Improved production and supply outlook for most commodities influence pricing

The FAO Food Price Index was down for the second consecutive month in May, continuing its retreat from the 10-month high it experienced in March. Prices fell as generally ample supplies weighed on international prices for most commodities included in the Index.

Meanwhile, a companion monthly report, the FAO Cereal Supply and Demand Brief, shows the outlook for the global cereal supply in the 2014/15 marketing season has improved considerably since the previous report in May.

The Food Price Index, based on the prices of a basket of internationally-traded food commodities, averaged 207.8 points in May 2014, down 2.5 points (or 1.2 percent) from April, and nearly 7 points, or 3.2 percent, below the May 2013 level.

The Index had risen to a ten-month high of 213 points in March, but fell in April and May amid lower dairy, cereal and vegetable oil prices. Sugar prices went against the trend, making strong gains in May, while meat remained firm.

TheFAO Cereal Price Index averaged 204.4 points in May, down 2.4 points (or 1.2 percent) from April and 30 points (or 13 percent) below last year. The decline in May was mostly triggered by maize prices, which fell in response to favourable growing conditions and good supply prospects in 2014/15. Wheat prices, which had contributed to price increases in previous months, partly amid fears of disruptions to trade flows from Ukraine, also fell, while rice prices saw little change.

"We went into May with concerns over unfavourable weather conditions, especially in the US, and geopolitical tensions in the Black Sea region, but towards the second half of May, we began to see lower wheat prices following improved weather conditions and the continuation of regular shipping patterns from the Ukraine," said FAO Senior Economist Abdolreza Abbassian.

Vegetable oils averaged 195.3 points in May, down 3.7 points (or 1.8 percent) from April, reflecting lower quotations of palm, soy and rapeseed oils. Palm oil prices fell for the second consecutive month on rising output in Southeast Asia, continued strength in Malaysia's currency and subdued global import demand. The softening of soy oil was caused by strong soybean crushing in South America and initial forecasts of an ample global soybean crop in 2014/15. The drop in rapeseed oil prices mainly stemmed from an improvement in global export availabilities and the prospect of a record harvest in the EU.

TheFAO Dairy Price Index averaged 238.9 points in May, representing a second sharp monthly fall, and a decline of 12 points (or 5 percent) over April.  The market for dairy commodities is readjusting, following a period of exceptionally high prices in 2013 and early 2014, caused by limited export supplies.  In recent months, the production outlook has improved and, in general, buyers are purchasing only for immediate needs, in the expectation that prices may fall further; consequently, average prices for all commodities declined during the month. 

Meat prices averaged 189.1 points in May, nearly unchanged from April. Concerns that export supplies of pigmeat might be constrained by an outbreak of Porcine Epidemic Diarrhea virus in the United States appear to have been allayed as prices for this product registered only a slight increase.  Ovine meat prices are moving seasonally higher, as the production year draws to a close in Oceania.

Sugar was up, averaging 259.2 points in May, up 9.3 points (or 3.7 percent), from April, amid early forecasts of a possible production deficit for the 2014/15 season and El Niño-related weather concerns. Overall, the price increase was more pronounced during the first half of the month, while in the second half, the price rally was somewhat subdued by indications of large sugar inventories in India and Thailand.

FAO Cereal Supply and Demand Brief

FAO's monthly update on the world cereal market, the Cereal Supply and Demand Brief, puts world cereal production in 2014 at nearly 2 480 million tonnes (including rice in milled terms), almost 1 percent (21.5 million tonnes) higher than was reported in May, though still 1.4 percent down from 2013.

Global production of coarse grains stands at 1 274 million tonnes, 18.6 million tonnes higher than reported in May, with most of the upward adjustment reflecting improved outlook for maize crops in the United States and bigger than earlier anticipated maize harvests in Argentina and Brazil.

World wheat production in 2014 is forecast at nearly 703 million tonnes, up marginally from the May forecast, though down from the previous year. Rice production in 2014 is expected to reach about 503 million tonnes (milled basis), 1.9 million more than foreseen last month, and 1.2 percent more than in 2013.

World cereal stocks

The forecast for world cereal stocks by the close of crop seasons ending in 2015 has been raised by almost 10 million tonnes since May, to 576 million tonnes. Based on the latest forecast, the global cereal stocks-to-use ratio could reach a 10-year high of 23.1 percent, up marginally from 2013/14