INCREASED demand combined with contracting supplies will continue to bolster dairy prices in 2017 in the EU, while record global stocks of most other commodities are likely to witness a fall in values.

That was the warning from Rabobank – a leading agri-bank – in its outlook for 2017, which claimed that milk prices should continue to improve due to ‘solid global demand growth and contracting supplies following low prices and the EU’s milk production reduction scheme.’ However, while dairy prices will improve, the bank believes prices will remain low elsewhere, with staple food commodities such as wheat and corn being stored in record volumes. This will weigh on the prices farmers can expect to be paid next year, it says.

“After three years of declining prices and extreme weather wrecking crops in many important agricultural regions, 2017 looks set to bring some much needed stability to food prices,” said Stefan Vogel, head of agri-commodity markets.

However, he added: “Nevertheless, record global stock levels mean prices are likely to remain stubbornly low – good news for consumers but less so for the world’s farmers.”

Instead, he warned that China could have a huge impact on food markets in 2017.

“Given the size of its population, its economic growth and its massive share of global agri-commodity imports, it exerts a colossal influence on world food prices. And, with huge stocks of many of the most important commodities – including corn, wheat and soyabeans – any decision by China’s policymakers to begin selling down these reserves would have a profound effect on world markets as Chinese imports would decline.”

Mr Vogel added that China held huge stocks of many key commodities. Estimates suggested that 60% of global cotton supplies, more than half of corn supplies, 40% of the world’s wheat and 21% of global soyabeans are held in China.

The bank said that if the country decided to sell some of those stocks it could depress global markets, which has looked at the prospects for 13 crucial food and agricultural commodities.

Instead, it expected wheat prices to strengthen to some extent, although values will ‘remain below the forward curve, as a rising global demand – in response to multi-year low prices – is facing large supplies and record stocks.’ Corn prices will, however, remain low: “Despite a 40% inventory increase in the US, global stocks stay flat in 2016-17 and show the first decline since 2009 in 2017-18,” it says.

Soya meal, in contrast, is expected to rise above the forward curve, due to increased livestock expansion and global demand, which is bad news for livestock farmers and who are already being affected here in the UK due to the large fall in the value of sterling.

Volatility in the global currency markets will as always affect agricultural commodity prices going into 2017, with the euro likely to depreciate as a result of French, Dutch and German elections during 2017.

On the plus side, the decline in the value of the pound since the Brexit vote, in June, pushed up the price of food imports by as much as 16% whilst boosting agricultural exports with British grain sales abroad at their highest level for nearly 20 years.

But, despite predictions of volatility, a growing world population still needs feeding.

“While farmers, consumers and commodity traders will all be keeping an eye on potentially volatile currency prices during 2017, overall the fundamentals remain strong.

“The global population is growing and prosperity is rising, fuelling the switch to more expensive, meat and dairy rich diets.

“In our view, global food prices should in the main hold up, even if farmers are braced for little or no commodity price growth during the year,” he concluded.