Sharp decline in world food prices

FAO price index shows largest fall in seven years due to ample supplies, lower energy prices and China's economic slowdown.

September 11, 2015

3 Min Read
Sharp decline in world food prices

International food commodity prices continued to decline in August as ample supplies, a slump in energy prices and concerns over China's economic slowdown all contributed to the sharpest fall of the FAO Food Price Index in almost seven years.

The index averaged 155.7 points in August 2015, down 5.2% from July, the steepest monthly drop since December 2008, with virtually all major food commodities registering marked dips.

The trade-weighted FAO Food Price Index tracks international market prices for five major food commodity groups: cereals, meat, dairy products, vegetable oils and sugar.

In August, the cereal price index averaged 154.9 points, down 7.0% from July and 15.1% from last year - a decline driven by falling wheat and maize prices that reversed two consecutive months of modest increases. Continued improvements in production prospects for 2015/16 were largely behind the cereal price slides.

The vegetable oil price index averaged 134.9 points in August, down 8.6% from July, and its lowest level since March 2009. The fall primarily reflected a six-and-a-half year low in international palm oil prices, mainly the result of slowing import demand, notably by India and China, amid expectations of rising production.

A substantial drop in prices for milk powders, cheese and butter pushed the August dairy price index down by 9.1% to 135.5 points,  with much of the weakness attributed to softening import demand from China, the Near East and North Africa.

A sharp fall in the sugar price index - down 10.0% from July to an average of 163.2 points in August - was largely the result of the continued depreciation of the Brazilian Real against the US Dollar and firmer expectations that India, the world's second largest sugar producer, will become a net exporter in the current 2015/16 season.

In contrast to the general downward trend, meat prices in August remained virtually unchanged from the previous month.

Nevertheless, compared to the meat price index's historic peak in August 2014, overall prices were down by 18%.

Good world cereal supplies expected in 2015

Meanwhile, the latest FAO forecast  for global cereal production in 2015 stands at 2 540 million tonnes, 13.8 million tonnes more than expected in July, but still 21 million tonnes (0.8%) below the 2014 record. The upward revision resulted from more buoyant production prospects for coarse grains, wheat and rice.

A new FAO Cereal Supply and Demand Brief, also issued today, raises forecasts for global coarse grains output by 7.5 million tonnes to 1 311 million tonnes. However, this remains 19.9 million tonnes (1.5%) short of the 2014 record. The upgrade from July was mostly driven by better than anticipated growing conditions in Argentina (maize), Brazil (maize) and the United States (maize and sorghum), which more than offset a drop in maize production in the EU, where dry and hot weather dampened yield expectations.

As the harvest is nearing completion in the Northern Hemisphere, the global wheat production forecast for 2015 is becoming firmer, with 728 million tonnes now expected, 5 million tonnes more than previously foreseen.  The revision was driven by higher expectations for crops in Australia, the EU, the Russian Federation and Ukraine, more than offsetting a lower production forecast for Canada, where major growing areas continued to be affected by dry conditions.

Prospects for world rice production (milled basis) have also improved since July 2015, albeit by only 1.3 million tonnes, mainly attributable to India, where plantings are progressing in line with last season in spite of the prevailing El Niño. Based on the current forecast of 501 million tonnes, global rice production would be 3.6 million tonnes (0.7%) greater than in 2014.

The FAO forecast for world cereal stocks by the close of the seasons in 2016 has been raised by almost 12 million tonnes since July, to 643 million tonnes, on account of more optimistic crop prospects, putting this season's ending inventories only 6 million tonnes (1%) below its record high opening level.

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