FAO Food Price Index Hits Two-Year High on Cereal, Sugar Price Surges
Updated at 1487028728

Surging cereal export prices brought the FAO Food Price Index to a two-year high in January. The Index rose 2.1 percent above its December level, to 173.8 points. This is the highest level seen since February 2015 and as much as 24.5 points above its January 2016 level.

The Cereal Price Index rose 4.8 points in January, reaching a six-month high. Concerns about unfavorable weather and a reduction in wheat area in the United States drove up wheat prices, while maize prices rose due to uncertain crop prospects in South America coupled with strong global demand. Less rice available for export in India, as a result of ongoing state procurement programs, drove up international rice prices.

The Vegetable Oil Price Index rose for the third consecutive month, increasing by 3.3 points in January. Palm oil prices continue to be the main driver of these increases; these have climbed for 30 consecutive months based on low production in Southeast Asia, low global inventories, and strong global demand. Soy oil prices, on the other hand, eased slightly in January due to anticipated high global production in 2017.

The Sugar Price Index also surged in January, rising by 26 points. An anticipated reduction in global sugar production for 2016-2017 is the main driver of this drastic increase; Brazil and India, the world’s largest sugar producers, are both expected to see production shortfalls. The Dairy and Meat Price Indices remained unchanged in January.

The latest AMIS Market Monitor, released this week, also reported on the increase in international cereal prices. According to the International Grains Council (IGC) Grains and Oilseeds Index (GOI) and GOI sub-Indices, maize prices increased by 1.7 percent from December and by 6.7 percent from January 2016; wheat prices increased by 4.1 percent from December, although they fell by 1.2 percent from January 2016 levels. Rice prices rose by 2.2 and 0.4 percent, respectively, while soybean prices rose by 1.4 and 14.6 percent.

In terms of global supply and demand outlooks, AMIS reports that global wheat output is set to hit a new record for the fourth year in a row; the global production estimate for 2016 was increased by 9 million tonnes in January based on larger-than-expected harvests in Australia and Russia. Maize production estimates also rose in January, with output expected to be the second highest on record. Increased production in China has offset reduced production prospects in the US. Rice production is also expected to hit a new record, but soybean production expectations for 2016-2017 has been reduced, based largely on poor weather in Argentina.

The report highlights that this record production for most cereal crops is expected to lead to one of the “least turbulent seasons in nearly a decade for all four AMIS crops”, despite the present upswing in prices. In terms of planting decisions and harvest prospects for 2017-2018, volatile currency markets and uncertainties regarding international trade will strongly impact the development of the global cereal market, and thus farmers’ planting decisions, in the coming months.

By: Sara Gustafson, IFPRI