Can we expect a little quiet on the farming front?

Could 2013 be a ‘quieter’ one for all those involved in and depending on the output of arable farming? Since the middle of the 2000s, sustained demand - particularly from the new economic world order - and a series of supply shocks and surprises have made for agricultural markets bristleing with volatility.

Those agricultural markets are now fuelled to a material extent by the somewhat detached parallel universe of financial speculation, which can be something of a turbocharger either way.

Agricultural markets reflect an amalgam of forces and factors, but when boiled down, it is a simple matter of supply and demand. On the demand side of the equation, the forces driving the new economic world order are still there, though a little less potent, manifested in easier GDP growth rates from Brazil to Vietnam.

However, in the old world order, particularly Europe, demand is easier. Indeed, such has been the contraction in economic activity from the consumer in particular, that material volume reductions in food have been encountered in this region. The UK is now well into a third year of food volume erosion as households battle with prices rising ahead of wages. The new round of benefit increases pegged to 1% among other things will be interesting to note for the domestic food market, too.

On the supply side, 2013 has commenced with more upward than downward revisions to anticipated stock levels and planting data from the major agencies, most recently the expectation of a record US corn crop. Such expectations have been reflected in global cereal prices coming off their recent highs, although few expect a stepped adjustment downward.

Much still depends on the crop reports from the key growing regions but there may be a basis to expect a quieter year. A normal growing season would be very welcome news to many British farmers, who suffered terrible crop yields from sodden fields last year - and the polar spring may not be all bad news on this front. Livestock farmers coping with feed inflation and consumers fielding across the board prices rises from bread to meat may also be a little happier with more stable food prices. Silence can be golden…

Dr Clive Black is head of research at Shore Capital Stockbrokers

“A normal growing season would be welcome to many British farmers”