UK faces food price inflation due to La Niña and Brexit: Rabobank
The La Niña weather event could impede production of key commodities, including cocoa and coffee, leading to further food price inflation in the UK next year, according to Rabobank. The UK is particularly exposed to the impact of the event due to Brexit uncertainty. La Niña results from the cooling of the tropical Pacific Ocean and could affect regions from grain fields in the Americas to Asian palm oil plantations. Rabobank said that weather events pose “significant threats on the horizon to global food prices in 2018”.
 

Rabobank’s outlook for 2018 indicates that, while global agri-commodity stocks are historically well-supplied, balance sheets are tightening. The key risk factor to the current low-price environment is a severe supply shock, driven by potential adverse weather in a major producing region.

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Report summary

Prices for agricultural products mainly continued to trend further down in 2017, for both G&O and softs. Ongoing weakness in emerging currencies supported the export competitiveness of producing countries like Brazil and Russia—keeping pressure on commodity prices—as did the absence of major adverse weather events in the main agricultural areas. But what will 2018 bring? A look to the near future is crucial to the business success of F&A companies.

Approaching 2018, the oversupply of G&O remains an ongoing issue, as record-large global stock levels will keep prices under pressure. For producers and buyers, we envisage opportunities—for example, low agricultural prices can provide ample opportunities for consumer hedging strategies, and the steep contango seen in a few agricultural commodities provides farmers with the opportunity to lock in higher prices by selling forward further into the future.

But an adverse weather event, like La Niña, could disrupt crops across key regions and cause food prices to spike trade headwinds. Producers also face trade risks from increasing freight and input costs along with fluctuating currencies.

Rabobank expects strong demand for coffee and cocoa, and a bullish outlook on wheat with rising consumption eating into stocks after US acreage record lows.