Global food commodity prices continued to decline in August as ample supplies, a slump in energy prices and concerns over China's economic slowdown all contributed to the sharpest fall of the FAO Food Price Index in almost 7 years.

The United Nations Food and Agriculture Organisation said that the index averaged 155.7 points in August 2015, down 5.2% from July, the steepest monthly drop since December 2008, with virtually all major food commodities registering marked dips.

 

The trade-weighted FAO Food Price Index tracks international market prices for five major food commodity groups: cereals, meat, dairy products, vegetable oils and sugar.

In August, the cereal price index averaged 154.9 points, down 7.0% from July and 15.1% from last year — a decline driven by falling wheat and maize prices that reversed two consecutive months of modest increases. Continued improvements in production prospects for 2015/16 were largely behind the cereal price slides.

The vegetable oil price index averaged 134.9 points in August, down 8.6% from July, and its lowest level since March 2009. The fall primarily reflected a six-and-a-half year low in international palm oil prices, mainly the result of slowing import demand, notably by India and China, amid expectations of rising production.

A substantial drop in prices for milk powders, cheese and butter pushed the August dairy price index down by 9.1% to 135.5 points, with much of the weakness attributed to softening import demand from China, the Near East and North Africa.

A sharp fall in the sugar price index — down 10.0% from July to an average of 163.2 points in August — was largely the result of the continued depreciation of the Brazilian Real against the US Dollar and firmer expectations that India, the world's second largest sugar producer, will become a net exporter in the current 2015/16 season.

In contrast to the general downward trend, meat prices in August remained virtually unchanged from the previous month. Nevertheless, compared to the meat price index's historic peak in August 2014, overall prices were down by 18%.

Good world cereal supplies expected in 2015

Meanwhile, the latest FAO forecast for global cereal production in 2015 stands at 2,540m tonnes, 13.8m tonnes more than expected in July, but still 21m tonnes (0.8%) below the 2014 record. The upward revision resulted from more buoyant production prospects for coarse grains, wheat and rice.

food prices Irish dairy milkThe FAO raises forecasts for global coarse grains output by 7.5m tonnes to 1 311m tonnes. However, this remains 19.9m tonnes (1.5%) short of the 2014 record. The upgrade from July was mostly driven by better than anticipated growing conditions in Argentina (maize), Brazil (maize) and the United States (maize and sorghum), which more than offset a drop in maize production in the EU, where dry and hot weather dampened yield expectations.

As the harvest is nearing completion in the Northern Hemisphere, the global wheat production forecast for 2015 is becoming firmer, with 728m tonnes now expected, 5m tonnes more than previously foreseen.  The revision was driven by higher expectations for crops in Australia, the EU, the Russian Federation and Ukraine, more than offsetting a lower production forecast for Canada, where major growing areas continued to be affected by dry conditions.

Prospects for world rice production (milled basis) have also improved since July 2015, albeit by only 1.3m tonnes, mainly attributable to India, where plantings are progressing in line with last season in spite of the prevailing El Niño. Based on the current forecast of 501m tonnes, global rice production would be 3.6m tonnes (0.7%) greater than in 2014.

The FAO forecast for world cereal stocks by the close of the seasons in 2016 has been raised by almost 12m tonnes since July, to 643m tonnes, on account of more optimistic crop prospects, putting this season's ending inventories only 6m tonnes (1%) below its record high opening level.

Pic above: Eddie Downey, president of the Irish Farmers Association (IFA) leads a Brussels protest by Irish farmers demanding dairy price supports.

EU agriculture ministers agreed a €500m aid package for farmers but they rejected raising the intervention price support for dairy products, which farmers’ groups have demanded.

Food minister Simon Coveney was brimming with optimism when EU milk quotas were abolished in early 2015