Global food prices inch higher as FAO index posts third consecutive increase in May

Onome Amuge

The FAO food price index, which measures the change in international prices of commonly traded food commodities, recorded a third monthly rise in May, with higher costs of cereals and dairy products eclipsing the declining prices of sugar and vegetable oils, according to a recent report published by the Food and Agriculture Organization of the United Nations.

In its monthly evaluation of food commodity prices, the FAO food price index indicated an increase of 0.9 percent from the previous month, averaging 120.4 points in May, despite remaining lower by 3.4 percent year-over-year and far below its all-time high of 161.4 points, which was observed in March 2022.

The FAO cereal price index, which tracks global cereal prices, rose 6.3 percent in May compared to the previous month, chiefly driven by increasing wheat export prices worldwide. The uptick was majorly  attributed to mounting concerns over adverse weather conditions in various major cereal-producing regions including Northern America, Europe, and the Black Sea area, potentially adversely affecting the yields of the 2024 harvests.

The maize export market experienced an upswing in prices during May, predominantly due to ongoing worries over crop production issues in key producers, Argentina and Brazil. In Argentina, maize production is being negatively impacted by the corn stunt disease (Spiroplasma), while in Brazil, adverse weather conditions are posing a significant challenge to maize growers.

The ripple effects of the turmoil in wheat markets, combined with limited selling activity from Ukraine, further exacerbated the upward pressure on maize prices.

The FAO All-Rice price index also rose significantly by 1.3 percent during the month in review.

The FAO dairy price index saw a 1.8 percent climb from April, driven by heightened demand from the retail and food services sectors, which has been spurred by the approaching summer holiday season. Additionally, market speculations that milk production in Western Europe may fall short of historical levels have also contributed to the upward trend in dairy prices. The report indicated that the revival of import demand for spot supplies from certain nations in the Near East and North Africa regions has added to the upward pressure on dairy prices, as the global market dynamics continue to evolve in response to changing trade flows and consumer demand patterns.

On the other hand, the FAO sugar price index declined by 7.5 percent in May compared to the previous month, primarily attributed to the positive start of the new sugarcane harvest season in Brazil, one of the world’s largest sugar producers. According to the FAO, the decreased prices of international crude oil in May lowered the demand for sugar as a biofuel feedstock, which also added downward pressure to the index. As a result, the balance between supply and demand tipped towards a surplus, contributing to the overall decline in sugar prices in the global market.

The FAO vegetable oil price index fell by 2.4 percent in May compared to April, largely influenced by a decline in palm oil quotations. The seasonal increase in palm oil output coupled with the persistent weak global demand for the commodity pushed down the vegetable oil prices index. On the contrary, prices of soy oil, the primary feedstock for biofuels, increased due to a rise in demand from the biofuel sector, while prices of rapeseed and sunflower oils strengthened owing to diminishing export supplies from the Black Sea region.

The FAO meat price index dipped 0.2 percent in May, compared to April. The decrease was largely driven by the fall in international prices of poultry and beef, which offset the rise in the prices of pork. The poultry and bovine meat markets experienced downward price pressure, possibly due to factors such as increased production or subdued global demand, while the pork markets saw prices rise, potentially caused by factors such as supply chain disruptions or heightened demand.