You are here: Home » Economy & Policy » News
Business Standard

World food prices drop to 4-year low

Dilip Kumar Jha  |  Mumbai 

Foodgrain image via Shutterstock

Food prices slumped to the lowest in four years in August, even as global production was estimated to exceed consumption by a margin of around 20 per cent this year.

The monthly Food Price Index of the United Nations' Food and Agricultural Organization (FAO) was at 196.6 points in August, down 7.3 points (3.6 per cent) from the previous month and lowest since September 2010. Barring meat, prices of all 65 agri commodities measured by the index showed marked decline in the month.

With the world cereal production forecast scaled up to 2.5 billion tonnes this year - only 0.5 per cent lower than last year's record high - FAO's cereal price index averaged at 182.5 points in August, down 2.8 points (1.5 per cent) from last month and 24.2 points (11.7 per cent) lower than August last year.

The global inventories of all cereals are estimated to rise to the highest levels in 15 years, given the good harvests in the past two years. By the close of the 2015 season, the world cereal stocks could reach 616 million tonnes, 12 million tonnes higher than the previous forecast and six per cent more than the start of the 2014-15 season, estimates FAO.

Wheat output is expected to reach 716.5 million tonnes - only a little short of last year's record harvest - with the crop in China, the Russian Federation, Ukraine and the US likely to be larger than previously anticipated. Also, production in Argentina, Brazil, China, the EU, India, and the Russian Federation has risen significantly, offsetting fall in Australia, the US and Canada - where the latest official forecast points to a decline of 10 million tonnes.

The likely production increase this year caused a slide in the staple grain's price in August to the lowest level since July 2010.

Similarly, near-ideal growing conditions in key producing areas, coupled with abundant stocks, caused the price of maize to retreat to a four-year low. For rice, however, the production outlook worsened from July by about three million tonnes, as an erratic rainfall pattern and concerns over an El Niño impact on the crop early next year marred prospects in China, India, Indonesia, the Philippines and Sri Lanka. Still, at 500.4 million tonnes, global rice production (in milled rice equivalent) was forecast to surpass the 2013 harvest by a marginal 0.4 per cent. As a result, rice bucked the trend in grains, with its prices rising in August, reflecting an increase in import demand, lower-than-expected release from stockpiles by Thailand and unfavorable weather affecting some crops in Asia.

"Rice supplies appear to be ample globally but stocks are concentrated in a small number of countries, and often owned by governments. This means these countries can influence world prices by deciding whether or not to let those supplies flow into the market," said FAO Economist Concepción Calpe. "The fact that Thailand is still limiting sales of the huge rice volume held in public warehouses has been one of the principal factors underpinning world prices in recent months."

The vegetable oils sub-index, at 166.6 points in August, was 14.5 points (eight per cent) lower than the previous month and the lowest since November 2009. The index of sugar prices averaged 244.3 points, down 14.8 points (5.7 per cent) from July but still 2.2 points (one per cent) higher than a year ago.

Dairy led the overall decline, with the dairy products index averaging at 200.8 points in August, down 25.3 points (11.2 per cent) from July and 46.8 points (18.9 per cent) from a year ago - mainly because of abundant supplies for export and reduced import demand.

Russia's prohibition at the beginning of the month on imports of dairy products from several countries helped depress prices, while slackening imports of whole milk powder by China, the world's largest importer, also contributed to market uncertainty.

Brent crude oil slips to 2-year low
Brent crude oil fell to the lowest level in more than two years, narrowing its premium over West Texas Intermediate, after the International Energy Agency (IEA) lowered demand forecasts. The Brent-WTI spread shrank to the smallest since July as the US benchmark rebounded after failing to break below $90. IEA reduced estimates for this year and next following a "remarkable" slowdown in the second quarter that prompted Saudi Arabia to pare exports to a three-year low. At $97.71 a barrel, Brent for October settlement was 33 cents (0.34 per cent) lower than its previous close at 11:45 pm (IST).

First Published: Fri, September 12 2014. 00:57 IST