Volatility is the price we pay for free trade
In the past few years there has been a lot of talk about the free market. With agricultural markets deregulating but also experiencing severe volatility, some commentators are asking if policy-makers have made the wrong call? What happened to all of those new consumers we were supposed to be serving?
The truth is those new consumers are going through difficult times as well. While the IMF is forecasting 3.3pc for the global economy this year, growing to 3.8pc next year, it predicts much slower growth in emerging markets, some of which, Nigeria and Malaysia for example, are oil exporters. The current oversupply and large stocks have bought oil prices down to below $50 per barrel once again.
Oil exporters have become poorer and they are less able to afford our food exports. In places like Mexico and Algeria lower oil revenues have meant reduced government spending on food subsidy programmes.
The strong dollar is another reason for the slowdown in demand from emerging markets. Most food commodities globally are sold in dollars and for emerging markets products have become much more expensive as the dollar has strengthened.
Then there is the turmoil in China. While Rabobank do not expect economic collapse in China, the slowing of growth will impact demand for imports. A good example is beef with imports rising rapidly since 2012 but now weakening considerably.
Russia has removed itself from the market by embargoing products from many Western suppliers, but even if that were not the case, low oil prices have weakened the rouble.
When demand is weak, supply also needs to weaken to balance the market. 2014/15 has seen good growth conditions in most regions.
The wheat harvest has been good in both the US and Black Sea areas and stocks are high. Plentiful stocks of corn are also available, and the US Department of Agriculture forecasts the second highest ever soya harvest. Add to this the rapid reduction of the Chinese pig herd which will cut their need for feedstuffs and we can conclude that feed costs are likely to remain low through the winter.