Sugar, dairy and cereals lift FAO Food Price Index in October

Forecasts for cereal production and stocks raised

10 November 2016, ROME--The FAO Food Price Index averaged 172.6 points in October, up 0.7 percent for the month and 9.1 percent from a year earlier, with the staple grains' index rising for the first time in three months.

The Food Price Index, which has risen continuously throughout 2016 except for a brief dip in July, is a trade-weighted index tracking international market prices for five major food commodity groups.

October's rise was driven primarily by jumps in sugar and dairy prices. The FAO Sugar Price Index rose 3.4 percent in October amid reports of production shortfalls in Brazil's Centre South region and India's Maharashtra state.  The FAO Dairy Price Index rose 3.9 percent from September, led by rising prices of cheese and in particular butter, as a result of sustained internal demand in the European Union after a period during which stocks were drawn down.

By contrast, the FAO Oils/Fats Price Index declined 2.4 percent from September, largely linked to weaker palm oil quotations as a consequence of sluggish global import demand. The FAO Meat Price Index also fell, dropping 1.0 percent in October, with the drop largely driven by slacker demand for European pigmeat from importers in China.

The FAO Cereal Price Index, meanwhile, rose 1.0 percent in October, buoyed by tightening supplies of high-quality wheat even as the overall prospects for global wheat harvests have improved.

Updated forecasts for production and stocks

World cereal production for 2016 should amount to 2 571 million tonnes, up marginally from FAO's October forecast and 1.5 percent above the 2015 output.

The updated figure, released today in the Cereal Supply and Demand Brief, 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 FAO's October forecast.

The Russian Federation's wheat output is now anticipated to set a new record, while favourable weather is also boosting yield prospects in Kazakhstan. 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 European Union and the United States of America. The forecast for global rice production was largely unchanged.

Early signs from the planting of the 2017 winter wheat crop in the northern hemisphere indicate that U.S. farmers are reducing the area because of  low price prospects and a subdued export outlook due to a stronger U.S. dollar. However, wheat plantings in the Russian Federation and Ukraine are ahead of last year's pace.

Meanwhile, sowing of summer 2017 cereal crops is underway in southern hemisphere countries, and conducive weather conditions are leading to expansion in South America. The maize area planted in Argentina is expected to expand by 6.0 percent from last year's high level.

Total cereal utilization for the 2016/17 season is now forecast at 2 562 million tonnes, up slightly from October and 1.7 percent higher than a year earlier.

A primary driver of increased utilization of cereals is global feed use, which is likely to expand by 2.7 percent. The use of wheat for animal feed, buoyed by ample supplies of lower-quality wheat, is anticipated to grow by 6.1 percent 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 U.S. and Russia.

Coarse grains stocks 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.

Photo: ©FAO/Biayna Mahari
Armenian cheese on sale at the market in Yerevan.