global outlook

In a European survey of major companies, one in seven said increased exchange volatility was the most difficult factor for them to manage in the current circumstances. This was echoed by all involved in international trading, particularly companies involved in exporting currency-sensitive commodities, such as meat and fifth-quarter products. Obviously, such volatility makes investment decisions very difficult for those involved and is a headache for chief executives presenting results to shareholders.

There are no easy answers. Hedging against currency fluctuation is too onerous for food commodities. Forecasts are difficult and, in current circumstances, likely to be plain wrong. However, regarding the exchange rate of sterling against the euro - the most important for use in terms of trading value - some form of stability seems to prevail. Since the middle of January, sterling has fluctuated between 1.06 and 1.18 or +/- 6%. This fluctuation is high on a historical basis, but is something meat traders can live with. Sterling seems unlikely to recover to its pre-crisis level, even with wilder swings.

The situation is more complex with the US dollar. Until May, the greenback was sought as a refuge for investors, as financial instability reached its peak. It has now fallen against sterling, but a sharper fall may well take place. Other currencies may not experience the same huge swings they did at the peak of the financial turmoil, but will continue to experience high volatility.

Where does this leave exports of livestock products? Meat exports to the Eurozone will probably maintain their profitability, but fifth-quarter products, such as hides, skins and offal, may well experience downward pressure due to the falling US dollar, even as their markets recover.

Jean-Pierre Garnier BPEX/EBLEX Export Manager

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