Price Changes with effect from 1 st January 2010
Below is a complete update as to where the most relevant commodity and currency prices are impacting on key ingredients.
We try to fix a Price List twice a year applicable from January–June and July-December, and our suppliers are generally lined up to do this. One factor that throws this out is currency, where we have to make adjustments to prices, which are maybe fixed Euro prices. Obviously we try to minimise the impact of fluctuations, but when they are extreme we do have no choice but to pass these on.
As regular readers of the Newsletter will be aware, in the past few months the Cocoa Market has been increasing at a fairly alarming rate, against our thought and belief, that prices for Chocolate would ease down for the first half of 2010. As can be seen from the graph etc below, the increases have resulted in the reverse happening and therefore we currently have the view that from 1st January 2010, we will see Plain and Extra Bitter Chocolate increase by 4-5% and due to relatively lower Dairy prices and a better Cocoa Butter ratio, Milk and White Chocolate prices will remain much as now.
The closing of the price gap between Plain, Milk and White is significant, although peculiarly the average consumer has always perceived Extra Bitter and Plain Chocolate as being a more expensive product. (Try this on your friends and family...)
Commodity & Currency Update
Following the summary of the present situation in September, the next step in dismantling the EU Sugar Regime took place from 1st October. This resulted in the EU ‘Reference Price' reducing, which has absolutely no direct impact on the actual commercial prices charged in the market, although we do expect to see sugar prices easing.
One of the peculiarities of the EU Sugar market is that this is fixed in Euros and given that the UK is out of the Euro zone, fortnightly reviews of the relativity of currencies are made which where sterling fluctuate by more than 1% either way of the Euro rate, then sugar prices in the UK move up or down. These changes can be fortnightly and with the recent decline in the value of Sterling we have seen regular increases which negate any immediate easing in prices.
Again the September review of the market proved to be accurate and in the last 4 weeks we have seen Dairy Markets surging dramatically primarily due to:-
- Season low volumes in EU
- New Zealand milk powder auction prices have increase 56% over the last 2 auctions
- Increase in world market prices making EU products competitive again
- Large surplus volume has been taken into intervention stores
- Uneconomically low milk prices resulting in "farmer strikes" in France and Belgium
- Sterling has weakened against euro again over last 5 weeks (see below)
The above factors combined with buyers short term purchasing tactics this year has resulted in a sudden panic over the last 3 weeks to cover requirements for October - December
This has resulted in the following price increases:
- Bulk Cream has increased by 50% for spot delivery
- Butter has increased by 50%
- Wholemilk powder has moved up by over 35%
- SMP has increased over 20%
- Spot Milk has increased from 19pence per litre to 29pence per litre
There is a view that this increase may be short term only and should recede early 2010. However, the longer the spike remains, it will force buyers to commit to 2010 requirements to ensure supply.
Cocoa prices climb and climb with the fundamentals really still not supporting the 28 year highs we are experiencing at the moment. There is evidence that bean quality especially from the Ivory Coast is not as good as it should be, but it is still the Speculators that are behind the market highs.
The graph speaks for itself.
Although as the main crop really starts to kick in we should see dips in the market, these are expected to be short lived as Industry has relatively short cover and so the market will close the dips fairly quickly after they appear!
As we said last month, ‘mixed UK, EU and World economic news and forecasts all had a negative impact on sterling and this volatility seems likely to be with us going forward to the end of the year'. Well at least we were right about this, with the £ dropping down to Euro1.075 last week and currently trading just below the 1.10 level.
Big impact on Euro based Ingredient prices, but again the upside is good for UK manufacturers as we were saying at the beginning of 2009, in that it is ‘protecting' local producers from cheaper imports of finished products. Anyone that has been to the continent in the last few months will know how ‘cheap' the UK is in comparison – whether you are using the Mars bar comparison method or beer, wine, hotel rooms etc!
Also attached is a Sterling/US$ chart, which basically shows the same story – so we hope our customers continue to thrive during the run up to and through Christmas!!
2 nd October 2009