VIEWPOINT: The Fat Cats of Fat – how do you eat yours?… plus 7 Days to Friday 1st November 2013

S e w e l l B r y d e n G u n n VIEWPOINT: The Fat Cats of Fat – how do you eat yours? And AGAIN there has been a lot of noise in the press, other media and on TV about the pledges, promises and protestations about simply how MUCH our friends in the food supply and manufacturing industry are working towards providing healthier food products, removing fat and other undesirables whilst at the same time improving “value for money” and our overall “taste experience”. Hmm! At what cost – I ask myself….and what’s wrong my current “taste experience?”

Immediately I am wondering if I have yet to discover even more products containing “mono- and di-glycerides of fatty acids” or “[genetically] modified starch” or “hydrogenated vegetable fat [food glue]” that have previously gone undetected. Yes – I admit I am a bit of an anorak when it comes to ingredients in “non-natural source” food products (those foods on our supermarket shelves that just don’t naturally exist “in the wild”). But with the food industry having already had the first push some while ago to remove the food glue (my term – no-one else’s), resulting – in my view – in some pretty sneeky price increases, can I really be blamed for asking “What’s next?”

So what will happen to prices if low cost fat additives are replaced with added value healthier alternatives?  Let’s take a look .

Well firstly, it is worth exploring exactly WHAT might replace the less desirable fats currently used in food product manufacture. My own experience tells me that some manufacturers have already moved to an appropriate alternative namely, Palm Oil.

Palm Oil has been adopted in a number of products as a better alternative to the fat products previously used. Typical products such as biscuits, bread, packaged cakes and so on come to mind but the list is not limited and in fact could span a large number of food categories.

Some may feel more affinity with crisps and chocolate, whilst those of you who (without stereotyping!) are older may prefer cakes and pastries. So depending on your lifestyle choices, you may be more or less affected.

So what is happening to Palm Oil in the marketplace? Well, quite a lot. Palm Oil is a globally traded commodity and as such trades at an ever fluctuating price per tonne for a standard contract size –  trading unit 25 tonnes.

Over the last year the price of Palm Oil has increased by nearly 19%. Last week alone closed with Palm Oil priced over 7% higher than the week before.

Given that the big suppliers are unlikely to make wild promises without having already (one summizes) secured the solution, my guess (and it is a guess) is that future food product pipelines may already be affected by impending “recipe changes” and “new improved” products.

In previous writing I have already commented on above-inflation food cost increases. This latest development together with pretty clear pricing history may indicate yet more cost increases.

Last week I discussed the notion from a Financial Planning and CashFlow Management view, that 9% may easily be a realistic figure for energy inflation over the year, with at least 60% over the next ten. Depending on your age and lifestyle, you may well find it prudent to cautiously estimate up to 10% over the next year on non – fresh food products such as those discussed here or even brazenly estimate 15 – 20% over the year if you are especially “optimistic”!  With the gradual deterioration in GBP Sterling’s purchasing power against the EU Euro and the USD Dollar over the year, this could be more.

Either way, I suspect you’ll probably take the government’s official inflation target of 2% with the proverbial pinch of salt, or whatever the “healthier option” is……

This Viewpoint by Neil A Sewell, Chartered Financial Planner, Investment Analyst & Pensions Specialist at SewellBrydenGunn. Needless to say – the views expressed here are personal!

TAKE NOTE: If you are not sure if you are putting enough aside for retirement, or even if you think you are – is important to get all this reviewed.

Any queries – please do not hesitate to contact us.

Over The Past Week: Snapshot View of the Markets: Below are closing numbers as at Friday 1st November 2013.

For more discussion about how the financial markets may affect your own personal or business financial situation, protection, pensions or investments, why not get in touch?: 01276 471083 OR cedar@s-cm.com

Market Numbers

FTSE 100                              6734.74         0.20%    on the week

FTSE All Share                     3585.99        0.13%    on the week

Brent Crude $ per barrel       108.84        1.73%     on the week

Natural Gas NYMEX:NG         3.581            -1.32%      on the week

Natural Gas NYMEX:NG 1yr   3.898           -1.89%      on the week

Natural Gas NYMEX:NG 10yr 6.022          -0.07%      on the week

Gold $ per troy ounce pmL  1306.75        -3.04%     on the week

Silver $ per troy ounce pmL     21.75        -2.68%     on the week

Copper US$ per tonne lme3  7263.50       1.82%     on the week   (LME 3 months)

Wheat Futures CBOT              667.50          -4.16%     on the week   (US$ per bushel – Contract 5000 bushels/136 tonnes)

Palm Oil US$ per tonne          945.00         7.08%   on the week   (eg CMEGlobex – trading unit 25 tonnes – mirror and settle to Malaysian ringgit benchmark)

MPC Base Rate  %               0.50  (Bank of England Base/Repo Rate) since 05/03/2009

Euro Repo Rate %                0.50  since 02/05/2013 (previously 0.75)

US Libor %                            0.09990   last week : 0.10240

Euro Libor %                         0.05000   last week : 0.04786

GBP Libor %                         0.46875  last week : 0.46938

Euro Euribor 3 mnths %     0.23   last week : 0.23

Sterling CDs 3 mnths %       0.48  last week : 0.48

RONIA  %                            0.3888  l wk : 0.4190 (Repurchase Overnight Index Ave Rate)

SONIA   %                            0.4264  l wk : 0.4330 (Sterling Overnight Index Ave Rate)

HFRX                                    1211.74           0.09%  on the week  (Global Hedge Fund Index)

Tesco [}{]                               363.40            -1.82% on the week    xd

Sainsbury                               393.90           -0.73% on the week

BT  [}{]                                   378.60             5.43% on the week

BP  [}{]                                   484.75              7.45% on the week

Rexam                                    517.50              1.27% on the week

ARM Holdings  [}{]              £9.76             -0.71% on the week

HSBC  [}{]                              687.30            1.07% on the week   xd

RBS  [}{]                                 340.00            -7.71% on the week

RMG:LSE (330 launch)     574.00           3.42% on the week

Standard Life                         351.10             -4.23% on the week

WPP                                       £13.26               -1.34% on the week   xd

10 Year Government Bond (Gilt) Price     £96.59      Yield    2.65%

15 Year Gilt Yield Index. 15th of the month approx.  Yield    3.14%

One Pound will buy 1.5922 US Dollars

One Pound will buy 1.1805 Euros

CPI Inflation stands at 2.7% as at Sept 2013     Currently the old Gov’t measure of inflation

CPIH Inflation stands at 2.5% as at Sept 2013   Currently the new Gov’t inflation measure

Retail Prices Index (Carli):  3.2% – Sept 2013  No longer a Gov’t measure of inflation

Retail Price Inflation RPIJ – Jevon’s formula:  2.5% as at Sept 2013

Inflation Target expected to stay in place: 2.0%  based on the Consumer Prices Index (CPI)

The Chancellor confirmed in his Budget Speech Wednesday 20th March 2013 that the 2% Inflation target for the Bank of England would stay in place.

The Government’s Inflation Target is announced each year by the Chancellor of the Exchequer in the annual Budget statement. The Bank of England Monetary Policy Committee has as one of its aims, the aim to set interest rates so that over- or under- inflation can be brought back to Inflation Target over a reasonable time period without creating undue instability in the economy. Inflation Target is not a permanently fixed level and may vary depending on prevailing economic and fiscal conditions.

KEY to Important Indeces:

RONIA – Repurchase Overnight Index Average Rate – Launched June 2011

Changes to Method of Calculating Inflation Measurement Index – March 2013

pmL Metal and Precious Metal Pricing used in Market Numbers 

lme3  – London Metal Exchange 3 months

[}{]  –   Denotes a Stock or Share of a FT Global 500 company

xd    –   Denotes a Stock or Share price quoted as ex-dividend

Please ensure you read and take note of the disclaimers mentioned here.

Whilst every effort is made to ensure accuracy of the above information, this cannot be guaranteed and cannot be relied upon to be free from errors, omissions or inaccuracies.

This information update is provided for convenience and interest only and is not intended nor does it constitute any form of regulated or other advice and no liability is accepted, nor does any information provided here constitute nor is it intended to be any form of invitation or solicitation or recommendation to buy sell or hold in any capacity and no liability is accepted. You should not use this update as a basis for making decisions.

SewellBrydenGunn (business name and trading style of SCM Finance) and or any of its members employees partners proprietorship or other stakeholders (we) from time to time may or may not have an interest in any items contracts stocks shares securities or other instruments mentioned here. For your own safety and convenience you should always assume that we may have an interest or position in any of the above and consequently you cannot rely on it to be impartial information.

You should confirm independently any information you wish to rely on to make any decisions – in any case you should seek and take appropriate and timely independent financial legal or other advice including full and proper discussions about the level of financial legal or other risk involved before deciding on any action transaction or inaction.

Past performance is not an indicator of future performance. The value of investments and any income from them can go down as well as up and you may get back less than originally invested.

“Secure” “investments” such as Cash on deposit, can provide relative safety to the amount invested or held in this way and can be expected to offer relatively low growth over the medium to long term. They cannot fall in actual value, but can fall in “real” value due to the effects of inflation.

At the other end of the risk scale, “Adventurous” investments (more volatile Equities – Stocks and Shares) carry a relatively much higher risk of capital loss but with the potential for relatively much higher capital growth over the medium to long term. They may be subject to a considerable level of fluctuation in capital value. They do not offer any guarantees.

At the extreme end of the risk scale – Aggressive/Specialist/Highly Speculative – are investments such as leveraged contracts, derivatives, options and futures. Directly investing into these investments carries a very high risk of capital loss, but with the potential for a higher return (or severe loss) over the short the medium and or the long term. They are very volatile and are only suitable for investors who can afford to, and are prepared to, risk the entire capital value and for some investment contracts, risk substantially more than the original capital value, as well as being prepared to take a very active role in managing their investment throughout the day, every day. These types of investment are definitely NOT suitable for the majority of investors since most investors are “passive” once they have made their initial investment – ie they expect to review their investments from time to time but without being actively involved on a daily basis. These investments do not offer any guarantees.

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