MercoPress. South Atlantic News Agency

February experienced a sharp increase in FAO Food Prices Index

Sugar, oils and cereals prices increased the most but supply prospects are encouraging

Weather-related events and increased demand came into play as the FAO Food Price Index registered its sharpest increase since mid-2012, averaging 208.1 points in February 2014. The new level is 5.2 points, or 2.6%, above a slightly revised index for January, but is still 2.1% lower than last year at the same time.

 The figures were released amid news reports of spikes in wheat and corn prices in response to recent developments in Ukraine, though the February increase in the Index cannot be entirely attributed to those events.

The Index, based on the prices of a basket of internationally-traded food commodities, saw price upticks in all commodity groups, with the exception of meat, which fell marginally. The strongest increases since January have been seen in sugar (+6.2%) and oils (+4.9%), followed by cereals (+3.6%) and dairy (+2.9%).

“This month's increase follows a long period of declining food prices in general. But it's too early to say if this is a true reversal of the trend,” said Concepción Calpe, FAO Senior Economist. “The weather is probably a major force driving up prices for certain commodities like sugar or wheat, but brisk demand is also an important factor underpinning maize, dairy and oil prices” Calpe added.

The FAO Cereal Price Index averaged 195.8 points in February, up 6.8 points, or 3.6%, from the previous month. The price bounce reflected mainly concerns over wheat crops in the United States, a strong demand for coarse grains for both feed and bio-fuel and high Japonica rice prices. Still, cereal prices remain, overall, 18.8% below their level in February last year.

Vegetable oils averaged 197.8 points in February, up 9.2 points (or 4.9%) from January, amid concerns over unfavorable weather in Southeast Asia and South America, and buoyant demand worldwide, including demand for palm oil from biodiesel producers.

Dairy averaged 275.4 points in February, a rise of 7.7 points, or 2.9%, over January and meat averaged 182.6 points in February, only 0.5 points below the revised January level.

Following a three-month decline, sugar prices recovered in late February, prompted by concerns of crop damage from dry weather in Brazil and recent forecasts pointing to a potential drop of output in India. The FAO Sugar Price Index averaged 235.4 points in February, up 13.7 points, or 6.2%, from January.

Cereal production and consumption

FAO also released its Cereal Supply and Demand Brief, noting a favorable early outlook for wheat production in 2014. With some winter wheat crops already developing, FAO's first forecast for world wheat production in 2014 stands at 704 million tons. This would represent a drop of 1.7% from the 2013 record harvest, but it would still be the second largest crop ever.

With the bulk of the coarse grains and paddy crops yet to be planted, it was still too early for a preliminary forecast of global cereal output in 2014.

As for 2013, the latest estimate for world cereal production stands at a record 2 515 million tons (including rice in milled terms), 13 million tons above the February forecast and 9% more than the 2012 level. The latest upward adjustment reflects primarily a significant revision to the estimates for Australia and also upward revisions to the figures for wheat and coarse grains in China.

The expected increase in global cereal production in 2013 has already resulted in more affordable prices, which in turn are boosting utilization and trade in 2013/14, and helping to replenish world stocks. As a result, the cereal stock-to-use ratio is now estimated to be approaching 24% in 2014, its highest level since 2002/03.

The newly released AMIS Market Monitor noted that “while the increase of geopolitical tensions in the Black Sea region amplify uncertainty in the markets, bumper crops in several major producing countries are likely to boost supplies and to result in much higher world stocks in 2014 for maize, wheat, rice and soybean.” The soybean outlook remained favorable even as conditions in South America deteriorated due to adverse weather conditions.