FAO Food Price Index Steady in February, But 14.5 Percent Weaker than Last Year

04 Mar 2016 --- The FAO Food Price Index was stable in February, as falling sugar and dairy prices offset a substantial jump in vegetable oil prices from the previous month.

Averaging 150.2 points for the month, the FAO Food Price Index was virtually unchanged from a revised 150.0 points in January and down 14.5 percent from a year ago.

FAO also issued its first forecast for the world's 2016 wheat harvest, projecting 723 million tonnes of total production, about 10 million tonnes below last year's record output.

The FAO Food Price Index is a trade-weighted index tracking international market prices for five key commodity groups: major cereals, vegetable oils, dairy, meat and sugar.

Diverging from February's generally stable trend was a sharp increase in the FAO Vegetable Oil Price Index, which rose 8.0 percent from the previous month. That was led by a 13 percent surge in palm oil, which gained on reports of falling inventories and a poor production outlook in the near future. Soy oil prices also firmed as a result.

Peter Thoenes, FAO economist maintains that the upswing in FAO’s veg-oil price index was mainly on account of palm oil. Thoenes told FoodIngredientsFirst: "Palm oil prices appreciated by 13 percent m-o-m on reports of reduced output in Southeast Asia (SEA), which led to falling inventories, as well as poor production prospects in the coming months, and as the El Niño influence continues."

"Soy oil prices also firmed, on the expectation that poor supplies of palm and other vegetable oils would boost global demand for soy oil. Improvements in world crude oil prices during the second half of February also contributed to the strengthening in veg-oil prices," says Thoenes.

"China’s purchase of oilseeds and veg-oil are actually seen slowing down temporarily following strong imports in recent months. However, for 15/16 as a whole, China’s imports are tentatively forecast to rise compared to the subdued 14/15 level," adds Thones, "For soybeans, this seasons’ slowdown in China’s import growth could be less pronounced than earlier anticipated."

The FAO Sugar Price Index declined 6.2 percent from January, buoyed by strong global inventories and improved crop conditions in Brazil, the world's largest producer and exporter.

The FAO Dairy Price Index fell 2.1 percent on the month amid sluggish imports, especially by China.

Prices of the world's staple grains were broadly stable. The FAO Cereal Price Index inched down only around half a percentage point from the previous month but was 13.7 percent lower than a year earlier. Wheat prices fell 1.5 percent, maize prices slipped only slightly, while rice prices rose modestly.

Meanwhile, the FAO Meat Price Index rose slightly, buoyed by supply constraints for beef from Australia and the U.S. as well as support for private storage of pig meat in the European Union. Poultry prices fell, reflecting lower feed costs.

Strong 2016 wheat harvests seen in China and South Asia.

FAO's latest Cereal Supply and Demand Brief forecasts a 1.4 percent drop in worldwide wheat output in 2016, due mainly to dry weather leading to reduced winter plantings in the Russian Federation and Ukraine. However, China and Pakistan are expected to sustain near-record wheat harvests, and India's output is anticipated to recover.

FAO also trimmed its estimate of last year's total cereal production to 2 525 million tonnes, reflecting updated wheat production estimates from India and revised output figure from the Islamic Republic of Iran.

Estimates were also lowered for last year's world output of coarse grains and rice due to developments in Asia. Combined world cereal production in 2015 is now seen at around 1.4 percent below the record level reached in 2014.

Global cereal stocks are likely to amount to 636 million tonnes by the close of seasons ending in 2016, nearly unchanged from their already high opening levels, but down 6.2 million tonnes from the previous month's forecast. The revision mostly reflects reduced wheat inventory forecasts for the Islamic Republic of Iran and Uzbekistan, largely resulting from adjustments to historical stock numbers of both countries.

The world cereal stock-to-use ratio, a leading indicator of global world food security, still stands at a relatively high level of 24.7 percent.

FAO now expects world trade in cereals to decline by 2.0 percent in volume terms in 2015/16 from the previous season. That mostly reflects shrinking demand for wheat and barley, more than offsetting further demand for rice.