Weaker Sterling will lift prices again

By James Campbell

Increased prices for most farm livestock and crops in Northern Ireland should follow from the sudden drop in value of the exchange rate of Sterling last week.

With more than 78 pence required to buy one euro on Wednesday this week, the exchange rate has moved by more than 15% from the position it occupied a year ago. The euro was worth around 68 pence throughout the April to August period of 2007.

This latest 'step change' in the currency brought a reduction in the value of the pound against both the euro and the US dollar, with the latter being especially relevant for returns obtainable for milk powders and other goods exported onto world markets. On 19 March, the pound had dropped back below US$2 and came close to €1.27.

This year-on-year change relative to the euro can account for around 3 pence per litre on the price of milk, which at the auction last week averaged around 5.3p/l more than at the corresponding sale a year ago.

Dairy processors say that the recent volatility of currency exchange rates has made the auction bidding even more of gamble than before, and they are tending to be cautious about assuming that the exchange rate will remain as favourable as it is at present. They point out that it had reached 76 pence to one euro in mid-January, only to ease back to just over 74p per euro in mid-February.

But at least in the short term, the stronger euro relative to the pound means that sales of beef into the Britain market by the Republic of Ireland in particular are higher priced in Sterling terms, and this should feed through into higher beef cattle prices here and in Britain. Allied to that rising price for imported supplies, generally tighter supplies of finished cattle locally must also feed through in higher returns to producers. Cattle buyers at the factories on Wednesday acknowledged that supplies were scarcer, but quotes were only edging up to 250p/kg for U3 steers at Foyle Meats and WD Meats.

Meanwhile, hogget prices jumped by around 30 pence per kg this week, due to combination of fewer numbers and the better returns obtainable from France because of the exchange rate.

There is a similar exchange rate effect for pigmeat arriving in Britain from the Netherlands and other countries in the euro zone, with the product price in pounds and pence having risen. This should give a much needed boost to pig producers.

The downside to this weaker Sterling is in the prices that farmers will have to pay for grain and other animal feedstuffs, and for imported fertilizers and machinery.