Food prices down in December but averaged 8.2 percent higher than previous year

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12 Jan 2018 --- Global food prices have declined in December, led by sharp decreases in vegetable oils and dairy products, according to the latest FAO Food Price Index issued yesterday. The index, a measure of the monthly change in international prices of a basket of food commodities, stood at 169.8 points in December 2017, down 3.3 percent from November.

Despite the late-year slide, the FAO Food Price Index averaged 174.6 points in 2017, up 8.2 percent from 2016 and reaching the highest annual average since 2014.

Speaking to FoodIngredientsFirst, Abdolreza Abbassian, Senior Economist/AMIS Secretary, Trade and Markets Division, (pictured), said: “December was the last month of the year we had another decline for that month, but when we see the whole picture for 2017 in fact prices were up compared to 2016. We also tried to highlight that although food prices in 2017 averaged higher than in recent years it doesn’t mean that prices were exceptionally high or above the historical levels. They still need to go some way before one would be a bit more alarmed about their development, but they are up and the tendency to increase further would depend on the supply-demand of this year, some of which we already have estimates for, some of which we would have to wait and see, depending on crop conditions for example.”Click to Enlarge
 
“December is a month where there is usually not a lot of trade activity, so subdued prices in December isn’t out of the ordinary. If there was one surprise it was for the year as a whole, you have 2017 averaging up 8 percent from 2016 despite generally large supplies. So the question is how come with such big surpluses prices still averaged up. Generally speaking, demand for most commodities remained robust so although we had big supply, demand grew steadily,  supported by improved economic conditions, including faster recoveries in some of the important countries,” he explains. 

The FAO Dairy Price Index declined 9.7 percent in December, with high export supplies and subdued demand weighing on the international prices of skim and whole milk powders as well as cheese and butter. Still, the subindex was 31.5 percent higher over the whole of 2017 than the previous year.

The FAO Vegetable Oil Price Index declined by 5.6 percent from November, as palm oil prices tumbled amid swelling stocks in Malaysia and Indonesia. That, in turn, pressured down soy oil quotations. Over 2017, the subindex ran 3 percent higher than the prior year.

Click to EnlargeThe FAO Sugar Price Index also declined, marking a 4.1 percent drop from November due to seasonal factors and expectations of a large surplus in the year ahead. Sugar prices were 11.2 percent lower, on average, in 2017 than in 2016, due largely to a bumper harvest in Brazil, the world's leading producer.

The FAO Cereal Price Index remained broadly stable for the third consecutive month, with international wheat prices weakening while those of maize and rice firming up. The Index was 3.2 percent higher over 2017 than in 2016, while still 37 percent below its 2011 peak.

The FAO Meat Price Index slipped slightly in December, with strong supply pressuring international prices for bovine meat down. For the year, the subindex registered a 9 percent increase from its 2016 level.
 
I think what is important for 2018 is that when you compare it to 2017,  we had a rather stable market, activity on almost all account was subdued, and uncertainty was not that significant. In 2018, I think we are going to confront some of the leftover questions marks that did not resolve especially in the area of regional or multilateral trade where a lot of issues were raised but the market knew it was too early to react. This year markets could prove more uncertain and prices may end up more volatile and even higher than 2017 especially if faster growth stimulate demand beyond current expectations, Abbassian notes.   
 
There is also the China question. China is a significant player in food markets with a great appetite for almost all food commodities covered in the FAO Index. Developments in China will continue to influence the overall direction of food prices in international markets, he concludes.

By Elizabeth Green

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