FAO Food Price Index drops to seven-year low

The Food and Agriculture Organisation (FAO) Food Price Index fell in January 2016, slipping 1.9 per cent below its level in the last month of 2015, as prices of all the commodities it tracks fell, sugar in particular.

The Food Price Index averaged 150.4 points in January, down 16 per cent from a year earlier registering its lowest level since April 2009.

The FAO Food Price Index is a trade-weighted index tracking international market prices for five key commodity groups: major cereals, vegetable oils, dairy, meat and sugar.

A statement issued by FAO’s Media Relations in Rome, Christopher Emsden, said the main factors underlying the lingering decline in basic food commodity prices are the generally ample agricultural supply conditions, a slowing global economy, and the strengthening of the US dollar.

In January, the FAO also raised its forecast for worldwide cereal stocks in 2016, as a result of low projected consumption and improved production prospects.

The FAO Sugar Price Index fell 4.1 per cent from December, its first drop in four months, as crop conditions improved in Brazil, by far the world’s leading sugar producer and exporter.

It noted that the Dairy Price Index dropped by 3.0 per cent on the back of large supplies, in both the EU and New Zealand, and stagnant world import demand.

The FAO Cereal Price Index declined 1.7 per cent (to 149.1 points) amid ample global supplies and increased competition for export markets, especially for wheat and maize, as well as a strong US dollar.

It said the Vegetable Oil Price Index dropped 1.7 per cent, mainly because of a decline in soy oil prices reflecting expectations of ample global soybean supplies.

It said the Meat Price Index moved 1.1 per cent lower than its revised December value, with prices of all meat categories falling, except pig meat, which was sustained by the opening of private storage aid in the EU.

Weather patterns associated with El Niño are sending mixed signals about the early prospects for cereal crops in 2016, especially in the Southern Hemisphere, according to FAO’s Cereal Supply and Demand Brief.

It said 2016 crop prospects have been “severely weakened” in Southern Africa, and a 25 per cent cut in wheat production in South Africa now appears likely, with cuts expected in India as well, following a poor monsoon and below average rains since October.

The FAO said conditions for the crop are generally favourable in the Russian Federation and the European Union, but winter plantings declined in the United States and Ukraine.

As for the 2015 season, FAO modestly raised its forecast for world cereal production to 2 531 million tonnes, up slightly from that released in December.

It said wheat output in Canada and Russia and maize output in China, Canada and Paraguay drove the upward revision.

The FAO also slightly raised its expectation regarding 2015 world rice production, mostly on account of higher forecasts for China, Viet Nam and the United States.

At the same time, it lowered its forecast for world cereal utilization in the 2015/16 season to 2 527 million tonnes, which remains 0.8 per cent above that of the previous year, reflecting a 2.0 per cent increase for wheat, largely on account of higher livestock feed used in developed countries and a 0.3 per cent increase in maize.

World rice utilization is projected to expand by 1.1 per cent, keeping world per-capita consumption stable; as a result of the upgraded production and downgraded consumption forecasts, world cereal stocks are set to end the 2016 seasons at 642 million tonnes, higher than they began.

The FAO said that level implies a steady and comfortable global cereal stock-to-use ratio of around 25 per cent; however, the inventory build-up varies geographically and depending on the crop.