Drought in the US, the recent rain in the UK and adverse weather in Russia have led to renewed anxiety over commodity prices.

The worst US drought for over 50 years has hit yields and propelled the price of commodities like corn and soybeans upwards, prompting concerns manufacturers could again face a squeeze after the spikes seen across a number of raw materials in 2011. Commodity watchers will also have noted Russia's decision to reduce its forecast for its grain harvest amid a dry spell in the country. And there are signs the recent prolonged wet weather in the UK has affected yields. UK retailer Marks and Spencer has told just-food it expects to see an impact on commodity prices in the weeks ahead.

After the jump in their commodity costs in 2011, manufacturers would have hoped for an easing of the pressure in 2012 to help bolster margins when consumer confidence in many Western markets remains weak and with retailers licking their wounds after a challenging year. Some commodity prices have fallen but others like sugar have remained elevated and now concerns centre on corn and soybeans.

However, some commodity watchers believe the situation cannot yet be compared to previous spikes, with wheat and rice supplies remaining relatively high. This week, the world's largest food manufacturers start to report their second-quarter results. Analysts have already warned investors in companies like US poultry giant Pilgrim's Pride and Canada's Maple Leaf Foods that earnings could come under pressure. Of course, it all depends on the commodity basket companies face. Cocoa futures have, for instance, fallen in recent weeks. In the days ahead, the likes of Hershey, Unilever and PepsiCo will kick off the reporting season and their comments on commodity costs will be scrutinised.

Commodity markets have been central to the row over milk prices in the UK. Dairy processors have pointed to a slump in cream prices for their decision to cut the price they pay for milk, which has led to anger from farmers, who now claim producing milk is a loss-making activity. Processors and their retail customers have come under fire, with protests and blockades at depots, distribution sites and stores. The National Farmers Union has called on increases to be funded from retailers' margins. Asda last week increased the price it pays farmers, although the hike was dubbed an "insult" by farming group Farmers for Action. In the last 72 hours, two other retailers that have faced criticism - The Co-operative Group and Morrisons - have increased the prices they pay for milk.

Some farmers have threatened to disrupt supplies if the price cuts from processors are not reversed by 1 August. Last week, one of the processors that had cut prices told us it would not reconsider its position. Dairy Crest is struggling to return its dairies division to an "acceptable" level of profitability and said the price it is being paid for liquid milk and cream cannot justify a higher farm-gate milk price.

At the time of writing, talks brokered by the UK government between farming groups and dairy processors are taking place. Keep an eye on our pages to find out what the talks bring.

Until next time...

Dean Best
Managing Editor
Web: http://www.just-food.com
Email: editor@just-food.com
Twitter: http://twitter.com/just_food