How has COVID-19 affected input prices?

As the scale of the coronavirus began to become apparent at the end of January, sterling started to weaken against both the euro and the US dollar. On 18 March, sterling hit a 35-year low against the US dollar as the UK government implemented measures to try to reduce the impact of the virus on the economy.

Since then, sterling has shown some recovery, due to the economic stimulus packages from the US, UK and other key nations. Nevertheless, sterling remains weaker than pre-COVID levels. As such, while this does make UK goods more competitive on export markets, it also means it is more expensive for the UK to import goods. This is significant for farm inputs in which the UK has a higher reliance on imported sources.

Global oil prices fell dramatically in the first four months of this year, as the coronavirus pandemic swept across the globe, collapsing demand. In April, the OPEC crude oil basket price averaged $17.66/barrel, 73% less than the value in January.

The quarantine measures introduced by the major economies meant that demand for oil for transport use diminished. As result of the rapid drop in demand, US oil prices turned negative for the first time on record on 20 April. This means that oil producers were actually paying buyers to take the oil away. Since then, oil prices have continued to remain at a low level, as supplies are in surplus to demand.

Prices of both UK red diesel and diesel at the pump have recorded month-on-month declines. However, it is important to note that these prices do not fully reflect the crude oil markets as they include taxes and profit margins for the sector. Nevertheless, the ramifications of the pandemic are likely to hang over markets some time and so fuel prices have potential to move down further.

One of the key challenges facing domestic inputs is the devaluation of sterling against the dollar. While currency has fallen away, the global collapse of stocks, bonds and equities has also collapsed the value of crude oil and pressured the price of global natural gas, a key input for ammonium nitrate. Sterling movements have lessened the pressure on UK natural gas prices, which have followed a comparatively normal trend for the time of year.

Nevertheless, the coronavirus pandemic has occurred when the majority of European crops are already in the ground. As such, most of the production inputs, such as fertilisers and agrochemical will like already be on-farm. However, the EU is not self-sufficient in mineral fertilisers. Typically, the EU imports these mineral fertilisers from Eastern Europe (e.g. Ukraine and Russia) and North Africa (e.g. Morocco & Algeria).

As such, some reports have highlighted potential concerns over the disruption to supply chains, which would create price volatility. However, the latest outlook from the EU Commission expects that there will be no major issues in terms of availability as a result to the pandemic. Furthermore, it suggests that fertiliser prices could decline, reflecting the fall in energy prices.