Higher grains, dairy prices provide strong push to FAO price index

The food and Agricultural Organisation, FAO has said higher increases in grains and dairy prices gave a strong push to its price index which rose for the second consecutive time in March.

The FAO Food Price Index (FFPI) averaged 172.8 points in March 2018, 1.1 percent or 1.8 points higher than the February figure.

The March index is 0.7 percent up on the figure for March 2017, indicating an increasing spate of food price inflation.

The latest increase is chiefly anchored by stronger international prices for grains and dairy products and a slight increase for meat. Sugar and vegetable oils, on the contrary, have decreased. The declines were offset by increases for maize, wheat and most dairy products.

Worldwide cereal production hit a record level in 2017, rising by 33 million tonnes from 2016, to nearly 2,646 million tonnes, according to FAO’s latest estimate in the Cereal Supply and Demand Brief.

The Cereal Price Index continued on its upward path, averaging 2.7 percent higher than in February and 12.1 percent above its March 2017 value.

Wheat prices rose mostly on weather worries, including prolonged dryness in the United States of America and cold wet conditions in parts of Europe.

The organisation, however, looks forward to world maize and wheat production declining based on early forecasts.
According to a research that assessed the impact of global temperature change on crop yield, the production of wheat will decline as temperatures increase, with the demand simultaneously increasing by 60 percent by the middle of the 21st century.

Corn prices have increased as wet weather in Argentina reduces yield potential there, while Asian purchases are reported to have kept international rice prices firm.

The FAO Dairy Price Index rose 3.3 percent to average 197.4 points in March, although the figure is only slightly above that of a year ago.

FAO analysts said lower than expected milk production in New Zealand, together with continued strong global import demand led to increased butter, cheese and whole milk powder prices, while skimmed milk powder prices suffered from overhanging global stocks and rising production.

The FAO Meat Price Index, at 169.8 for March, was little unchanged from February but three percent up on March 2017. Within the category, sheep meat values increased through strong import demand from China, pig meat was up slightly as supplies tightened in Europe while poultry meat values remained stable. However, cattle meat product prices eased due to subdued demand and the prospect of increased supplies from New Zealand.

A marginal drop in the FAO Vegetable Oil Price Index led to an index of 156.8 points in March, a marginal fall from the multi-month low in February. While there were modest falls for soy, rape and sunflower oils, this was balanced by higher prices of palm oil, which is the world’s most widely traded vegetable oil.

The Organisation predicts that palm oil prices will continue to firm, despite seasonal production increases, as robust international demand is leading to stock drawdowns in Malaysia and Indonesia. This is supported by the EU’s prospective resumption of palm oil-based biodiesel imports from Indonesia plus rising mineral oil prices.

The FAO Sugar Price Index fell 3.4 percent month-on-month to average nearly 186 points in March 2018. This represents a 27.5 percent drop from a year earlier, reflecting falling sugar prices in line with substantial export availability.

The weaker Brazilian Real and a relaxation of export rules by India until the end of the season have contributed to the oversupply.