Food Price Index Reaches 8-Month High
The FAO Food Price Index continued its upward trend in September, rising 2.1 percent from the previous month to hit the highest level since February. Cereal prices and vegetable oil prices both contributed to the latest increase.
The Cereals Price Index rose by 5.1 percent from August and a substantial 13.6 percent from September 2019. This marks the third consecutive monthly increase. Wheat prices jumped significantly due to concerns over production prospects in Europe and the southern hemisphere, which led to an increase in trade activity. Maize prices also climbed markedly in response to reduced production prospects in Europe and a sharply reduced supply forecast in the United States. Rice prices, on the other hand, declined marginally by 1.4 percent due to declining demand and the start of the harvest season in the northern hemisphere.
The Vegetable Oil Price Index rose by six percent from August to reach an eight-month high. Palm and sunflower oil prices both jumped sharply due to increased demand and reduced production. Soybean oil also continued its rising trend, based on strong biodiesel demand in the United States and reduced crushings in South America.
The Dairy Price Index remained fairly steady from August, while the Meat Price Index and Sugar Price Index both declined slightly.
The latest AMIS Market Monitor continues to see positive production prospects for all major staple crops.
AMIS expects 2020 wheat production to reach a new record high, driven by upward revisions in Australia, the EU, and Russia. Wheat utilization for 2020-2021 is expected to grow due to stronger demand for feed use in China. Chinese demand will also drive trade up slightly. Global wheat ending stocks are forecast up by almost 3 million tons based on upward revisions by the EU, Russia, and the Ukraine.
Maize production forecasts fell by 1 percent in September due to less favorable prospects in Europe; however, AMIS still expects global output to exceed 2019’s record high. Maize utilization is also expected to fall due to decreased demand for feed and fuel use but will remain 2.5 above 2019 levels. Maize trade should increase in 2020-2021, as import demand in the EU and exports from the U.S. both expand. Global maize ending stocks are forecast to remain near their opening levels.
Increased forecasts for production in India have offset reduced prospects in Thailand, leaving overall 2020 rice production expectations unchanged in September. Rice utilization is expected to expand by about 1.5 percent from 2019 to reach a new high. Forecast rice trade for 2021 remained unchanged in September, as record shipments from India balanced reduced exports from Vietnam, Thailand, and Pakistan. Like maize, global rice ending stocks are expected to remain at around their opening levels.
Expectations for 2020-2021 soybean production declined in September based on reduced forecasts in the U.S. and Argentina; however, overall global production is still expected to reach record highs. Soybean utilization forecasts fell slightly, but global consumption is still anticipated to rise by nearly 4 percent from 2019. Increased import forecasts in China and increased shipments from Brazil combined to raise trade forecasts slightly. Global soybean ending stocks are forecast to increase, driven largely by China, Argentina, and Brazil.
Fuel prices were mixed in September. Natural gas prices dropped 15 percent as a result of built-up U.S. inventories. Urea prices also fell by 6 percent in the U.S. Gulf due to a seasonal decline in demand, but remained steady in the Black Sea region. DAP prices rose by almost 25 percent in the U.S. Gulf, driven by supply disruptions in North Africa. Ammonia prices also rose by 2 percent based on production shortages in the Northern Hemisphere. Potash prices remained generally steady in September.
This month’s AMIS Market Monitor editorial touched on the need for effective, inclusive trade policies to help foster global value chains and drive sustainable global development. Such policies include investing in capacity-building and training, infrastructure, and technology adoption, particularly in collaboration with private sector stakeholders. Involving smallholders in value chains is also critical; this can be accomplished through contract farming and sustainability certification schemes. Finally, policymakers should encourage the adoption of digital technologies to provide increased information, financial services, food quality and safety, and market access; this should be balanced by the adoption of proper regulations to ensure that new technologies benefit all actors along the agricultural value chain.