World food prices decline for ten consecutive months, cereal supplies forecast to tighten

03 Feb 2023 --- For the tenth month in a row, the Food and Agriculture Organization (FAO) Food Price index – the benchmark index of food commodity prices – has dropped. The January decline was driven by drops in the price of vegetable oils, dairy and sugar, while cereals and meat prices remained largely stable.

The index averaged 131.2 points in January, which was 0.8% lower than the prior month and 17.9% below its peak in March 2022.

The FAO vegetable oil price index declined by 2.9% in January, while diminished demand for palm and soy oils caused a drop in global prices. Sunflower and rapeseed oils prices also dipped due to ample export availability. 

Dairy prices averaged 1.4% lower than in December 2022, as prices trended down following decreased demand from leading importers and increased supplies from New Zealand. 

Conversely, a recovery in foodservices and retail sales across Western Europe after the New Year’s holiday and currency movements, drove a rise in global cheese prices.

Meat prices nudged down only 0.1% from December 2022, while ample export availability weighed down on poultry, pig and bovine meat prices. Strong demand saw a rise in ovine export prices.

Sugar prices dropped 1.1% across the index from December. Concerns about lower crop yield in India were outweighed by substantial harvest progress in Thailand and good weather in Brazil, which is also experiencing higher gasoline prices and a higher demand for ethanol.

The FAO is reporting a continued decrease in the price of commodity goods.Cereal concerns
The FAO has also released its new Cereal Supply and Demand Brief, which forecasts global cereal production and provides up-to-date perspectives and assessments of the world cereal market. Today’s report raises the forecast for global cereal production across 2022 while flagging that supplies are “forecast to tighten” in 2022 and 2023.

Global cereal output in 2022 is now forecast at 2.765 million tons, 1.7% below the 2021 outturn. 

Upward revisions for Australia and the Russian Federation point to a record global output for wheat across 2022. Meanwhile, coarse grain production is expected to drop by 3.3% from the previous year.

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

What’s coming in 2023?
The FAO predicts international trade in cereals in 2022/23 to decline by 1.7% from the previous year’s record level of 474 million metric tons.

It also flags that high fertilizer costs may affect application rates with adverse implications for yields. However, early indications point to likely area expansions for winter wheat cropping in the northern hemisphere, especially in the US, primarily driven by elevated wheat prices.

The Russian Federation, the world’s largest wheat exporter, could experience a slight cutback in wheat plantings due to low domestic prices. As war-torn Ukraine battles both the Russian invasion and a severe winter, impacts of the conflict are estimated to reduce winter wheat area plantings by as much as 40%. 

High market and support prices spur record planting forecasts in India. Standing water from the 2022 flood has caused less hindrance to Pakistan than expected, leading to projections of relatively high plantings.

In the southern hemisphere, most 2023 coarse grain crops have been sown. Brazil may post record maize plantings, while low soil moisture levels may cause a decrease in those in Argentina. 

Global cereal utilization across 2022/23 is forecast to drop by 0.7% from the previous year to 2,779 million metric tons. Total utilization of maize is predicted to decline while wheat use increases and rice use remains stable year-on-year.

The forecast for world cereal stocks is pegged at 844 million metric tons at the end of the marketing year, pushing the world stock-to-use ratio for 2022/2 to 29.5%.

February marks the tenth consecutive month where commodity prices have dropped.Price fluctuations
Earlier this month, the US Department of Agriculture (USDA) underscored that it predicted food inflation to stabilize between 9.5% to 10.5% at the end of 2022, with the body forecasting that last December would be the fourth month in a row of decreasing food prices in the country. 

“Food prices are expected to grow more slowly in 2023 than in 2022, but still at above historical average rates,” said the USDA.

The government agency predicts food prices to increase between 3.5% and 4.5% this year, with food-at-home prices growing between 3% and 4% and food-away-from-home between 4% and 5%.

In the EU, agri-cooperatives and farmers are warning of a complex regulatory landscape in 2023 as many European agricultural proposals, such as the new Common Agricultural Policy (CAP) and the new farm-to-fork strategy, were written without taking into account unprecedented inflation and the war in Ukraine.

This move comes as Ukraine experiences increased pressure on its already-strained food chain. On average, the number of ships departing Ukrainian ports through the Black Sea Grain Initiative food corridor has fallen to less than three a day, the lowest in months. The war-torn country accuses Russia of artificially blocking the grain corridor via delayed ship inspection.

By James Davies