Food prices held steady last month, after having eased for three consecutive months before that. According to the UN Food and Agriculture Organisation, which released the results of its Food Price Index on Thursday (7^th February), increases in oil and fats prices offset price drops for cereals and sugar, meaning the overall index remained unchanged.

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The index measures the price of a range of food staples across the world.

Over January, the FAO Cereal Price Index dropped 1.1 percent. The Cereal Index has been falling since October, following hikes to record levels in summer 2012; the slide mostly reflects improved crop conditions.

Meat and dairy prices remained virtually unchanged over the month, with dairy prices rising slightly higher than their December levels, though lower poultry and pig meat prices offset this. Other meats remained unchanged.

However, oils and fats rose 4.4 percent from December, reversing declines seen in the last four months. The rebound was mainly driven by palm oil on account of fresh import demand, FAO said. Sugar prices, on the other hand, fell 2.2 percent on large export availabilities and healthy production.

Forecast for cereal production rises

The pause in the Index's decline tallies with a significant upward revision in FAO's latest forecast for 2012 world cereal production. This is now estimated at 2 302 million tonnes - 20 million tonnes up on December's forecast.

FAO's monthly Cereals Supply and Demand Brief  noted that the revision mostly reflects adjustments to maize production estimates in China, North America and the European CIS countries. But even at the new level, global cereal output remains 2 percent down on the 2011 record crop.

Early prospects for 2013 cereal production point to increased world wheat output. Contributing largely to this prospect is an estimated 4 to 5 percent increase in the area under wheat in the European Union, where weather conditions have also been generally favourable so far.

Nevertheless, whilst some areas in the EU have seen conditions improve since last year, others continue to struggle as a result of flooding and unsettled weather. In the United States, too, the outlook is less favourable. Despite an estimated 1 percent increase in winter wheat plantings and prospects for spring wheat areas to expand, severe drought conditions continue to plague the southern Plains, affecting crop condition.

FAO Senior Grains Economist Abdolreza Abbassian commented on Thursday, "Given the tight supply situation, weather remains an important determinant of prices. For several cereals, production needs to increase significantly this year in order to avoid unexpected price surges." 

World cereal stocks decline

World cereal stocks at the close of the crop seasons ending in 2013 are put at around 495 million tonnes, giving a global cereal stock-to-use ratio of 20.6 percent, down from 22 percent in 2011/12 but above the low of 18.7 percent in 2007/2008. 

World trade in cereals in 2012/13 is forecast to fall to 297.5 million tonnes, down 6 percent from the previous season, but nearly 2 million tonnes higher than the December forecast. Among the emerging features of the world grain market in 2013 is the resumption of large wheat exports from India of 6.5 million tonnes and record maize shipments from Brazil of 22 million tonnes easing the global grain supply/demand situation.