Clouds on the horizon
Demand for and trade in meat is dependent on incomes and the economies of individual countries and on currency variations.
As we continue into the year, there are a number of black clouds on the 2016 horizon. However, some relief should come too in the second part of the year for commodity prices and currency value with, hopefully, a return to more normal levels for the overvalued sterling.
In terms of wider currency fluctuations, the rand, the rouble, the Ukrainian hryvnia, the real and the Argentine peso are among the worst affected by devaluation against the US dollar, euro and sterling, all losing more half their value, affecting exports positively and imports negatively. The low Australian and New Zealand dollars will keep their exports competitively priced. It seems that the only currency likely to rise in a difficult economic environment is the US dollar. Sterling should realign against the euro from its current overvalued position.
Meanwhile, with little hope of higher petrol and mineral prices, economies that depend on these commodities are experiencing falls in meat demand, for example pork in Russia. On the other hand, low petrol prices are giving an additional growth spurt in importing countries. We are still at the bottom of the commodity cycle and world prices for fats, guts, skins, hides, offal, pork and poultry are not likely to rise much in 2016.
The slowdown of Chinese growth is affecting many developing countries which depend on sales of raw material to China. It is remarkable that a 1% fall in Chinese GDP leads to a drop of 1.2% in GDP in emerging economies.
The long period of low interest rates and the large quantitative easing has led to excessive lending and an asset bubble that creates a systemic risk for the world economy.
As Chancellor George Osborne recently said, 2016 is likely to be challenging for the UK economy, including exports. This said, we are in a strong position, with quality products in demand on the expanding world meat markets, and will benefit from a more competitive sterling.
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