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Commodity report: July 2017

Commodity Overview: Wheat 3 year trend EU

  • Global cereal output is not expected to reach forecasted levels due to drought in the U.S. Midwest, Canada’s breadbasket in southern Saskatchewan and parts of Australia 1
  • World wheat prices are likely to trend upwards on the back of challenging weather conditions in many of the world’s main wheat growing areas
  • There are fears that nearly 40% of all German wheat will be used for animal feed this year due to recent heavy rains and challenging weather conditions throughout th
    e growing season 2
  • Global cereal production to remain high in 2017, however will be 0.4-0.6% below 2016’s record levels 3

Commodity Overview: Sugar (refined white sugar)

  • Although production figures for 2017/2018 are still uncertain, current yield forecast is 3.8 % above the 5 year average 4
  • International sugar prices have dropped 30% in recent months, predominantly due to higher production output in Brazil and lower demand from India 5
  • Expectations are positive for the Indian sugar crop as heavy monsoon rains boosted growth of the crop to be harvested in October, this will reduce their import requirements and increase the global surplus 6

Commodity Overview: Dairy

  • The butter price index in the latest GDT auction continued upwards with an increase of 3.4% 9
  • Milk consumption in Ireland has increased by 3.7 % to 44.8 m litres in the 12 month period to June  2017  7
  • Irish dairy herd total numbers have grown to almost 1.3 million cows since 2015. This has also correlated with the larger numbers of O and P grade cattle for slaughter in the same period 8
  • Irish processors agreed July milk prices of 33-33.75c/L based on 3.6% fat and 3.3% protein, however French milk processor, Lactali proposed milk prices of 34c/l in July, 35c/l of 4.1% fat and 3.3% protein 10

Commodity Overview: Crude Oil (Brent)

  • Prices for crude oil hit a high in early August of $52.93 a barrel. However the price is expected to remain at a more muted level; around $51 in the short term 11
  • Forecasts indicate a slight under supply in 2017. An over supply in the crude oil market is expected into 2018 due to new well start-ups and continued US investment in shale sites
  • OPEC is struggling to enforce compliance of its December 2016 output agreement as output has now reached a high of 33 million barrels per day

Commodity Overview: Currency EUR – GBP

  • The UK Purchasing Manager’s Index has performed ahead of expected results, achieving from 54.2 to 55.1, and sterling has benefited from these strong domestic results 15
  • Euro GDP projections have met forecasts and Eurozone growth results are likely to improve from 1.9% to 2.1% year-on-year 16
  • UK cabinet unity on how the UK will leave the single market and customs union when Brexit happens in March 2019 may lessen exchange rate struggles until the full exit strategy has been negotiated

Commodity Overview: Currency EUR – USD

  • The Euro is at its highest level against the dollar in more than two years and is looking good to out perform US economic growth over the next 2 years 17
  • The lack of major economic and tax reform stimulus to boost the economy (promised by the US president) has contributed to the weakening of the dollar
  • Expectations are that political risk and concerns over low inflation rates in the US will cause the dollar to weaken further

Commodity Overview: Currency  GBP – USD

  • The GBP/USD reached a new high of $1.30 on the back of lower than expected inflation figures released by the Federal Bureau of Labour Statistics when a 0.1% rise was achieved against the 0.2% expected 18
  • The Bank of England has downgraded its growth forecasts for 2017 and 2018 to 1.7% and 1.6% respectively
  • UK’s latest services PMI saw the purchasing manager’s index from Markit Economics, rise from 53.4 to 53.8, which was 0.2 ahead of expectations 19

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