Food Price Index Falls, But US Drought Could Hit Grain Prices

The index now stands at 15.4 percent below its peak in February 2011. The average prices of all commodity groups in the Index were below May levels, with the largest drop registered for oils and fats. Continued economic uncertainties and generally adequate food supply prospects kept the index down although growing concerns over dry weather sent prices of some crops higher toward the end of the month.

6 July 2012 --- The FAO Food Price Index fell for the third consecutive month in June 2012, dipping 1.8 percent from May to its lowest level since September 2010. The four-point drop in June brought the index to 201 points from a revised level of 205 points in May 2012.

The index now stands at 15.4 percent below its peak in February 2011. The average prices of all commodity groups in the Index were below May levels, with the largest drop registered for oils and fats.

Continued economic uncertainties and generally adequate food supply prospects kept the index down although growing concerns over dry weather sent prices of some crops higher toward the end of the month.

Food commodity prices have started rising again recently, mostly because of adverse weather and this may result in a rebound of the Food Price Index in July.

FAO also lowered its forecast for 2012 world cereal production by more than 23 million tonnes from May, which is likely to result in a smaller build-up of global stocks by the end of seasons in 2013.

FAO’s new forecast for world cereal production in 2012 stands at 2 396 million tonnes, still a record level and 2 percent up from the previous high registered last year.

According to FAO’s latest assessment, the overall supply and demand situation in 2012/13 remains adequate thanks to abundant supplies of rice, a leading food staple, and sufficient exportable supplies of wheat and coarse grains.

But grain prices were very volatile in June due to continuing dryness and above-average temperatures in most of the major maize growing regions of the United States. Adverse weather is diminishing prospects of an improvement in the maize supply situation and FAO is monitoring the development closely.

The issue of swinging food prices will be discussed by a high-level event on “Food Price Volatility and Price Speculation” to be held at FAO on Friday, 6 July. Speakers will include Leonel Fernández, President of the Dominican Republic who will give a keynote address, and FAO Director-General José Graziano da Silva.

“FAO has been actively involved in studying food price volatility and identifying appropriate policy responses,” said Graziano da Silva. “Our analytical work is helping to deepen the understanding of the nature, causes and impacts of volatility and of what governments and other stakeholders can do about it.”

The FAO Food Price Index is a measure of the monthly change in average international prices of a basket of 55 food commodities.