Wheat, maize led global food price rise for a consecutive month in March

Second monthly rise indicates trend will continue in near term

Wheat and maize led global food price increases for a consecutive month in March, due to forecasts of lower output this year following unfavourable weather.

A report on Thursday by the Food and Agriculture Organization (FAO) of the United Nations showed a 1.1 per cent rise in its Food Price Index in March to 172.8 points. At this level, it was 0.7 per cent above its value of the corresponding month last year.

As in February, the month-on-month increase was driven primarily by stronger global prices of cereal and dairy products. Whereas the price of sugar and vegetable oils fell further and those of meat rose only slightly.

“Prospects for wheat production in 2018 are more restrained, given less favourable weather conditions and lower prices. The latest forecast for world wheat production in 2018 stands at 750 million tonnes, down seven mt from the 2017 near-record level. Despite mostly favourable crop conditions in the European Union, the winter wheat output is forecast to fall, mostly on account of a reduction in sowings. In Asia, harvesting of the 2018 crop is underway. Outputs in China and India, the largest wheat producing countries, are foreseen to contract marginally from the record highs of 2017,” said the report.

Maize output is likely to fall in South America from the record high of 2017, with bad weather in Argentina and a shift away from its cultivation towards soybean in Brazil. In southern Africa, although recent beneficial rains had partly reversed earlier concerns at dry weather, production is still forecast to fall from the high of 2017. A cut in area sown in South Africa, reflecting lower maize prices, further negatively weighed on production prospects.

The Cereal Price Index averaged 165.6 points in March, about 2.7 per cent (4.3 points) higher than n February and as much as 12.1 per cent above its value in March 2017. The Index has been climbing continuously in recent months, reflecting firmer international prices of nearly all major cereals.

“In recent weeks, weather concerns, in particular prolonged dryness in the United States and cold/wet conditions in parts of Europe, lifted wheat price quotations. The increase in maize prices proved even more pronounced, supported by deteriorating crop prospects, especially in Argentina, as well as continued robust world demand. Asian purchases kept international rice prices also generally firm,” the report said.

Apart from maize and wheat, the Dairy Price Index averaged 197.4 points in March, up 6.2 points (3.3 per cent) from February and slightly above its level in the corresponding period last year. During the month, international price quotations for butter, whole milk powder (WMP) and cheese rose, while those of skimmed milk powder (SMP) declined, reversing the gains in the two preceding months. Lower than anticipated milk production in New Zealand and continued strong import demand led to higher butter, cheese and WMP prices, while continued pressure from global stocks and higher production pushed down SMP ones.

For March, however, the Vegetable Oil Price Index averaged 156.8 points, down marginally from February’s multi-month low due to modest price drops for soy, rape and sunflower oils, which were partly offset by higher prices of palm oil.

The report said average sugar prices declined by 6.5 points (3.4 per cent) from February and as much as 27.5 per cent below its level the same month last year. They continue to fall on account of large export availability.