FAO: Food prices decline despite large supplies, expectations of strong harvests

by Holly Demaree
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Rice farmers winnow rice in Mauritania Africa
Farmers winnow rice in Mauritania, Africa.
Photo courtesy of FAO.
 

ROME, ITALY — Global food prices monitored by the Food and Agriculture Organization of the United Nations (FAO) fell in March amid large available supplies and expectations of strong harvests.

The FAO Food Price Index averaged nearly 171 points in March, marking a 2.8% drop from the previous month while remaining 13.4% above its level a year earlier. 

The FAO’s Food Price Index is a trade-weighted index tracking international market prices of five major food commodity groups.

The agency also released its first world cereal supply and demand outlook for the year ahead, expecting it to be “another season of relative market tranquility” with grain inventories remaining at near-record levels.

The FAO Cereal Price Index declined 1.8% from February, led down by wheat and maize. It is now roughly par with its March 2016 level.

The FAO Vegetable Oil Price Index was 6.2% lower on the month. Palm oil and soy oil quotations both fell in March on the back of improving production forecasts, while those of rape and sunflower seed oils also declined due to higher-than-expected availabilities.

Worldwide cereal production in 2017 is projected at 2.597 billion tonnes, just 9 million tonnes short of the record set in 2016, according to the latest Cereal Supply and Demand report.

The FAO’s first forecasts for the season hinge on climate conditions in the coming months and on farmers' output price-sensitive decision on which crops to plant. 

“The slight decline from 2016 is due to anticipated reduction in global wheat production — now expected to fall 2.7% in 2017 to 740 million tonnes — mostly on price-induced planting cuts in Australia, Canada and the United States,” the FAO said.

By contrast, total production of coarse grains in 2017 is provisionally expected to rise to a new record level of 1.353 billion tonnes, primarily due to a surge in production in Brazil and Argentina along with a rebound in South Africa after last year’s drought.

“World rice production is expected to grow 1% to 504 million tonnes, as more plantings in India and Indonesia along with higher yields in Brazil and China should more than offset declines elsewhere, including in drought-stricken Sri Lanka,” the FAO said.

Global cereal utilization is expected to grow by only 0.8% in 2017 to 2.597 billion tonnes. The deceleration from last year’s 2.2% pace reflects slower growth in the use of grains for animal feed as well as for biofuels such as ethanol.

Tallying both the output and consumption projections, the FAO’s first forecast for world cereal stocks at the close of 2017-18 stands at 680 million tonnes. That is down just 2 million tonnes from the previous season and leaves the global stock-to-utilization ratio at a comfortable 25.4% level.

The FAO expects wheat stocks to rise 2.5% to 246.6 million tonnes, while maize stocks will likely fall by 4% to 207 million tonnes on the back of large drawdowns in China and the United States.  Global rice inventories are forecast to remain broadly stable at 170 million tonnes.

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