Sugar, dairy and staple grains push food price index up by 0.7 per cent in October – UN

10 November 2016

Rise in the price indices of staple grains, sugar and dairy have pushed global food price index up by 0.7 per cent in October 2016 to 172.6 points (9.1 per cent from a year earlier), the United Nations food and agricultural agency said today.

According the updated UN Food and Agricultural Organization's (FAO) Food Price Index, the rise in price index of staple grains was the first such increase in three months.

Reports of sugar production shortfalls in Brazil's Centre South region and India's Maharashtra state pushed the Sugar Price Index up by 3.4 per cent in October while the rise of 3.9 per cent in the Dairy Price Index was led by rising prices of cheese and butter as a result of sustained internal demand in the European Union (EU) after a period during which stocks were drawn down.

In a news release today, FAO explained that the Food Price Index rose continuously throughout 2016 except for a brief dip in July.

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

While indices of three of these commodity groups increased, the Oils/Fats Price Index declined 2.4 per cent from September, largely linked to weaker palm oil quotations as a consequence of sluggish global import demand.

The Meat Price Index also fell, shedding 1.0 per cent in October, a drop largely driven by slacker demand for European pig meat from importers in China.

On the other hand, the Cereal Price Index rose 1.0 per cent in October, buoyed by tightening supplies of high-quality wheat even as the overall prospects for global wheat harvests have improved.

Cereal production

According to FAO, world cereal production for the year should amount to about 2,571 million tonnes, up marginally from the agency's October forecast. This anticipated production is 1.5 per cent above the output last year.

“The updated figure […] reflects a substantial upgrade of the outlook for world wheat production, which is now expected to rise to 746.7 million tonnes, a 4.3 million increase from October forecast,” said FAO, referring its updated Cereal Supply and Demand Brief.

In terms of geographic distribution of production, Russia's wheat output is expected to set a new record. Favourable weather is also boosting yields in Kazakhstan, the UN agency noted.

The increase in world wheat and barley production more than offsets the expected 4.8 million tonne decline in the 2016 global maize crop due to weather-induced yield downgrades for Brazil, China, the EU and the United States.

The forecast for global rice production was largely unchanged.

Cereal utilization

FAO also said that the total cereal utilization for the 2016-2017 season is now forecast at 2,562 million tonnes, up slightly from October and 1.7 percent higher than a year earlier.

The agency explained that global feed use, expected to expand by 2.7 percent, is a primary driver for the increased utilization. The use of wheat for animal feed, on the back of ample supplies of lower-quality wheat, is anticipated to grow by 6.1 per cent to 146.6 million tonnes, an all-time high.

Global food consumption of cereals is forecast at 1,106 million tonnes, up 1.3 percent from a year earlier and sufficient to maintain a broadly stable per capita consumption level globally. World cereal stocks will likely increase to nearly 662 million tonnes by the end of the 2017 seasons, driven by growing wheat inventories, especially in China, the US and Russia.

Coarse grains stocks, on the other hand, are projected to drop by 1.7 percent, led by reductions in China, Brazil and South Africa.

World rice inventories are expected to fall slightly to 169.8 million tonnes.

2017 winter and summer crop planting

Additionally, according to FAO, early signs from the plating of the 2017 winter crop in the northern hemisphere indicate that US farmers are reducing the area because of low price prospects and a subdued export outlook due to a stronger US dollar. Russia and Ukraine are, however, ahead of last year's pace.

Sowing of summer 2017 cereal crops is underway in the southern hemisphere, and conducive weather conditions are leading to an expansion in South America with the maize area planted in Argentina expected to expand by 6 percent from last year's high level.


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