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Commodity Prices Reach Highest Level since July 2011: FAO Food Price Index, AMIS Market Monitor Released

The FAO Food Price Index rose 3 percent in October to reach its highest level since July 2011. The October Index stood 31.3 percent higher than its October 2020 levels. Last month’s increase was driven primarily by cereal (particularly wheat) and vegetable oil prices.

The Cereal Price Index rose 3.2 from September and 22.4 percent from October 2020. Wheat prices rose most significantly, reaching 38.3 percent higher than October 2020 and their highest level since November 2012. Reduced harvests resulting in tighter supplies in several major producing regions led this increase. Maize prices increased as well, although less significantly, led by trends in global energy markets. The start of the harvest season in several Asian producers limited the increase seen in global rice prices.

The Vegetable Oil Price Index rose by 9.6 from September; this increase took the Index to an all-time high. Palm oil, soy oil, sunflower oil, and rapeseed oils all saw price increases in October. Soy oil prices were driven up by increased import demand, particularly from India. Rising crude oil prices also played a significant role in increasing vegetable oil prices.

The Dairy Price Index also rose in October by 2.2 percent. The Meat and Sugar Price Indices both declined in October by 0.7 percent and 1.8 percent, respectively.

The latest edition of the AMIS Market Monitor also reported surging commodity prices and low exportable supplies. The report states that shortfalls in 2022, whether due to weather or further reduced inputs, could have “worrying implications for global food security.”

The Monitor also highlighted the role that rising fuel and fertilizer prices are playing in the current price increases. November’s feature article discusses soaring fertilizer prices in particular, reporting that chemical global fertilizer prices have now surpassed the highs seen in 2008. In October, ammonia, urea, and DAP prices all surged past their October 2020 levels: by 200 percent, 145 percent, and 90 percent, respectively. In the same month, natural gas prices increased by 180 percent from their previous year’s level.

The article explains these dramatic increases as a combination of stronger global demand and rising input costs, particularly natural gas. Increased input prices have caused fertilizer plants around the world production to reduce production or even close, creating disruptions to supply and driving prices even higher. Weather-related shocks have also played a role in rising energy and fertilizer prices; these shocks include Hurricane Ida in the southern United States and global heatwaves seen throughout the summer months in the northern hemisphere.

Trade policies have also had an impact on fertilizer and fuel prices: for example, new inspection requirements for fertilizer exports in China and the imposition of economic sanction (including restrictions on potash imports) on Belarus by the European Union, the U.S., and other countries.

The Monitor cautions that fertilizer and fuel prices are expected to continue to stay high in the near term. If farmers respond to supply disruptions and rising prices by cutting back fertilizer use, it could result in smaller harvests and further commodity price increases.

Wheat production forecasts for 2021 were reduced in October, due largely to concerns over output in the EU, Turkey, the U.S., and Iran. Wheat utilization forecasts remained unchanged and are still expected to increase by 2.2. from the previous season due to strong feed and food demand. Wheat trade expectations rose slightly in October due to higher imports expected from Iran. Global wheat ending stocks for 2022 were forecast down slightly due to drawdowns in Canada, Russia, and the U.S.,

Global maize production is forecast to reach a new high due to upward revisions in Brazil, India, and several African countries. Maize utilization was also forecast up in October due to increased food, feed, and industrial use. Global maize trade is expected to fall from its record 2020-2021 season due to reduced imports from China. Global maize ending stocks for 2022 are forecast up by 2.3 percent from the previous season.

Global rice production forecasts declined in October due to reduced production prospects in Indonesia. Rice utilization expectations also fell in October led by reductions in food use, particularly in Indonesia. Trade is forecast to increase in 2022 due to recovering import expectations for several Asian countries. Global rice ending stocks are expected to surpass their record opening due to accumulations by several major exporting countries.

Soybean production forecasts increased slightly in October; global output is expected to grow by 5 percent from the previous season. Soybean utilization expectations also rose slightly based on higher crush expectations in China and Brazil. Trade expectations rose due to higher anticipated imports from China. Global soybean ending stocks are forecast to rise slightly from the previous month’s expectations, but overall global inventories are expected to remain below average in 2021-2022.