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FAO food price index drops in October but remains higher than in 2010 and volatile

Friday, November 4th 2011 - 08:20 UTC
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Global wheat harvest is estimated to increase 6% over last year Global wheat harvest is estimated to increase 6% over last year

The FAO Food price index dropped to an 11-month low in October, declining 4%, or nine points, to 216 points from September. Nonetheless prices still remain generally higher than last year and very volatile, FAO said.

The drop was triggered by sharp declines in international prices of cereals, oils, sugar and dairy products. Meat prices declined the least. However FAO November Index published Thursday showed that prices last month 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 biannual ‘Food Outlook’ report also published Thursday. 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 6.0% 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 eleven 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.

World cereal inventories are forecast to increase by 3.3% from their reduced opening levels, to 507 million tonnes by the end of seasons in 2012. At this level, the world cereal stocks-to-use ratio for 2011/12 is expected to approach 22%, up only slightly from 2010/11.

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