Although the cost of rations has declined sharply since their peak in April last year, the volatility remains and costs have been climbing again since the start of the year.
These fluctuations merely increase the pressures on the industry, because producers are rapidly exposed to these price changes. However, supermarket customers drag their feet on awarding price rises, while being quick to demand price reduction when feed costs decline.
The price of Poultry World's basic layers ration, at £184/t, is now £50 below its 2008 high, but has gained £30 in the last two months.
There has been a rally in global grain costs in recent weeks, but the UK sector now has a new worry in the weakness of sterling, which has sharply magnified those global increases.
Sterling is down by 30% against the US dollar compared with the exchange rate for much of last year, and this has had an especially dramatic effect on soyameal costs.
US soyabeans for export, for example, are currently quoted at $380/t (£262), an increase of $55/t (£38) since December, but $250 (£172) lower than last July.
By contrast, UK-produced soyameal hit a new high of £345/t in January, compared with £325/t last summer, although it came back to £300 last month. This surge in soya is largely behind the recent rise in ration costs.
Future
What can the industry expect in the months to come? The strength of sterling remains a major concern and no-one can rule out further slippage.
Setting aside this issue and looking at global soya prices, Alex Miller, soyabean trader at Cargill, admits that with the outlook for the global economy looking gloomy and seemingly heading in one direction, the soyabean complex "provides us with a challenging paradox that needs resolving".
On the one hand global stock levels are reducing, following the current predicted South American crop, which in isolation is bullish. On the other hand, however, world demand is contracting in line with the global slowdown, which is bearish.
The battle as always is over which has the stronger influence, supply or demand, and the challenge for the market is to decipher the direction, and predict correctly the outcome.
"Will farmers in US plant sufficient soyabean acres to make up the likely short fall in South America? Will demand from Asia drop, as food prices move out of the reach of many consumers as incomes fall?
With wheat, the situation looks a little more favourable. US export prices have stabilized lately, having hovered around the $200/t (£138) mark since October, apart form a short dip in early December (see graph). Last summer they peaked at over $400/t (£276) .
In the UK, feed wheat has bounced back up from £84 to £109 since October, also driving up ration costs, but remains some £70 below last year's highs.
According to Frontier's Simon Christensen, wheat markets will continue to challenge all those involved in the cereals arena, from producers to traders and compounders. Here he believes that the supply situation will continue to have the greatest influence on prices.
"Production levels across the globe remain the biggest focus as to where grain values will move next. This year's record wheat crop has provided some comfort in prices, against the back drop of the 2007 harvest rally.
"The next three months from a crop development perspective in the northern hemisphere, along with the planting progress in the southern hemisphere, will give a better idea as to the likely price movement in the second half of 2009," predicts Mr Christensen.
That supply situation is regularly reviewed by the International Grains (IGC) Council in its market reports.
In the latest of these, it maintains the immediate supply and demand outlook for grain prices remains "generally bearish", with forecast for global stocks tending to be adjusted upwards in recent months.
Looking forward to 2009/10, IGC comments that lower prices and higher input costs are affecting wheat plantings, and production is likely to fall sharply. Largest declines are expected in the EU, Russia, Ukraine, US and China.
Although total wheat production would be down 37m tonnes from the 2008 record, it would still be "well above average".
Source: FWI
