Food prices in March were marginally higher than February, marking the first overall price rise since October last year, according to the UN Food and Agriculture Organisation.

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Having eased slightly or held steady for five months since price rises sparked in summer 2012, the FAO Food Price Index showed overall food prices rose one percent in March, driven mainly by an 11 percent increase in dairy prices. Dairy carries a 17 percent weight among the various commodity prices included in the calculation of the overall FPI.

Although dairy prices showed worrying volatility, elsewhere prices remained stable. Cereals were largely unchanged from February; whilst maize prices increased last month on a fall in exportable supplies from the United States, wheat prices eased at the prospect of a good world harvest offset those increases. However, sugar rose 1 percent.

Fats and oils fell 2.5 percent from February, due mostly to soy oil prices which eased on favourable weather conditions in South America and a record 2013 US soybean crop. Palm oil prices were also slightly down. Meat prices fell by 2 percent.

Dairy volatility "exceptional" according to FAO

The FAO said the jump witnessed in dairy prices between February and March is "one of the largest recorded changes" in the history of the FPI. The price surge was caused by hot, dry weather in Oceania, which led milk production to fall off steeply, impacting on processing in the region. FAO said it uses world number one exporter New Zealand in its Price Index calculation. New Zealand accounts for about a third of global trade in the dairy sector.

Nevertheless, export prices for dairy products also rose for other important exporters, such as the European Union and the United States, but not to the same degree.

In its report, FAO said, "The exceptional increase is in part a reflection of market uncertainty as buyers seek alternative sources of supply. In addition, dairy output in Europe has yet to come fully online after a particularly cold winter, which has delayed pasture growth to feed dairy animals."

Cereals estimates revised upwards

Meanwhile, FAO monitoring of the global cereal supply and demand situation saw the 2012 crop production estimate revised upwards by nearly 3 million tonnes. It now stands only 2 percent lower than the record set in 2011.

In the Cereal Supply and Demand Brief, FAO said, "World cereal production in 2013 could recover strongly barring unfavourable weather in major producing regions."

According to the organisation, the outlook for all cereal crops is positive overall, with wheat crops already well advanced and plantings for rice and coarse grains expected to increase these coming cropping months owing to attractive prices.

Global wheat production in 2013 is expected to increase by 4 percent to 690 million tonnes, the second highest ever after the 700 million tonnes produced in 2011, although producers in the United States and Northern Europe remain anxious following challenging winter conditions and dire weather in 2012.