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Apologies for the delay in coming back to this post, time seemed to race away this week.  In part I we saw how the agricultural commodity prices were at record heights, or at least those long since seen.  The pertinent questions for the farmer and investor alike are is the high sustainable and is there any further upside?  TheCityFarmer looks at the influencing shifts of both supply and demand in the global market.  There are 3 factors that need to be considered.  Read the rest of this entry »

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Just a quick note,  to confirm that interest rates in the UK were, as expected, cut by a quarter of one percent earlier today.  In the statement released by the Bank of England, they were keen to stress the importance of containing inflationary pressure.

While the benefits of the easing are somewhat marginal to our farm, even though we are paying a mortgage, it is of course still welcome.

Bank of England Governor Mervyn King and his comrades on the Monetary Policy Committee will sit this Thursday to determine the BoE policy interest rate for the month ahead.  TheCityFarmer considers the likely outcomes. 

Given the recent sharp rate cuts by the Federal Reserve on the other side of the Atlantic, and the weak housing data (and resultant  pinch on consumer spending) it seems that there is one of only three choices available to the MPC; an unchanged rate or easing of .25% or .50%. The committee has to strike a fine balance between easing rates to fend off the increasingly evident slowdown in the UK economy, and sending a signal to exacerbate the increasing fears of rising inflation.  There has been a surge in such inflationary expectations since the new year.  A January pole conducted by YouGov and Citi, showed that 80% of the general public surveyed expected inflation to exceed the 2% government target.  While one may not consider the public’s expectations and perceptions to be an important determining factor in the MPC’s decision, the Governor himself noted in his 2007 “MPC 10 Years on” speech that “the anchoring of inflation expectations has been central to the stability enjoyed by the UK economy over the past decade.  The lesson to learn from economic theory is not to take those expectations for granted – they depend on the actions of the MPC.”  

Given these fears TheCityFarmer expects the Committee to err on the side of caution and plumb of the less drastic easing of a quarter of a percent.  While only time will tell the outcome and late economic data available close to the meeting might well have an impact, the expected cut would be welcomed by this farmer and many others with long-term floating rate loans on their balance sheet.

 As we know, wheat and other cereals have been enjoying a healthy period of a price growth over the last few years, and at the time of writing it is at a peak not before seen.   So TheCityFarmer aims to explain some of the possible causes.

There are a number of factors that can shed light on the increase illustrated in the chart below.  Often commentators will cite the difficult harvests experienced by those in important cereal producing nations such as Australia.  While this has, no doubt, made a contribution to the price by squeezing supply, it does not offer a long-term explanation.  

Feed Wheat Price Chart

To predict that the recent rises will be sustained into the long-term one would have to be able to point to some structural factors having a material impact on the forces of supply and demand in the market.   While measuring the magnitude of the affect is a vastly complicated matter that would require a great deal more inquiry than we can muster on this blog, TheCityFarmer is confident that there are forces, which are still in their early stages of development, which could indeed have the material impact required to sustain or even continue to drive up prices.  So what are they?  Feel free to leave your opinions in the comments field, but TheCityFarmer’s answer will have to wait for the next post which will be soon-coming.

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Part II of this post is now available here.

Welcome

Farming and the City are increasingly linked. Global markets set the price of farm products, which themselves are a fast growing asset class for institutional and private investors. Here TheCityFarmer brings the farmer’s perspective to agricultural commodity investors and shows how farmers can benefit by using the financial markets.
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