Prices for ag commodities continue to fall on world markets, FAO says

By Agri-Pulse staff

© Copyright Agri-Pulse Communications, Inc.



WASHINGTON, May 7, 2015 - Prices for agricultural commodities on world markets continued to fall in April and abundant inventories should offset any pressure from the slight reduction in global harvests expected this year, according to the biannual Food Outlook report released today by the U.N. Food and Agriculture Organization (FAO).

Global cereal production will likely decline by 1.5 percent from last year's record, mostly due to reduced acreage planted with maize, but the impact will be cushioned by "exceptionally high" levels of existing stocks, according to the Rome-based FAO's latest forecasts.

Lets Talk Food

FAO's first forecast for global cereal production in 2015, assuming normal weather conditions for the remainder of the season, amounts to 2.509 billion metric tons, a bit down from last year's record but nearly 5 percent above the average of the past five years. The modest decline in output would require running inventories down by around 3 percent in the new season (2015/16), with faster drawdowns for coarse grains and rice than for wheat.

"The world food import bill is forecast to reach a five-year low in 2015," the report says, mainly driven by a decline in international prices, low freight rates and a strong U.S. dollar. Import volumes of the various food components of the import bill were little changed or even rising. Low income countries are also expected to benefit from lower import bills. 

FAO's Food Price Index declined 1.2 percent in April from March, reaching 171 points, its lowest level since June 2010 and 19.2 percent less than a year ago.

Dairy prices fell most, but sugar, cereals and vegetable oils prices also declined. By contrast, meat values rose in April, their first increase since August 2014.

The Food Price Index is a trade-weighted index that tracks prices of five major food commodity groups on international markets. It aggregates price sub-indices of cereals, meat, dairy products, vegetable oils and sugar.

International food prices are likely to stay under downward pressure due to large supplies and a strong U.S. dollar, according to the Food Outlook, which noted that "currency movements and macroeconomic developments may have important implications for markets again in 2015-16."

Commodity market trends and outlook

Several years of solid harvests and stockpiling mean most basic food commodities are in surplus. As a result, the projected drop in cereals output is not expected to impact availability of food for consumption.

Dairy production trends are poised for further steady growth of around two percent in 2015, with lower international prices buoying imports in Africa. The abolition of the European Union's milk quota system is likely to boost output and was one of the main drivers of the 6.7 percent monthly drop in the Dairy Price Index.

Sugar production is expected to increase only slightly - driven by India, the European Union and Australia - but still surpass consumption for the fifth consecutive season.

Bumper soybean crops will drive a strong 5.7 percent increase in total oil-crop production in 2014/15 season. That, coupled with sliding prices linked to more tepid demand from the biofuels sector and surging inventories, may lead to reduced output in the coming season, according to FAO.

Worldwide production of beef is expected to grow only 0.2 percent in the coming year, while output of all meat grows by 1.3 percent.

Fish is increasingly popular in the global diet, buoyed by fast growth in the aquaculture sector, which is expected to expand by five percent in the year ahead. Wild fish catch is also expected to rebound after last year's shortfall inked to the El Nino weather complex. That recovery will foster rapid growth in the usage of wild fish catches as feed for aquaculture.

Food Outlook also includes a special feature focusing on price volatility, highlighting a need to investigate whether volatility has returned to normal or not.

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