FAO Food Price Index starts 2016 at 7-year low

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

The FAO Food Price Index fell in January, slipping 1.9 percent below its level in the last month of 2015, as prices of all the commodities it tracks fell, sugar in particular.

The Food Price Index averaged 150.4 points in January, down 16 percent from a year earlier and registering its lowest level since April 2009.

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

The main factors underlying the lingering decline in basic food commodity prices are the generally ample agricultural supply conditions, a slowing global economy, and the strengthening of the US dollar.

This month, FAO also raised its forecast for worldwide cereal stocks in 2016, as a result of lowering its projected consumption and raising 2015 production prospects.

The FAO Cereal Price Index declined 1.7 percent (to 149.1 points) amid ample global supplies and increased competition for export markets, especially for wheat and maize, as well as a strong US dollar.

The Meat Price Index moved 1.1 percent lower than its revised December value, with prices of all meat categories falling, except pigmeat, which was sustained by the opening of private storage aid in the EU.

Mixed early prospects for 2016 harvests

2016 crop prospects have been "severely weakened" in Southern Africa, and a 25 percent cut in wheat production in South Africa now appears likely. Conditions for the crop are generally favourable in the Russian Federation and the European Union, but winter plantings declined in the United States and Ukraine. The area under wheat is also expected to be cut in India, following a poor monsoon and below average rains since October.

Wheat output in Canada and Russia and maize output in China, Canada and Paraguay drove the upward revision. FAO also slightly raised its expectation regarding 2015 world rice production, mostly on account of higher forecasts for China, Viet Nam and the United States.

At the same time, FAO lowered its forecast for world cereal utilization in the 2015/16 season to 2 527 million tonnes, which remains 0.8 percent above that of the previous year.This reflects a 2.0 percent increase for wheat, largely on account of higher livestock feed use in developed countries and a 0.3 percent increase in maize. World rice utilization is projected to expand by 1.1 percent, keeping world per-capita consumption stable.

As a result of the upgraded production and downgraded consumption forecasts, world cereal stocks are set to end the 2016 seasons at 642 million tonnes, higher than they began. That level implies a steady and comfortable global cereal stock-to-use ratio of around 25 percent.