Falling value of sterling not good news for Irish exporters
Comments made this week by Mark Carney, governor of the Bank of England, sent sterling to 12-month lows against the euro.

The value of sterling nosedived this week after governor of the Bank of England Mark Carney ruled out a rise in UK interest rates in 2016, citing weak economic growth in the UK and the continuing turmoil in global financial markets.

Sterling fell to more than £0.77 against the euro after Carney’s announcement, its weakest point against the single currency in over a year. With €4.4bn or 41% of Irish food exports sent to the UK last year, the sudden depreciation of sterling against the euro will be a major concern for Irish exporters.

Boosted

The weakness of the euro against sterling throughout 2015 served to boost the competitiveness of Irish exports on UK shelves. Irish food and drink exports to the UK grew by 7% in 2015, with the greatest driver of this undoubtedly the favourable currency tailwinds.

The euro weakened by almost 11% against sterling at one point in the year, with the single currency particularly weak during the period between early March and late August 2015.

However, with global markets in turmoil since the start of 2016 amid concerns over an oil supply glut and the economic health of China plaguing investors, the Bank of England governor has decided to hold his position and wait before any rise in UK interest rates.

Carney said the time was not right for a rise in interest rates, as UK growth would be too weak in 2016, especially set against the backdrop of the present fragility in the global economy.

The impact of the news saw the value of sterling fall against both the euro and the US dollar on Tuesday this week, an outcome clearly intended by Carney and welcomed by UK markets, as a weaker pound will only help UK exports.

Bearish outlook

Coupled with Carney’s bearish economic outlook, the uncertainty around a British exit from the euro zone will only intensify over the coming months as we move closer to a referendum date (possibly sometime in summer 2016), meaning the weakness of sterling could be here to stay for an extended period.

Should this be the case, Irish food and drink exporters will find themselves operating in more challenging market conditions with much of the competitive advantage enjoyed over the last 12 months wiped away.

Read more

Unilever warns of tougher markets and high volatility in 2016

Weak euro helps Irish food exports grow by 3% to €10.8bn

Agri shares – stocks rally back after last week’s rout
Shares in all the listed Irish agribusiness companies recovered some of last week’s losses, which were inflicted by fears in financial markets about rising interest rates.

Stock markets were able to recoup some of last week’s losses, related to fears over rising interest rates and an overheating US economy, during trade this week.

Of the listed agribusiness plcs, there were healthy gains this week for Kerry Group, Glanbia, FBD Insurance and Origin Enterprises.

Glanbia plc finished the week up almost 4% on its closing price last week at €14.33. The company announced the $350m acquisition of SlimFast last Thursday, which has yet to make any meaningful impact on the group’s share price.

Kerry Group posted gains of more than 4% in the last week, with shares trading at €91.60 by close of business on Thursday.

Shares in Origin Enterprises rallied 5% in the week to hit €5.61. However, Origin shares remain down 12% in the year to date. FBD shares are also up 5% in the week to €10.70.

It’s been a contrasting week for shares in Greencore, Aryzta and UK supermarket giant Tesco. In the same week it announced it had agreed a deal to sell its entire US business for $1.1bn, Greencore shares are down 2% in the week at £1.97.

Shares in Aryzta continue to struggle this year and the senior management team now faces a shareholder revolt over its plan to raise €800m by issuing new shares in order to save Aryzta. The company’s largest shareholder, Cobas Asset Management, is opposing the plan as it fears seeing its significant shareholding in Aryzta being severely diluted.

In the UK, shares in Tesco finished the week down more than 4% at £2.09. Meanwhile, in oil markets, the price of a barrel of Brent crude oil steadied in the last week at $80.

Agribusinesses to be recognised for success in China at Asia Matters Awards
Agribusiness companies that have achieved success in Asia are being invited to apply for the inaugural Asia Matters Business Awards.

Asia Matters, Ireland’s only Asia Think Tank whose purpose is to build business links and understanding between Asia and Ireland in order to drive economic growth, is holding a business summit next month.

The Global Asia Matters Business Summit, which is being held on 19 November, will conclude with the inaugural Asia Matters Business Awards.

The Awards will recognise Irish companies who have achieved strategic success in Asia. Shortlisted and winning companies will be promoted by Asia Matters to build their company brand recognition with key stakeholders in Asia.

If you are an Irish agri company doing business with Asia, you can apply now for free online for one of more categories at www.asiamatters.eu/asia-matters-business-awards

There is a special award category for Food & Beverage Exporter of the Year, and others to include Most Successful Market Entry into Asia and Expansion into New Asian Market.

Asia Matters was launched five years ago by Dr TP Hardiman, Alan Dukes and Martin Murray.

Analysis: are we entering a period of fertiliser price rises?
It’s that time of year again when farmers look to buy fertiliser for next year. Eoin Lowry analyses the global fertiliser supply-demand balance.

With Yara reporting a 74% rise in operating profits, along with a 16% improvement in underlying profits (EBITDA) for its third quarter, farmers would be right to ask where fertiliser prices are headed in the coming months.

The increased performance at the world’s largest nitrogen producer was attributed to higher sales prices which more than offset increased energy costs.

As a result, operating margins expanded from 2.9% to 4.3% in the three-month period.

Investors who have seen their shares rise 25% over the last six months will certainly be pleased with this announcement.

But what does it mean for farmers who may be thinking of buying fertiliser now for next spring? While never easy to project, as application is still four of five months away it is interesting to delve into the dynamics of global fertiliser markets to understand where markets may be heading.

Current drivers of fertiliser prices

Grain

Global grain markets are tightening. This is mainly driven by the US which has seen a modest production deficit this (2017/18) season.

The US Department of Agriculture is forecasting an increased deficit for the coming (2018/19) season. This is resulting in lower grain stocks.

The key measure of grain stock-to-use ratio is down nine days to 82 days of consumption from the start of the season. This has driven grain prices upwards.

The Food and Agriculture Organization (FAO) grain price index is up 6% compared with this time last year and is now equal to the five-year average. Therefore, the improved grain prices are expected to support fertiliser demand.

Energy costs

With some 80% of the cost of producing a tonne of nitrogen (ammonia) fertiliser tied up in energy costs, shifts in global energy prices have an effect on fertiliser prices.

Gas prices have increased in many regions including Europe, and look set to stay high through this winter.

Spot gas prices are 50% higher in Europe compared with this time last year. Yara itself has seen an almost 40% rise in its average gas costs globally in the last three months compared with the same period last year.

The reason for the hike in gas prices is threefold - depleted gas stores brought on by the Beast from the East and the coldest winter across Europe since 2012 and; strong demand in China is redirecting supplies out of Europe; and, finally, the cost of European emissions permits has more than doubled this year, tilting the economics of power generation away from more polluting coal units and toward cleaner generators burning gas.

Stronger crude oil prices, which have fallen back to just under $70/barrel, are probably also providing strength to energy markets. So it looks likely that gas prices in Europe will stay strong through the winter and the higher natural gas prices have raised the cost floor for producers in Europe.

Global supply

China is one of the largest producers and users of nitrogen and it is not exporting.

This year to August, China exported only 25% of what it exported for the same period last year.

Chinese production rates are below the level of last year, due to a curtailment in energy (mainly coal) to produce it. But despite global fertiliser prices increasing to a level where Chinese exports should again have become attractive export, China has needed to keep all its production for itself helping to support global urea prices.

A lack of Chinese exports and active buying through public tenders in India, Pakistan, Bangladesh and Ethiopia, on top of demand from private markets, has lifted global urea demand.

For example, Egyptian granular urea has traded 25% higher over the last three months compared with the same period last year and has risen more sharply in recent weeks.

A lack of Chinese exports and active buying through public tenders in India, Pakistan, Bangladesh and Ethiopia, on top of demand from private markets, has lifted global urea demand

This, combined with increased gas prices, has given support to European ammonia (a key component in the manufacture of CAN) prices. Over the last three months, prices have risen 50% compared with the same period last year.

Phosphate prices also look strong and are up around 25% over the last three months compared with the same period last year. This is as a result of strong global demand and a major production outage in Florida.

In addition, Chinese exporters have raised the price at which they are willing to export, partly due to higher production costs.

In summary

The global nitrogen supply-demand balance is tipping in favour of the manufacturer.

Nitrogen supply growth is forecast to decline after 2018, and lead times for new factories can be up to five years. Meanwhile, demand growth is expected to pick up compared with the last three years, as global grain stocks are relatively low.

Coupled with energy prices strengthening, it looks like we may be entering a period of increased fertiliser prices.