FAO food price index shows signs of stabilization after summer drop

Global cereals harvest and stocks on track for record levels, sugar and palm oil prices rise

FAO’s monthly food price index was stable in October, as sugar and vegetable oil prices rose to offset declines in dairy and meat prices. The Food Price Index dipped to 192.3, technically, its seventh consecutive monthly decline, but a marginal 0.2 percent drop from the revised September figure. The ongoing slight decline in the index is “very good for food importing countries,” FAO senior economist Concepción Calpe said in an interview. The shifts come as FAO raised its forecast for a record global wheat output this growing season. 
Dairy prices fell by 1.9 percent, as butter and milk powder prices dipped due to increased output in Europe, where many producers are grappling with Russia’s ban on cheese imports. The sub-index for dairy products dropped to 184.3, down 3.5 points from September, and 66.8 points, or 26.6 percent down from October 2013. 
Meat prices also broadly declined, as pig production recovered in several countries hit by endemic porcine diarrhoea and growing cattle herds in Australia pushed down beef prices. FAO’s Meat Price Index fell by 1.1 percent or 2.3 points from September to 208.9, still more than 10 percent above its level a year ago. 
The Cereal Price Index, which fell sharply over the summer as global wheat and maize production appeared set for record harvests, was broadly stable at 178.4 points in October as maize harvest delays in the United States and deteriorating prospects for Australia’s wheat crop led to firmer prices. Rice prices declined, however, as newly harvested supplies came to market. The cereals sub-index is now down 9.3 percent, or 18.2 points below the level one year ago. 
Overall, the Food Price Index is at its lowest levels since August 2010.

Drought boosts sugar prices, palm oil production slows
FAO’s Food Price Index is a trade-weighted index that consists of the average of five commodity group price indices – cereals, meat, dairy products, vegetable oils, and sugar.
The Sugar Price Index rose to 237.6 points, a brisk 4.2 percent increase from the previous month, due largely to drought in parts of Brazil, leading to reports that the sugarcane crop will be smaller than expected. Despite the month’s gains, international sugar prices remain more than 10 percent below their October 2013 level. 
The vegetable oils sub-index rose for the first time since March, clocking in at 163.7 points in October, up 1.0 percent, or 1.6 points from September. Palm oil production slowdowns in Indonesia and Malaysia, combined with a revival in global import demand, sustained the increase. Soy oil prices weakened due to robust North American harvest prospects, while sunflower seed oil quotations rose due to smaller than expected harvests in the Black Sea region. The oils index is down 12.9 percent from October 2013. 

Projected 2014 cereal production trimmed back despite record maize and wheat harvests
Meanwhile FAO’s monthly Cereal Supply and Demand Brief trimmed back the Organization’s forecast for 2014 world cereal production by about one million tonnes. At 2.5 billion tonnes, the full-year production figure would be 3.7 million tonnes below 2013’s record output. 
The downward revision reflects a dimmer outlook for China’s maize production, even though global maize output is still expected to reach a new record of 1.01 billion tonnes on the back of bumper crops in the European Union and the United States. Meanwhile, the forecast for global wheat production has been raised, as output from Ukraine is on track to be higher than previously expected. This growing season’s wheat crop is now expected to top last year’s record harvest with a total output of 722.6 million tonnes. 
For rice, the forecast for global production remains unchanged at 496.3 million tonnes in milled rice equivalent. This would be 0.3 percent less than in 2013, and would mark the first decline since 2009.
Global inventories of all the main cereals remain on course to hit a 15-year high, although the forecast was marked down by 2.7 million tonnes from October’s projections to 624.7 million tonnes. 
This figure is 8.0 percent above the level at the start of the 2014/15 growing season and would raise the global cereal stock-to-use ratio to a twelve-year high level of 25.1 percent. 
Wheat reserves are projected to rise by 9.3 percent this year, while rice inventories are forecast to fall by 2.0 percent, reflecting expected inventory drawdowns, especially in major exporting countries such as India and Thailand. 
FAO’s November brief also observed that global cereal utilization for direct human consumption is set to expand by 0.9 percent – in line with the global population, leaving per capita consumption stable – while utilization for livestock feed is expected to rise by 2.6 percent. This growth is being driven in part by large quantities of low-quality wheat currently in markets being used for feed.


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