Global food prices dipped in August, mainly as the prospect of bumper cereal harvests pushed up expectations for larger grain inventories.

The U.N. Food & Agriculture Organization's (FAO) Food Price Index declined 1.3% from July, averaging 176.6 points in August. The drop was largely driven by a 5.4% decline in the FAO Cereal Price Index, reflecting a sharp fall in wheat prices as the outlook for production in the Black Sea region improved.

FAO raised its forecast for global cereal production to 2 611 million metric tons, an all-time record. Worldwide stocks of cereals are also expected to reach an all-time high by the close of seasons in 2018, according to the latest FAO "Cereal Supply & Demand Brief."

The new estimates reflect larger anticipated wheat harvests as improved production prospects in the Russian Federation more than offset downward revisions made for Canada and the U.S., as well as higher corn and barley outputs in Brazil and the Russian Federation. Global rice production in 2017 is also now projected to reach a record high, according to FAO.

Slight drop in prices

The slight decline in the FAO Food Price Index in August ended three months of consecutive increases. However, despite this, the index -- a trade-weighted index tracking international market prices for five key commodity groups -- remained 6% above its value a year earlier.

Along with cereals, the FAO Meat Price Index dropped 1.2% for the month, while the FAO Sugar Price Index slipped 1.7%, driven by favorable cane harvest prospects in the leading production countries of Brazil, Thailand and India, as well as by weaker international demand in the wake of higher tariffs imposed by China and India.

The FAO Vegetable Oil Price Index, on the other hand, rose 2.5%, led by rising quotations for palm, soy, rapeseed and sunflower oils.

The FAO Dairy Price Index also rose 1.4% from July, led by greater demand for butterfat in Europe and North America.

Global stocks and trade

FAO's new forecast also points to greater food use of cereals, especially wheat and rice, while utilization of coarse grains for animal feed is projected to reach an all-time high.

Even so, world cereal stocks are expected to hit a record high of 719 mmt, up 2% from their already high levels at the opening of the current seasons. Wheat inventories in the Russian Federation and maize inventories in Brazil are expected to rise notably.

World cereal trade is expected to expand by more than 2% to reach 403 mmt -- a new record. FAO's latest forecast is 8 mmt higher than earlier anticipated on account of firmer import demand by China, Brazil, the European Union, the Islamic Republic of Iran and Mexico.