Market Update

Currency Volatility Impacts on Agricultural Trade

The debt crisis in the Euro zone, and volatility in other major currencies is likely to have a significant impact on agricultural trade during 2015. Euro depreciation will have a positive impact on EU agricultural exports, with improved prospects for exports of beef, arable crops and pig meat. This is also being helped also by increased production due to good climatic conditions in parts of Europe, and lower energy costs. The European commission is currently forecasting increased production of milk, meat and cereals during 2015.

The value of the euro relative to the UK pound has fallen by 20% since 2013, and this is having a significant impact on farm prices in the UK, with sheep and dairy producers being particularly exposed. Euro depreciation also impacts on UK farm subsidies which are set in euros, as part of the Common Agricultural Policy.

A strong dollar relative to other currencies is likely to lead to lower farm exports from the US during 2015. The USDA’s May outlook report on US Agricultural exports predicted US farm exports by value will be $12 billion down in 2014. US exports as also being hit by ongoing trade bans on exports to Russia, and by restrictions on poultry exports due to Avian Influenza. US pig meat exports in the first 5 months of 2015 are down by 6% in volume, and 15% by value. US pork has faced increased competition in Asian markets from the EU, as EU exporters who had previously been shipped product to Russia have targeted Japan and China. Despite this, EU pork exports in May were 14% down in terms of volume and value, compared with May 2014. This was due to a halving of trade with Hong Kong, due to difficulties at the port.

Poor economic conditions in Brazil and Argentina have also lead to a depreciation of their currencies, and providing levels of production growth can be maintained this will see increased exports from these countries also in 2015. Exports of Brazilian beef started slowly in 2015, and were 17% down during the first four months of the year by value. Recovery is expected in the second half of the year, driven by the depreciation of the Brazilian real, as well as the re-opening of markets in Saudi Arabia and South Africa.

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