Global food prices to decline on bumper output forecasts

Cereal price moves up in October, first in three months, on seasonal factor

Global food commodities prices are likely to remain subdued during the rest of the current calendar and the next year following a sharp upwards revision in their output forecasts by the global monitoring agency the Food and Agricultural Organisation (FAO) of the United Nations.
 

FAO in its latest report has forecast global cereal output at 2,571 million tonnes for the calendar year 2016, 1.5 per cent rise from their production reported in 2015. Apart from cereals, the recovery in the output of crude palm oil across major producing state hints at its price decline in coming days. Rising sugar, dairy and cereal prices lifted FAO’s food price index by 0.7 per cent to average at 172.6 points in October and 9.1 per cent from a year earlier with the staple grains’ index rising for the first time in three months.
 

The forecast assumes significance as global expert eye at better agri output following favourable monsoon rainfalls after two years of subsequent drought and thereby lower production of agri commodities. Inflation, therefore, in many parts of the world remained a cause of concern for the respective governments to manage.
 

“Global cereal output may rise this year following plantings in additional area and satisfactory development of crops,” said FAO in its latest report.
 

The updated figure released by FAO showed 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 US farmers are reducing the area because of low price prospects and a subdued export outlook due to a stronger US dollar. However, wheat plantings in the Russian Federation and Ukraine are ahead of last year's pace.
 

Meanwhile, the Reserve Bank of India in its October monetary policy review estimated subdued momentum in food Inflation in the third quarter of FY 17 and the usual seasonal softening of food prices in early fourth quarter, notwithstanding a reversal of base effects in March 2017, improves the near-term outlook for Inflation considerably. Commodity prices are expected to remain quiescent over the rest of the year. These anticipated developments feed into Inflation expectations and, in turn, influence wage and price conditions, going forward.
 

In fact, agri commodities prices have started softening in November after rising marginally in October. Prices of almost all global commodities declined by upto 5 per cent in the first 10-day of November.

Dorab Mistry, Director, Godrej International, forecasts crude palm oil price to decline by upto 22 per cent from the current level to 2200 ringgit between October 2016 and September 2017.
 

“Crude palm oil prices may drop over the next couple of months on expectations of production to recovers in the new oil year (Oct 2016-Sept 2017) , said Mistry in a recent paper.

Exchange	Name ( expiry)	QUOTE_UNITS	Future price	Change MTD (%)
Bursa Malaysia	CRUDE PALM OIL (Jan17)	MYR/MT	2974.00	7.64
Chicago Board of Trade	ROUGH RICE (Jan17)	USD/cwt	9.71	-4.33
Chicago Board of Trade	CORN (Mar17)	USd/bu.	349.00	-3.79
Chicago Board of Trade	WHEAT (Dec16)	USd/bu.	403.00	-3.18
Chicago Board of Trade	DENATURED ETHANOL (Dec16)	USD/gal.	1.52	-3.12
Chicago Board of Trade	SOYBEAN MEAL (Dec16)	USD/T.	307.80	-2.63
Chicago Board of Trade	SOYBEAN (Jan17)	USd/bu.	986.00	-2.55
Chicago Board of Trade	SOYBEAN OIL (Dec16)	USd/lb.	34.44	-2.08
ICE Futures US Softs	COCOA (Mar17)	USD/MT	2471.00	-6.51
ICE Futures US Softs	COFFEE (Mar17)	USd/lb.	163.10	-2.66
ICE Futures US Softs	COTTON NO.2 (Mar17)	USd/lb.	69.03	-0.49
ICE Futures US Softs	SUGAR #11 (Mar17)	USd/lb.	21.70	0.60
Tokyo Commodity Exchange	RUBBER (Apr17)	JPY/kg	208.50	13.62

Source: Bloomberg
Compiled by BS Research Bureau