Farming News - Food prices drop to four year low

Food prices drop to four year low

11 Sep 2014


August saw food prices drop to a four year low, according to the UN Food and Agriculture Organisation. FAO's monthly food price index, which measures the price of a range of staple foodstuffs around the world, reached its lowest level since September 2010.


August is the fifth month in which prices have dropped since spikes in cereal and sugar prices, driven by geopolitical tensions and weather concerns, began to ease. The downward trend in the FAO's index is the result of good weather and bumper crops in a number of global regions.


The FPI fell 3.6 percent from July. With the exception of meat all commodity groups fell in price (sugar, dairy, cereals, oils). Dairy prices led the pack, with prices down 11.2 percent on the month and 18.9 percent on August 2013. According to FAO, abundant export supplies and reduced import demand have caused prices to drop steeply.


FAO noted that Russia's embargo on imports from the EU, United States, Canada, Australia and Norway – which came into effect in early August – has helped depress dairy prices, though analysts also pointed out that slackening imports of whole milk powder by China (the world's largest importer) also contributed to market uncertainty.


Cereal prices down on potential record production

Cereal prices were down 1.5 percent from July and 11.7 percent from August 2013. Good weather means 2014 is set to be another record year for wheat production, which has led prices to slide. Prices for both wheat and maize are at their lowest for four years.


The UN Organisation's Cereal Supply and Demand Brief, released alongside the FPI, increased the forecast for 2014 world cereal production by 14 million tonnes. At 2.5 billion tonnes, the new projection would be 0.5 percent (13 million tonnes) short of last year's record. The increase was mostly due to better prospects for wheat.


Wheat production this year is expected to be just shy of 2013's record harvest. Wheat crops in China, Russia, Ukraine and the United States are now projected to be larger than previously anticipated. Production in Argentina, Brazil, China, the EU, India, and Russia has increased sufficiently to offset reductions in Australia, the United States and Canada (where production has fallen by 26 percent).


However, rice has bucked the trend, with production outlooks worsening. As FAO economist Concepción Calpe explained, "Rice supplies appear to be ample world-wide, but stocks are very much concentrated in a small number of countries, and often owned by governments. This means that these countries can very much influence world prices, by deciding whether to let those supplies flow to the market or not. 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."


Elsewhere, vegetable oil prices slipped to their lowest level in almost five years and sugar prices fell 5.7 percent from July, though prices still remained higher than in August 2013. Meat prices rose slightly from July, meaning prices were 14 percent above last year.