Global food prices dip in August: Sharp falls in cereals and sugar while palm oil demand rebounds

06 Sep 2019 --- Sharp falls in the prices of staple cereals and sugar have led to a global food price dip in August, according to a report by the Food and Agriculture Organization of the United Nations (FAO). Cereal prices have dropped by more than 6 percent following lower than expected US harvests while sugar prices have also declined. By contrast, the FAO Vegetable Oil Index rose by 5.9 percent in August, hitting an 11-month high amid a rebound in global import demand for palm oil.

Meat prices also rose by 0.5 percent, now up 12.3 percent from its value at the beginning of the year. The increase reflects higher international price quotations for pigmeat, underpinned by strong import demand from China, where African Swine Fever (ASF) has curtailed domestic production.

The FAO Food Price Index, which tracks monthly changes in the international prices of commonly traded food commodities, averaged 169.8 points last month, down 1.1 percent from July while still up 1.1 percent from its August 2018 level.

Maize values turned sharply lower due to expectations of a much larger than previously anticipated harvest in the US, the world’s largest maize producer and exporter. Wheat prices also remained under downward pressure, reflecting ample export availabilities, but those of rice edged up, due to seasonal effects as well as concerns over the impact of weather on crops in Thailand. The FAO Cereal Price Index declined by 6.4 percent from the previous month. 

The FAO Sugar Price Index was down 4 percent from July, due largely to the weakening of the Brazilian real, as well as prospects of larger shipments by India and Mexico. However, the FAO Vegetable Oil Index rose by almost 6 percent last month, which was also partly due to unfavorable weather conditions in Indonesia's major growing regions. Soy oil prices also rose, driven in part by lower than anticipated crush volumes in North America.

The FAO Dairy Price Index rose by 0.5 percent from its July level, reversing sharp falls registered in the previous two months, as price quotations rose for cheese, Skim Milk Powder and Whole Milk Powder.

The FAO Dairy Price Index increased by 0.5 percent from its July level, reversing sharp falls registered in the previous two months, as price quotations rose for cheese, skim milk powder and whole milk powder.

New estimates for global cereal production 
FAO also released a new Cereal Supply and Demand Brief, raising its July forecast for global cereal output by 22 million tons to 2,708 million tons, 2.1 percent above the 2018 outturn.

The revisions mostly reflect improved expectations for US maize production. Meanwhile, FAO lowered its estimate for global wheat output in 2019 due to reduced crop productivity in the EU and Russian, but it is still expected to be 5 percent higher than in 2018. The forecast for worldwide rice production has been revised up from July to 517 million tons, at par with last year's record level, driven by increases in China and the US.

World cereal utilization for the year ahead is expected to hit a new record of 2,715 million tons, buoyed by rice consumption hitting an all-time high of 519 million tons, according to the report. This translates into a 0.5 kilogram per capita increase from the previous year. Utilization forecasts for wheat, maize and barley were also raised.

The stronger harvest prospects point to world cereal stocks reaching 847 million tons by the close of seasons in 2020, which, however, would remain around 16 million tons below their opening levels. Maize inventories are expected to accumulate sharply in the US, while China's wheat stocks are currently set to expand by 7.9 percent and reach an all-time high.

FAO left unchanged its forecast for world trade in cereals at nearly 415 million tons, as expected increases in wheat and rice trade offset reduced trade prospects for maize and sorghum.

Edited by Gaynor Selby