The FAO Food Price Index fell in January for the first time in 3 months as lower prices of cereals, sugars, oils and meat outstripped higher dairy prices.

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The Index, based on the prices of a basket of foodstuffs, was 1.3 percent lower in January 2014 than in December 2013, and 4.4 percent below January last year. Abdolreza Abbassian, an economist with the UN Food and Agriculture Organisation said, "We're seeing lower prices due to abundant supplies, but stronger upturn in demand, such as an increase in the pace of imports from Asia, could limit the decline."

Sugar and vegetable oil prices dropped by 5.6 percent and 3.8 percent respectively, meanwhile, bumper cereal crops from many bread basket regions helped to bring down cereal prices.  Cereals were down 1.6 percent from December and 23 percent lower than in January 2013, when the after-effects of drought in several major global producers were still being felt.

Even meat prices, which had strengthened over the past few months, fell slightly in January. However, strong demand from China, Russia, North Africa and the Middle East combined to boost dairy prices by 1.3 percent.

Cereal production revised up

FAO also released its latest estimate for world cereal production in 2013. This points to a stronger growth in world cereal production than had been anticipated, with world production rising to a record 2,502 million tonnes. This is 8.5 percent higher than 2012 production.

The bumper cereal crop in 2013 would help in replenishing world reserves, which according to FAO could reach 573 million tonnes, 13.5 percent higher than in the previous season. At this level, the stocks-to-use ratio for global cereals would top 23.5 percent in 2013/14, its highest value since 2002/03 and well above its historical low of 18.4 percent registered in 2007/08, when rising prices sparked civil unrest in a number of regions.

AMIS positive on early 2014 harvests

Based on the latest information, FAO also said it "considers early prospects for crops to be harvested in 2014 to be favourable." The FAO view was echoed by the G20 Agricultural Market Information System (AMIS) report, also published on Thursday.

The February report of the AMIS Market Monitor attributed the positive prospects for crops in 2014 to favourable winter wheat growing conditions in the northern hemisphere and better than previously anticipated maize and soybean situations in the southern hemisphere.