Global food prices decline further in January, cereal supplies still “likely to tighten,” says FAO

06 Mar 2023 --- The benchmark index of international food commodity prices declined in January for the tenth consecutive month, the Food and Agriculture Organization of the United Nations (FAO) has revealed.

The FAO Food Price Index averaged 131.2 points in January, 0.8% lower than the previous month and 17.9% below its peak in March 2022. The index tracks monthly changes in the international prices of commonly-traded food commodities.

The price indices for vegetable oils, dairy and sugar drove the January decline, while those for cereals and meat remained largely stable.

Cereal, wheat and maize
In January, the FAO Cereal Price Index was essentially unchanged (up a mere 0.1%) from December and stood 4.8% above its level of one year earlier. 

International wheat prices declined by 2.5% as production in Australia and the Russian Federation outpaced expectations. 

World maize prices rose marginally due to strong demand for exports from Brazil and concerns over dry conditions in Argentina. 

International rice prices, however, jumped by 6.2% from December, influenced by tighter availability and significant local demand in some Asian exporting countries and exchange rate movements.

Cereal supply to “tighten” in 2022/23
In its new Cereal Supply and Demand Brief, FAO raised its forecast for world cereal production in 2022. However, global cereal supplies are still forecast to tighten in 2022/23.

Loading rice in Bangladesh. (Credit: FAO/Kazi Riasat)Global cereal output in 2022 is now forecast at 2,765 million metric tons or 1.7% below the 2021 outturn. Upward revisions for Australia and the Russian Federation now point to a record global output for wheat in 2022, while total coarse grains production is expected to decline by 3.3% from the previous year. 

The forecast for world rice production was revised downward as lower-than-expected output in China more than offset upward revisions for Bangladesh and several other countries. As a result, global rice output is now predicted to decline by 2.6% from its all-time high in 2021.

Early indications suggest likely area expansions for winter wheat cropping in the northern hemisphere, especially in the US, driven mostly through elevated wheat prices. 

However, high fertilizer costs may affect application rates with adverse implications for yields. Last week, FoodIngredientsFirst reported that the World Economic Forum ranked a looming food supply crisis as one of the top four threats facing the world currently, predicting “the lagged effect of a price spike in fertilizer” would hit food production across the world this year.

Oils in decline
The FAO Vegetable Oil Price Index declined by 2.9% in January. World prices of palm and soy oils dropped amid subdued global import demand, while those of sunflower seed and rapeseed oils fell due to ample export availability.

The FAO Dairy Price Index averaged 1.4% lower than in December, with prices trending down for butter and milk powders on lighter demand from leading importers and increased supplies from New Zealand. 

World cheese prices rose slightly, driven by a recovery in foodservices and retail sales in Western Europe following the New Year holiday and currency movements.

The FAO Meat Price Index moved fractionally in January (edging down just 0.1% from December), as ample export availability weighed on poultry, pig and bovine meat prices, while ovine export prices rose due to more robust import demand.

The FAO Sugar Price Index dropped by 1.1% from December. Substantial harvest progress in Thailand and favorable weather conditions in Brazil outweighed the impact on prices due to concerns over lower crop yields in India, higher gasoline prices in Brazil, which support demand for ethanol, as well as the Brazilian real’s appreciation against the US dollar.

Global crops 
Low domestic prices could result in a slight cutback in wheat plantings in the Russian Federation, the world’s largest exporter. At the same time, severe war-induced impacts in Ukraine are estimated to reduce winter wheat area plantings by 40%. The price indices for vegetable oils, dairy and sugar drove the January decline, while those for cereals and meat remained largely stable.

Last month, we reported that the Black Sea Grain initiative is up for renewal in March, sparking fresh debate on the next steps in this vital food supply shipping out key crops to markets depending on wheat and corn.

Meanwhile, record plantings are forecast in India, spurred by high market and support prices, and relatively high plantings are projected in Pakistan as standing water from the 2022 floods is causing less hindrance than initially anticipated.

Most of the 2023 coarse grain crops have been sown in the southern hemisphere countries. Brazil may post record maize plantings, while those in Argentina could decrease due to low soil moisture levels. 

World cereal utilization in 2022/23 is now forecast to drop by 0.7% from the previous year, to amount to 2,779 million metric tons, with the total utilization of maize predicted to decline while wheat use increases and rice utilization changes little year-on-year.

The forecast for world cereal stocks is pegged at 844 million metric tons at the end of the marketing year, pushing down the world stock-to-use ratio for 2022/23 to 29.5%.

In its latest brief, FAO predicts international trade in cereals in 2022/23 to decline by 1.7% from the previous year’s record level to 474 million metric tons.

Edited by Elizabeth Green