Global food prices slide for 6th month to 4-year low as dairy, sugar fall

Existing oversupply, bumper 2014-15 output to result in record carryover stocks

In September, global food prices fell to a 50-month low, the sixth consecutive monthly decline, owing to oversupply resulting from bumper agricultural output in major producing countries, including India. A steep fall in dairy and sugar prices aided the fall.

In a report released on Thursday, the United Nations' Food and Agricultural Organization (FAO) said, "The FAO Food Price Index averaged 191.5 points in September, down 5.2 points (2.6 per cent) from August and 12.2 points (six per cent) from the corresponding month a year ago. The September slide, the sixth consecutive monthly drop, brought the value of the index to its lowest since August 2010."

Among the sub-indices, those for sugar and dairy prices weakened the most, followed by cereals and oils; the index for meat remained firm. Among the underlying factors, the dollar's broad appreciation continued to weigh on all international commodity prices.

For September, the FAO Cereal Price Index averaged 177.9 points, down 4.6 points (2.5 per cent) from August and 17.1 points (8.8 per cent) from September 2013; this was the fifth consecutive monthly fall in the index. Good production and large export availabilities were the primary factors behind falling wheat and maize prices. Rice prices, which had risen steadily in recent months, registered a decline in September, reflecting accrued competition among exporting countries, ahead of the coming harvests.

This year, global cereal production is estimated at 2,523 million tones (mt), 65 mt higher than FAO's forecast in May. The revision in estimate was primarily due to continued upgrades of this year's coarse grain harvests, especially that of maize. It is expected global cereal production will fractionally decline from the 2013 peak, with wheat production standing at a record 718.5 mt, and production of coarse grains virtually on a par with last year's high of 1,308 mt.

By contrast, unfavourable weather conditions have lowered the prospects of rice production. Now, this is estimated at 496.4 mt, down 0.4 per cent from 2013.

Global cereal carryover stocks, therefore, are likely to stand at a record 627.5 mt, owing to a marginal decline in utilisation, at 2,461.3 mt.

"This year's abundant supplies have already resulted in sharp declines in international prices of all cereals, with the exception of rice. However, the lower prices are not expected to stimulate trade, as the major cereal-importing countries are holding large supplies, which might depress import demand," the report said.

The Dairy Price Index averaged 187.8 points in September, down 13.0 points (6.5 per cent) compared to August and 62.4 points (24.9 percent) less on a year-on-year basis. Quotations for all dairy products covered in the index fell, especially those of skimmed milk powder. The continued decline in prices reflects abundant export availability. A movement away from the production of cheese by the European Union for sale to the Russian Federation has resulted in increased output of butter and skimmed milk powder within the European Union. In other regions, the fall in skimmed milk prices stimulated whole-milk powder production.

The Sugar Price Index averaged 228.3 points, down 16.1 points (6.6 per cent) from August and 18.2 points (7.4 per cent) compared to September 2013.

In recent months, large supply prospects and expectations global production will exceed consumption in 2014-15 continued to exert downward pressure on international sugar prices, leading to average prices in September falling to their lowest since January.