Global food price declines fourth month in a row

Record high output coupled with marginal decline in consumption to keep inventory up

Global food prices declined a drastic 5.1% in August on excess supply from the last year and estimates of yet another bumper output this year to reach the lowest level in 14 months.

Data compiled by the Food and Agricultural Organisation (FAO) of the United Nations showed that its Food Price Index recorded fourth decline in a row to average at 201.8 points in August 2013, a drop of 4 points (1.9%) from July.

The Cereal Price Index averaged 210.9 points in August, down 16.4 points (7.2%) from July and 49.4 points (or 19%) from August 2012.

The steep decline reflects expectations for a strong growth in world cereal production this year and, especially, a sharp recovery in maize supplies.

The Oils/Fats Price Index averaged 185.5 points in August, 5.7 points (or 3.0%) below the July value and the third consecutive monthly decline. The Dairy Price Index averaged 239.1 points in August, 2.8 points (1.2%) more than in July and 37% above its level in August last year.

Prices increased last month for all the dairy products that make up the index, except butter, as export supplies remain limited in major trading countries. The Meat Price Index averaged 175.0 points in August, an increase of 2.2 points (1.3%).

FAO forecasts the world cereal production is expected to rise to 2492 million tonnes in 2013. The forecast has been revised upwards by 14 million tonnes (or 0.5%) from the July forecast as a result of higher maize crops officially reported in Argentina and improved prospects in the European Union (EU) and Ukraine.

At the latest forecast level, global cereal production would be 179 million tonnes (7.7%) higher than in 2012 and a new record.

The recovery is predicted to be driven by a 10.5% expansion in coarse grain output to 1 285 million tonnes as well as a 7.6% rise in wheat production to 710 million tonnes. World rice production is set to increase by 1.3%, reaching a new high of 497 million tonnes, in milled equivalent.

The sharp increase in global production of coarse grains in 2013 would be largely on account of a strong rebound in maize output (to 983 million tonnes), the bulk of which would originate from the United States, where maize production is forecast to reach 343 million tonnes this year, some 25% (69 million tonnes) higher than the 2012 drought-reduced level.

Against the sharp increase in production, cereal’s utilization is set to decline this year. Global cereal utilization in 2013-14 is projected at 2413 million tonnes, down marginally from the previous forecast, but still 3.2% higher than in 2012-13.

Based on the latest forecasts, total use of cereals for direct human consumption is set to expand by 1.2% to 1 094 million tonnes. This would result in global per capita cereal consumption remaining steady at just over 152 kg, with wheat at 67 kg and rice at close to 57 kg.

Rising cereal stocks

The forecast of world cereal stocks at the close of seasons in 2014 has been raised slightly since July, to 569 million tonnes, primarily on expectations of higher maize inventories.

The revised forecast puts world cereal stocks 13% (65.5 million tonnes) above their low opening levels and at their highest since 2001-02. Based on the current projections of overall demand, the increase in stocks would drive up the global stock-to-use ratio to 23.3%, the highest since 2002-03.

"The overall supply-demand situation for cereal markets is much improved over this time last year when drought-hit production and low stock-to-use ratios, especially for maize, raised serious concerns," said David Hallam, Director of FAO's Trade and Markets Division.

"Production appears to have rebounded and higher stock-to-use ratios should bring greater stability to world markets."

Annual real food price indices (2002-04 = 100)
Year	Food price index	Meat price index	Dairy price index	Cereals price index	Oil price index	Sugar price index
2000	92.9	98.5	98.1	87.6	69.7	119.3
2001	101.4	104.8	116.3	94	73.4	113.1
2002	97.8	97.5	89.5	102.8	94.7	106.4
2003	98	97	95.4	98.4	101.1	100.8
2004	103.7	104.9	113.1	99.1	103.5	93.8
2005	103.3	105.8	119.2	91.2	91.3	123.6
2006	108.2	101.2	109.3	103.9	96	179
2007	127.7	100.7	170.9	134.3	136.8	115.1
2008	147.6	113.2	162.2	175.6	167.8	134.2
2009	123.9	105	111.8	137.2	119.2	203.2
2010	139.4	114.6	150.8	137.4	146.1	227.3
2011	154	119.6	149.2	167.1	170.7	249.7
2012	141.6	117	126.1	161.3	150.6	204.3
2013	139.5	116.9	153.5	156.6	131.6	167.3

^{Source: Food and Agricultural Organisation (FAO), United Nations}