FAO Food Price Index Drops For Third Year

08 Jan 2015 --- The UN Food & Agriculture Organisation reports that its monthly Food Price Index declined in December after three months of stability. Continued large supplies and record stocks combined with a stronger US dollar and falling oil prices contributed to the decline.

The December Food Price Index averaged 188.6 points, a drop of 1.7 percent from November, led down by sugar and palm oil.

For the whole of 2014, the Food Price Index averaged 202 points, down 3.7 percent from 2013, marking the third consecutive annual decline.

This year-on-year drop came despite FAO's sub-index for meat rising to an all-time high annual average of 199 points, up 8.1 percent from 2013. Cereals, by contrast, dropped 12.5% from the previous year, buoyed  by forecasts of record production and ample inventories.

FAO's Food Price Index is a trade-weighted index that tracks prices of five major food commodity groups on international markets. It aggregates price sub-indices of cereals, meat, dairy products, vegetable oils and sugar. 

Four of those indices fell in 2014 and are at, or close to, their lowest levels in five years. 

The FAO Cereal Price Index averaged 183.9 points in December, up 0.4 percent from November as wheat prices rose on the back of worries that Russia may restrict exports. However, the increase was capped by the stronger U.S. dollar. Moreover, rice prices fell markedly amid abundant export supplies. 

The FAO Vegetable Oil Price Index average declined by 2.4 percent to a five-year low of 161 points in December, due mainly to depressed demand for palm oil as a biodiesel feedstock, itself linked to falling global oil prices. 

The FAO Dairy Price Index declined by 2.3 percent to 174 points, its lowest level since late 2009, as slowing imports by China and Russia left abundant export supplies for international markets. Price declines were greatest for milk powders, butter and cheese. 

The FAO Meat Price Index also declined in December, down 1.9 percent from the previous month, as a stronger U.S. dollar curbed price quotations for beef and mutton from Oceania and pork from Europe. However, at 204 points, this index is near its monthly all-time highs, and on a full-year basis rose 8.1 percent in 2014 from 2013, the only commodity group to post higher average prices over the year.

The FAO Sugar Price Index dropped 4.8 percent to 219 points in December, largely because of ample supplies in major producing countries such as Brazil. Falling crude oil prices, which reduce demand for sugar crops to be converted into ethanol, also weighed on international sugar quotations in December. 

Lower crude oil prices spelled bearish price trends for commodities that can be used for biofuels, notably sugar but also palm oil, which has the largest weight inside the vegetable oils index, said FAO senior economist Abdolreza Abbassian. "Ample supplies aside, the drop in oil prices obviously makes ethanol production less attractive," he said.