve energy efficiency where possible. In addition, haulage rates have gone up by around 20% due to higher fuel costs and wage inflation.

Just over a week ago the Department for Business, Energy & Industrial Strategy announced an Energy Bill Relief Scheme with discounts to be applied to energy usage between 1st October and 31st March 2023 for businesses in Great Britain. There was mention within the statement that a similar scheme would be established in Northern Ireland, providing a comparable level of support, but as yet no further details have been released, so it remains unknown how businesses in Northern Ireland will be supported and when.

Similar pressures are being felt across Europe as FEFAC, the European Feed Manufacturers’ Federation, have warned of the growing threat for a growing number of SME manufacturers to be driven out of business as a result of the escalating energy procurement costs.

Meanwhile, there has been a continued reduction in fertiliser production across Europe and supply lines have been greatly reduced as a result of gas prices and sanctions, which have been further complicated by the influence of currency.

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