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ANALYSIS

Global food prices fall as bumper cereal harvests push up expectations
Saturday, 09 September, 2017, 08 : 00 AM [IST]
Rome
Global food prices dipped in August 2017, mainly as the prospect of bumper cereal harvests pushed up expectations for larger grain inventories.

The Food and Agriculture Organisation (FAO) Food Price Index declined 1.3 per cent from July, averaging 176.6 points in August.

The drop was largely driven by a 5.4 per cent 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 tonne, an all-time record.

“The worldwide stocks of cereals are also expected to reach an all-time high by the close of seasons in 2018,” stated the latest FAO Cereal Supply and Demand Brief, which was released alongside the index.

“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 United States of America, as well as higher maize and barley outputs in Brazil and the Russian Federation,” said FAO.

“Global rice production in 2017 is also now forecast to reach a record high,” it added.

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 six per cent above its value a year earlier.

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

But the FAO Vegetable Oil Price Index rose 2.5 per cent, led by rising quotations for palm, soy, rapeseed and sunflower oils.

And the FAO Dairy Price Index also rose 1.4 per cent from July, led by greater demand for butterfat in Europe and North America.

Sharp increases in global stocks and trade
FAO’s new forecast also pointed to greater food use of cereals, especially wheat and rice, while the utilisation of coarse grains for animal feed was projected to reach an all-time high.

Even so, world cereal stocks are expected to hit a record high of 719 million tonne, up two percent 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 also expected to expand by over two per cent to reach 403 million tonne, a new record.

The FAO’s latest forecast is eight million tonne higher-than-earlier anticipated on account of a firmer import demand by China, Brazil, the European Union (EU), the Islamic Republic of Iran and Mexico.
 
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