Strong global harvest could weaken food price rises

By Rod Addy

- Last updated on GMT

The USDA forecasts world wheat harvests will increase by 7.5Mt this year
The USDA forecasts world wheat harvests will increase by 7.5Mt this year

Related tags Inflation

Food price increases could throttle back in the next year amid expectations of a strong global harvest, analyst Darren Shirley at Shore Capital has predicted.

In a note to investors, Shirley said: “We are now increasingly of the view that the outcome of the harvest will lead to some downward pressure on the UK food inflation rate …”

In particular “an anticipated easing in potato prices from the current all-time highs”​ would contribute to the situation, he claimed.

‘Food inflation easing back’

“At this stage of the year, with visibility still limited to some degree, we can see UK food inflation easing back to the 2–3% range over the forthcoming 12 months, from the 3.8% average over the past year.”

Despite the forecast, Shirley said the annual food Consumer Price Index had risen to 4.4%, with six out of nine categories reporting an increase in annual inflation rate at this stage in the year.

At present, the strongest price inflation had been in fruit, vegetables such as potatoes and onions and UK pork-based and chicken-based products.

Fruit prices had chalked up inflation of 10.2%, the fifth month in six when it had been higher than 10%, driven by apples, pears and grapes. “The only downward pressure is from the important banana category,”​ said Shirley.

Pork-based products

“Upward pressure is evident across pork-based products with double digit uplifts reported for ham, gammon and pork sausages. Elsewhere inflation also remains resilient; with mid-single price increases across beef cuts and also home-killed lamb …”

Imported frozen lamb was one of the few meat categories in which prices were falling, he said.

He predicted downward pressure on cauliflower; broccoli; cucumber and lettuce prices, as well as cereals, fish and oils & fats.

Prices of milk, cheese and eggs remained broadly flat, Shirley added.

Global wheat production up

Meantime, the United States Department of Agriculture (USDA) has released its latest World Agricultural Supply and Demand Estimates, predicting global wheat production up 7.5Mt, but soybean and corn harvests down.

The market reaction had been bullish on prices in the wake of the report, with the effect of increased harvests mitigated by growing demand from China, India and Iran, said Shore Capital analyst Phil Carroll.

“Whilst the US yield data for corn and soybean seems to have slightly caught the market by surprise and has resulted in some respective price gains, the picture year-on-year is one of deflation, in our view, as a rebound in supply is expected,”​ Carroll concluded.

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