FAO Index: In April, Prices of Grains and Dairy Products Increased

Food prices stagnated in April as higher prices of grains and dairy products neutralized the decline in sugar and vegetable oil prices, reported the United Nations Food and Agriculture Organization (FAO) on Thursday.

The FAO index of the price of a basket of basic food products was almost unchanged in April compared to the previous month, averaging 173.5 points. Compared to the same month last year, it is up by 2.7 percent, calculated the FAO.

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The index measuring the movements in the prices of milk and dairy products saw the highest increase in April, rising by 3.4 percent compared to March, reflecting strong demand for all dairy products and a revision of export capacity estimates in New Zealand following an unexpectedly large drop in milk production.

The grain price index also saw a significant increase, rising by 1.7 percent compared to March, supported by higher wheat prices due to weather-related risks that could affect yields in the United States. Concurrently, reduced corn production in Argentina due to drought and smaller planted areas in the U.S. raised prices for that grain.

Compared to last April, grain prices are up by 15.4 percent.

Sugar, on the other hand, significantly decreased in price in April on a monthly basis, by 4.8 percent, continuing the downward trend that began in December. Lower prices reflect a surplus in supply due to record production in Thailand and India and a decline in the value of the Brazilian real. Brazil is the world’s largest producer while India ranks second.

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Compared to last April, sugar prices are down by 24 percent.

In April, vegetable oil prices also fell more significantly on a monthly basis, by 1.4 percent, while meat prices decreased by a milder 0.9 percent, according to the FAO report.

A decline in grain production and stocks is expected in the 2018/2019 season.

According to initial forecasts for the 2018/2019 agricultural season, global grain production is expected to decrease by 1.6 percent compared to 2017, when it was near record levels.

The FAO estimates production in the new season at 2.607 billion tons.

The main reason is the expected decline in corn production, to 1.047 billion tons, primarily associated with lower production in the U.S. Other major producers are also expected to produce less of that grain, including Argentina, Brazil, the European Union, and South Africa.

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Wheat production is also expected to decrease due to an anticipated drop in production in the Russian Federation following last year’s exceptional harvest. This year, a total of 746.6 million tons of wheat is expected to be produced globally, 1.5 percent less than last year’s above-average level.

Demand for grains, according to the new FAO forecast, is expected to reach a record 2.626 billion tons, which is 0.6 percent more than in the previous season.

At the same time, demand for wheat is expected to increase by 0.8 percent, while the main driver of the overall increase in grain demand is expected to be a 2.8 percent jump in corn demand, to a record 615 million tons, led by China and South America.

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This would mean that by the end of the 2019 season, grain stocks will be 2.7 percent lower than at the beginning of the season, sliding to 735.5 million tons, which the FAO attributes primarily to the expected reduction in corn stocks in China.

Wheat stocks are expected to increase by 0.8 percent, to 279 million tons, as their continued increase in China is expected to outweigh declines in several major exporters, including the EU and the U.S.

The volume of international grain trade is expected to decrease by a modest 0.6 percent in the 2018/2019 season compared to the expected record in the previous season, sliding to 406 million tons, according to the FAO.