When the markets are this difficult to read, it’s hard to know how to react – but react you must, says Henry Amar
As a lifelong Arsenal supporter, I'm used to highs and lows, so it's perhaps surprising that I'm so concerned about the current volatility in currency and commodity markets.
For those of us who make our living as distributors of imported food, currency fluctuations are an obsession. We analyse currency screens and study the views of financial journalists, economists and bankers, which often conflict and frequently prove to be wide of the mark.
Even modest falls in the value of sterling have a damaging effect. It's no surprise, therefore, that the sterling crash of 2008 (when the pound lost over 30% of its value versus the euro, and 25% versus the US dollar) represented the most difficult time in my business career. It was a relief, in the early weeks of 2011, to see the pound regain some of its poise, rising to £1.20 against the Euro.
Then, perversely, as we daily read stories of Eurozone crisis, the euro was worth almost £1.10 by early May. Since then there has been a modest rally. Whatever mechanisms we use to cover our currency needs, uncertainty over the future value of sterling is the most destabilising aspect of our business. The pundits don't seem to know what will happen next. We certainly don't. If any reader of The Grocer does answers on a postcard, please.
Commodity markets are also difficult to read. Until the end of April 2011, prices of most commodities were very firm, reflecting a world emerging from recession, the demands of developing nations, and political uncertainties in the Arab world. Then the bubble burst, and early in May came the big sell-off. The biggest falls were in hard commodities (silver lost 30% of its value in a day), but agricultural commodities took a knock too.
So what happens next? We know that soft commodities are pretty volatile over the medium term if the price of a given crop rises, more acreage is planted, and the price goes down, and the reverse is true. However, I believe that the need to expand food production to feed a hungry world, and one seeking a better diet, will drive up prices of agricultural commodities in the long term. Even in the short term, market information suggests that some items, notably corn and soya, will rise steadily.
Of course, the big ticket item is oil. The price of fuel affects every single product we sell. When the sell-off occurred in early May, the oil price dropped, but it is already rising again. Not long ago, Goldman Sachs advised investors to take a profit on crude oil today they predict that prices will continue to rise during 2011, believing the market to be "structurally bullish".
If it's difficult to understand what is happening in currency and commodity markets, it's even harder to know how to react. Because we cannot influence movements in these markets, which anyway affect all our peers in the industry, our task is to remain competitive. We must be smart in our currency buying, and look critically at our product range.
We constantly seek efficiencies maximising loads on sea containers, rationalising delivery patterns, reducing insurance rates by contracting for years at a time, re-working sales force journeys to save fuel...
These are essential actions in the face of the market fluctuations described previously, but at least I don't have to worry about Arsenal until August.
Henry Amar is chairman of RH Amar
As a lifelong Arsenal supporter, I'm used to highs and lows, so it's perhaps surprising that I'm so concerned about the current volatility in currency and commodity markets.
For those of us who make our living as distributors of imported food, currency fluctuations are an obsession. We analyse currency screens and study the views of financial journalists, economists and bankers, which often conflict and frequently prove to be wide of the mark.
Even modest falls in the value of sterling have a damaging effect. It's no surprise, therefore, that the sterling crash of 2008 (when the pound lost over 30% of its value versus the euro, and 25% versus the US dollar) represented the most difficult time in my business career. It was a relief, in the early weeks of 2011, to see the pound regain some of its poise, rising to £1.20 against the Euro.
Then, perversely, as we daily read stories of Eurozone crisis, the euro was worth almost £1.10 by early May. Since then there has been a modest rally. Whatever mechanisms we use to cover our currency needs, uncertainty over the future value of sterling is the most destabilising aspect of our business. The pundits don't seem to know what will happen next. We certainly don't. If any reader of The Grocer does answers on a postcard, please.
Commodity markets are also difficult to read. Until the end of April 2011, prices of most commodities were very firm, reflecting a world emerging from recession, the demands of developing nations, and political uncertainties in the Arab world. Then the bubble burst, and early in May came the big sell-off. The biggest falls were in hard commodities (silver lost 30% of its value in a day), but agricultural commodities took a knock too.
So what happens next? We know that soft commodities are pretty volatile over the medium term if the price of a given crop rises, more acreage is planted, and the price goes down, and the reverse is true. However, I believe that the need to expand food production to feed a hungry world, and one seeking a better diet, will drive up prices of agricultural commodities in the long term. Even in the short term, market information suggests that some items, notably corn and soya, will rise steadily.
Of course, the big ticket item is oil. The price of fuel affects every single product we sell. When the sell-off occurred in early May, the oil price dropped, but it is already rising again. Not long ago, Goldman Sachs advised investors to take a profit on crude oil today they predict that prices will continue to rise during 2011, believing the market to be "structurally bullish".
If it's difficult to understand what is happening in currency and commodity markets, it's even harder to know how to react. Because we cannot influence movements in these markets, which anyway affect all our peers in the industry, our task is to remain competitive. We must be smart in our currency buying, and look critically at our product range.
We constantly seek efficiencies maximising loads on sea containers, rationalising delivery patterns, reducing insurance rates by contracting for years at a time, re-working sales force journeys to save fuel...
These are essential actions in the face of the market fluctuations described previously, but at least I don't have to worry about Arsenal until August.
Henry Amar is chairman of RH Amar
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