Lower food prices than last year means that the world's food import bill are on course to fall to $986 billion this year - below $1 trillion for the first time since 2009 - even as traded volumes increase, according to FAO's biannual Food Outlook.
Wheat production in 2016 will outstrip utilization for the fourth year in a row, boosting inventories of the world's most important cereal to a 15-year high, with major surges in China and the United States.
Total wheat utilization will actually decline marginally as more of the world's farmers turn to maize to feed their livestock. That's an increasingly popular option in China, where the government's decision to lower maize reserves is expected to boost consumption of that coarse grain. China's move should have important effects on international markets, leading to sharp declines in demand for barley and sorghum. Dwindling international trade may intensify competition among major exporters, FAO said.
Decisions to release government stockpiles may also affect rice prices, which began to stabilize in late 2015 after a prolonged decline, and even rebounded in May.
Upward price pressures do exist for vegetable oils as soy output in South America and palm oil in Southeast Asia were subject to heavy losses in the wake of El Niño and production prospects have deteriorated. Global palm oil output is expected to shrink for the first time in 18 years, FAO said.
Also released on June 2 was an updated FAO Food Price Index, which rose in May for the fourth month in a row, increasing by 2.1% from April to 155.8 points - still some 7% below the level reported one year ago.
Prices rose across the index - a trade-weighted index tracking international market prices for the cereals, vegetable oils, dairy, meat and sugar commodity groups - with the exception of vegetable oils, which subsided after a strong hike in April.
The FAO Cereal Price Index rose 1.6% from April, led by a sharp increase in maize prices and buoyed by stronger quotations for Indica and aromatic rice varieties.
The FAO Vegetable Oil Price Index declined 1.8%, as palm oil receded after three months of sharp gains. Import demand for the food industry mainstay was weaker than anticipated in China, India and the EU.
FAO raised its world cereal production forecast for 2016 to 2.543 billion tonnes, just 0.7% below the record high of 2014.
The new production figure in the updated Cereal Supply and Demand Brief is 17 million tonnes higher than reported in May, reflecting upward revisions for wheat and maize in major producing countries.
World cereal utilization, meanwhile, is expected to be 2.546 billion tonnes for the marketing year, a slight markdown from the May projection.
At the same time, the forecast for global cereal stocks was raised to 642 million tonnes - less than two million tonnes below their all-time high, driven by a historical revision to China's wheat inventory.
Global trade in cereals is predicted to decline by 1.9% from the previous year to 369 million tonnes. The contraction "is likely to intensify competition for market share among major exporters, a prospect that could keep international prices in check," FAO said.