FAO Food Price Index down in October

by World Grain Staff
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ROME, ITALY — The United Nation’s Food and Agricultural Organization’s (FAO) Food Price Index dropped to an 11-month low in October, declining 4%, or nine points, to 216 points from September, FAO said on Nov. 3. Nonetheless prices still remain generally higher than last year and very volatile, according to the agency.

The drop was triggered by sharp declines in international prices of cereals, oils, sugar and dairy products. Meat prices declined the least. However FAO's November Index published Nov. 3 showed that prices in October were still some 5% above the corresponding period last year.

An improved supply outlook for a number of commodities and uncertainty about global economic prospects is putting downward pressure on international prices, although to some extent this has been offset by strong underlying demand in emerging countries where economic growth remains robust.

Most agricultural commodity prices could thus remain below their recent highs in the months ahead, according to FAO's biannual Food Outlook report also published on Nov. 3. The publication reports on and analyzes developments in global food and feed markets.

In the case of cereals, where a record harvest is expected in 2011, the general picture points to prices staying relatively firm, although at reduced levels, well into 2012.

Food Outlook forecast 2011 cereal production at a record 2.325 million tonnes, 3.7% above the previous year. The overall increase comprises a 6% rise in wheat production, and increases of 2.6% for coarse grains and 3.4% for rice. Globally, annual cereal food consumption is expected to keep pace with population growth, remaining steady at about 153 kg per person.

International cereal prices have declined in recent months, with the FAO Cereal Price Index registering an 11 month-low of 232 points in October. But nonetheless cereal prices, on average, remain 5% higher than last year's already high level.

Severe problems caused by flooding recently marred rice production prospects in Thailand. However, impact on the international market has been limited so far given large reserves.

Large global supplies of sugar have put downward pressure on sugar prices since June. Improved supplies also weighed on dairy markets while strong palm oil output and record sunflower seed crops have driven prices down in the oils sector in recent months.

According to Food Outlook prices generally remain "extremely volatile," moving in tandem with unstable financial and equity markets.

"Fluctuations in exchange rates and uncertainties in energy markets are also contributing to sharp price swings in agricultural markets," FAO Grains Analyst Abdolreza Abbassian noted.
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