MercoPress. South Atlantic News Agency

FAO Prices Index up 1.4% in September pushed by dairy and meats

World demand for milk products remains firm and combined with increasing feed costs, is underpinning world prices

Following two months of stability, the FAO Price Index rose slightly in September 2012, up 1.4%, or 3 points, from its level in August. The Index, based on the prices of a basket of internationally traded food commodities, climbed to 216 points in September from 213 points in August.

The rise reflected strengthening dairy and meat prices and more contained increases for cereals. Prices of sugar and oils, on the other hand, fell.

The FAO Index currently stands 22 points below its peak of 238 points in February 2011, and 9 points below its level of 225 points in September 2011.

The FAO Cereal Price Index averaged 263 points in September, 1.0%, or 3 points up from August, as gains in wheat and rice prices offset a decline in maize. While shrinking maize export availabilities and high maize prices have been leading cereal markets in recent months, tightening wheat supplies have also become a concern. Nonetheless, international wheat prices fell towards the second half of the month, following the announcement by the Russian Federation that it would not impose restrictions on exports.

The FAO Meat Price Index averaged 175 points in September, up 2.1%, or 4 points, from August. The grain-intensive pig and poultry sectors recorded particularly strong gains, increasing by 6% and 2% respectively.

The FAO Dairy Price Index averaged 188 points in September, up 7%, or 12 points, from August, representing the sharpest monthly increase since January 2011. All the five dairy products monitored saw prices rise. World demand for milk products remains firm which, combined with increasing feed costs, is underpinning world prices.

Meanwhile, FAO latest forecasts confirm a decline in global cereal production this year from the record registered in 2011. But record harvests are expected in Low-Income Food-Deficit Countries (LIFDC).

World cereal production in 2012 is now forecast at 2.286 million tons, slightly down from the 2.295 million tons estimated in September, according to the new issue of FAO quarterly Crop Prospects and Food Situation report also published Thursday.

At the currently forecast level, world cereal production in 2012 would be 2.6% down from the previous year's record crop but close to the second largest in 2008. The overall decrease comprises a 5.2% reduction in wheat production and a 2.3% reduction for coarse grains.

This is expected to result in a significant reduction in world cereal stocks by the close of seasons in 2013 (down by 28 million tons to 499 million tons), even with world demand sliding as a result of high prices. Production has been affected by drought in key producing areas such as the United States, Europe and Central Asia.

However, very early indications for wheat crops in 2013 are encouraging, with winter wheat planting in the northern hemisphere already well advanced under generally favourable weather conditions.

Crop Prospects and Food Situation focuses on developments affecting the food situation of developing countries, and LIFDC in particular.

Its forecast for the LIFDC 2012 aggregate cereal production points to a record level of 534 million tons, up 1.7% from the good harvest of 2011. Excluding India, the largest country in this group which is expected to see a stagnant total cereal harvest this year, the aggregate cereal output of the remaining 65 LIFDC is estimated to expand by 2.9%.

Nonetheless, currently high prices are expected to drive the 2012/13 cereal import bill for LIFDC to a record 36.5 billion, compared to 35.2 billion dollars in 2011/12.