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FAO Food Price Index Drops in August Analysis

Strong supply conditions push international commodity quotations lower except for rice and sugar.

Shivangi Rai
The FAO Dairy Price Index declined by 4.0 percent in August, with whole milk powder prices leading to a decline due to abundant supply from Oceania. (Image Courtesy- Canva)
The FAO Dairy Price Index declined by 4.0 percent in August, with whole milk powder prices leading to a decline due to abundant supply from Oceania. (Image Courtesy- Canva)

The Food and Agriculture Organization of the United Nations (FAO) in August, experienced a notable decline in international food commodity prices, particularly in staple foods other than rice and sugar.

The FAO Food Price Index, which monitors monthly changes in global prices of traded food items, averaged 121.4 points in August. This represented a 2.1 percent drop from July and a significant 24 percent decrease from its peak in March 2022.

The FAO Vegetable Oil Price Index decreased by 3.1 percent in August, partially reversing a sharp 12.1 percent increase in July. This decline was driven by a nearly 8 percent drop in sunflower oil prices due to reduced global import demand and ample supply from major exporters.

Soy oil prices also decreased due to improved soybean crop conditions in the United States, while palm oil prices fell moderately because of higher production in Southeast Asian countries.

The FAO Cereal Price Index decreased by 0.7 percent in August. International wheat prices fell by 3.8 percent, primarily due to increased availability from major exporters. Coarse grain prices also dropped by 3.4 percent, as maize supplies remained ample following a record harvest in Brazil and the upcoming harvest in the USA.

In contrast, the FAO All Rice Price Index surged by 9.8 percent in August, reaching a 15-year nominal high. This increase was a result of trade disruptions following India's ban on Indica white rice exports, as India is the largest rice exporter globally. Uncertainty surrounding the ban's duration and export restrictions led to supply chain disruptions and reduced trade volumes.

The FAO Dairy Price Index declined by 4.0 percent in August, with whole milk powder prices leading to a decline due to abundant supply from Oceania. International butter and cheese prices also dropped, partly due to subdued market activity during the European summer holidays.

The FAO Meat Price Index dipped by 3.0 percent, driven primarily by lower ovine (sheep and goat) prices, boosted by increased export availability from Australia and weaker demand from China. Robust supplies also contributed to lower prices for pigs, poultry, and bovine meats.

The FAO Sugar Price Index, on the other hand, rose by 1.3 percent in August, standing at 34.1 percent higher than the previous year. This increase was mainly due to concerns about the El Niño phenomenon's impact on sugarcane crops, along with below-average rainfall and dry weather conditions in Thailand.

However, the large sugar crop being harvested in Brazil, along with lower ethanol prices and a weaker Brazilian Real, tempered the rise in international sugar prices.

The FAO also released a Cereal Supply and Demand Brief, forecasting that world cereal production in 2023 will increase by 0.9 percent, matching the record output achieved in 2021. While global wheat production is expected to decline by 2.6 percent from 2022, coarse grain output is projected to rise by 2.7 percent, with maize production reaching a new record of 1,215 million tonnes

World cereal utilization for the upcoming season is forecasted at 2,807 million tonnes, a 0.8 percent increase from the previous season.

Additionally, global cereal stocks at the end of the 2023/24 marketing season are predicted to reach 878 million tonnes, marking a 2.2-percent annual increase and indicating a comfortable global supply level compared to historical standards.

However, world rice stocks are anticipated to reach an all-time high of 198.1 million tonnes, driven by India and China holding the majority of these reserves. In contrast, other countries are expected to see a contraction in rice reserves, reaching a four-year low of 51.4 million tonnes.

FAO also lowered its forecast for world trade in cereals in 2023-24, with a 1.7 percent decrease from the previous marketing season. This is attributed to various factors, including reduced wheat and maize exports from Ukraine due to trade disruptions caused by ongoing conflicts.

Additionally, FAO adjusted its forecast for rice trade due to India's increased export restrictions, which could limit the expected recovery in rice trade in 2024 if prolonged and exacerbated by El Niño-induced production constraints in other Asian exporting countries.

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