Food Prices Decline Further, Led By Sugar

06 Mar 2015 --- The FAO Food Price Index declined to a 55-month low in February, dropping 1.0 percent from January and 14 percent below its level a year earlier. Lower prices for cereals, meat and especially sugar more than offset an increase in milk and palm oil prices. The FAO Food Price Index averaged 179.4 points in February, down from 181.2 points in January and 208.6 points in February 2014.

Its ongoing decline - to its lowest level since July 2010 - reflects robust supply conditions as well as ongoing weakness in many currencies versus the U.S. dollar, which appear set to continue, said Michael Griffin, FAO's dairy and livestock market expert.

"The first thing to flag is the favorable outlook for production of a number of crops in 2015," he said. "Stocks are also very strong" for most cereals, he added.

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.

The FAO Cereal Price Index averaged 171.7 points in February, down 3.2 percent from January, with booming prospects for wheat output explaining the bulk of the decline. Rice prices were more stable, with aromatic rice quotations increasing markedly, compensating for much the declines observed in the other rice varieties.

The FAO Sugar Price Index averaged 207.1 points in February, down 4.9 percent from January, the sharpest move of any commodity. The drop reflected optimism on production prospects in Brazil after recent rainfalls, as well as India's announcement it will subsidize exports to boost sugar sales abroad.

The FAO Meat Price Index averaged 187.4 points in February, down 1.4 percent from its revised January value. Beef and mutton prices declined, largely due to a stronger U.S. dollar against the Brazilian real and the Australian dollar. Pigmeat prices rose for the first time in eight months, helped up by the European Union's decision to provide aid for private storage in the sector.

The FAO Dairy Price Index rose for the first time in a year, averaging 181.8 points in February, representing a 4.6 percent increase from the previous month. The increase was driven by milk powders and reflects both a seasonal slowdown in European output as the quota for the season draws to a close and a crimped supply from New Zealand and Australia. Cheese quotations remained largely unchanged.

The FAO Vegetable Oil Price Index averaged 156.6 points, up 0.4 percent from January. This reflected a sizeable rise in palm oil prices - resulting from recent floods in Malaysia and from a hike in Indonesian domestic biofuel subsidies expected to stoke demand - even as soy oil prices continued to decline given prospects of bumper soybean harvests in South America.

FAO has further raised its estimate of 2014 world cereal production, now seen at 2.542 billion tonnes, amounting to 20 million tonnes or one percent higher than in 2013. The bulk of the increase reflects wheat production gains in Argentina, Central Asia and Europe.

With the 2015 winter wheat crop already developing in the northern hemisphere, FAO forecasts that production for the year would amount to 720 million tonnes, or one percent below the record output of 2014, discounting normal yields in the European Union and Central Asia after strong levels last season.

Globally, 1.107 billion tonnes of cereals are forecast to be used for food consumption in 2014/15, resulting in a slight increase in average per capita intake to 153.3 kilograms. Cereals used for animal feed are anticipated to grow by 4.0 percent and account for 877 million tonnes.

FAO forecast for world cereal stocks at the close of the 2014/15 crop seasons has been raised by about 8 million tonnes since last month to a 15-year high of 631 million tonnes, with part of the revision resulting from reviewed estimates of previous years' stock levels in China and Ukraine.