Weather-related events and increased demand came into play as the UN Food and Agriculture Organisation's Food Price Index registered its sharpest increase since mid-2012, when drought in the US sparked grain rallies.

Food prices rose by 2.6 percent in February. Although this is one of the sharpest month-on-month increases, prices remain 2.1 percent lower than in February 2013. The index is calculated based on the cost of a basket of internationally traded staple foods.

The figures were released amid news reports of spikes in wheat and corn prices, largely in response to recent developments in Ukraine, though FAO sources said the February increase in the Index cannot be entirely attributed to those events.

Concerns over wheat crops in the United States, a strong demand for coarse grains for both feed and biofuel and high Japonica rice prices, are also thought to have contributed to rises, though cereal prices remain 18.8 percent below their level in February last year, when the after effects of record rises were still being felt.

Prices increased in all food groups last month, with the sole exception of meat, which fell marginally. The strongest increases since January were seen in sugar (+6.2 percent) and oils (+4.9 percent), followed by cereals (+3.6 percent) and dairy (+2.9 percent).

FAO Senior Economist Concepción Calpe said, "This month's increase follows a long period of declining food prices in general. But it's too early to say if this is a true reversal of the trend. The weather is probably a major force driving up prices for certain commodities like sugar or wheat, but brisk demand is also an important factor underpinning maize, dairy and oil prices" Calpe added.

Cereal production and consumption

FAO also released its Cereal Supply and Demand Brief, noting a favourable early outlook for wheat production in 2014. With some winter wheat crops already developing, FAO's first forecast for world wheat production in 2014 stands at 704 million tonnes. This would represent a drop of 1.7 percent from the 2013 record harvest, but it would still be the second largest crop ever.

With the bulk of the coarse grains and paddy crops yet to be planted, it is still too early for a preliminary forecast of global cereal output in 2014.

As for 2013, the latest estimate for world cereal production stands at a record 2,515 million tonnes (including rice in milled terms), 13 million tonnes above the February forecast and 9 percent more than the 2012 level. The latest upward adjustment reflects primarily a significant revision to the estimates for Australia and also upward revisions to the figures for wheat and coarse grains in China.

The expected increase in global cereal production in 2013 has already resulted in more affordable prices, which in turn are boosting utilization and trade in 2013/14, and helping to replenish world stocks. As a result, the cereal stock-to-use ratio is now estimated to be approaching 24 percent in 2014, its highest level since 2002/03.

The newly released AMIS Market Monitor noted that "while the increase of geopolitical tensions in the Black Sea region amplify uncertainty in the markets, bumper crops in several major producing countries are likely to boost supplies and to result in much higher world stocks in 2014 for maize, wheat, rice and soybean." The soybean outlook remained favourable even as conditions in South America deteriorated due to adverse weather conditions.