FOOD SECURITY: Surging demand for butter fat and sugar output shortfalls were the main factors behind food prices rising by more than 17% in a year, indicates a recent Food & Agriculture Organization (FAO) report.
According to a February 2017 report published in early March, the FAO Food Price Index* (FFPI) — which tracks price quotations of 23 food commodities in five sub-indices of Cereals, Vegetable Oils, Dairy, Meat and Sugar – averaged 175.5 points, which represented an increase of 0.9 points (0.5%) over January 2017, and a 26-point (17.2%) spike over February, 2016.
Most of the FAO sub-indices reflected significant month-on-month price increases, with the exception of vegetable oils, dropping by 7.6 points (4.1%) to 178.7 points.
The report cited price pressures in key global palm and soy oil markets for the month’s decline, but nevertheless underlines that the index had still experienced a 28-point (19%) y-o-y jump from February, 2016, reinforcing the larger trend of rising food costs.
The largest month-on-month increase was seen in the FAO Cereal Price Index, which averaged 150.6 points in February, up 3.7 points (2.5%) from January. This has caught by surprise many speculators who may have expected cereal prices to continue in a free-fall trend based on various optimistic reports about “record bumper crops”.
However, at the February level, the cereal index rose 1.6% above its value a year ago on the back of wheat quotations gaining 3%, the report notes.
It is widely understood in the commodities market that wheat quotations are much more strongly influenced by the supply – or lack thereof – of quality grain for human consumption, as opposed to animal and industrial grade grain.
With planting area in key producing countries like the US expected to be reduced this year, quotations have incentive to rise further.
As for other major cereals, the report highlights that “The increase in maize values was less significant, but strong demand kept prices firm. International rice prices firmed for the third successive month, mostly reflecting currency movements and expectations of stronger Basmati sales.”
The most significant changes in the indices were seen in the FAO Dairy Price Indices for Sugar and Dairy.
Sugar averaged 290.3 points, 103.2 points (55%) higher than the previous year, while Dairy averaged 194.2 points, 52 points (37%) higher than in February, 2016.
To explain the rise in dairy prices, the report pointed to the surging demand for butter-fat, which it said had “caused butter and whole milk powder prices to increase by substantially more than those of skimmed milk powder and cheese.”
As for the ever-volatile trade of sugar, prices remain “sensitive to changing prospects for sugar output in the main producing countries, notably in Brazil, the world’s largest sugar producer and exporter, where protracted supply tightness continued to prevail,” the report continues.
“Expected production shortfalls in India and in Thailand, the world’s second largest sugar exporter, also provided some support to prices. Reports of higher expected production in the EU, on expanding planted beet area, and China, limited the month-on-month gain.”
On meat price trends, the FAO underlines rising prices of bovine and ovine (cattle and sheep) meat, compared to more stable poultry and pig meat prices.
“In Australia, quotations climbed as herd rebuilding reduced availability of bovine meat. Meanwhile, the ending of the seasonal slaughter peak for ovine meat in Oceania impinged on supply and triggered a price increase,” the report concludes.