Food commodity prices fall amidst rising trade tensions
Published in SUNS #8720 dated 12 July 2018

Geneva, 11 Jul (Kanaga Raja) - The international prices of a basket of key agricultural food commodities fell in June, representing the first month-on-month decline since the beginning of this year, the United Nations Food and Agriculture Organisation (FAO) has said.

According to FAO, its Food Price Index averaged 173.7 points in June 2018, down 2.4 points (1.3 percent) from its level in May.

The decline was driven primarily by lower benchmark price quotations for wheat, maize and vegetable oils including those made from soybeans, said FAO.

"Most markets have generally taken on a weaker tone recently largely because of rising tensions in international trade relations," FAO pointed out.

The FAO Food Price Index is a trade-weighted index that tracks the monthly change in international prices of a basket of key food commodities.

The FAO Cereal Price Index averaged 166.2 points in June, down 6.4 points ( 3.7 percent) from May but still nearly 8 percent higher than its level in the corresponding period last year.

According to FAO, the decline in June was driven by relatively sharp falls in maize and wheat quotations. On the other hand, rice prices saw an increase.

"Despite overall worsening production prospects, wheat and maize prices fell in June, following similar trends observed across most commodities arising from heightened trade tensions," it said.

In contrast, international rice prices increased, as supply tightness under pinned higher quotations of Japonica and fragrant rice, outweighing declines in Indica prices.

The FAO Vegetable Oil Price Index averaged 146.1 points in June, down 4.5 points (3 percent) from May, marking its fifth consecutive fall and a 29-month low.

FAO attributed the fall to lower quotations for palm, soybean and sunflower oils.

The continued slide in palm oil prices reflects lack lustre global demand as well as spill-over weakness from the soybean complex fuelled by the recent trade tensions, it said.

With regards to soy oil, FAO said that further stock accumulations in several countries also weighed on prices, whereas sunflower oil quotations declined on higher-than-expected production, notably in the European Union and Ukraine.

Heightened trade tensions between the United States and its trading partners, particularly China, weighed particularly hard on the US origin export prices, led by soybeans, with the strength of the dollar exerting further downward pressure, said FAO.

The FAO Dairy Price Index averaged 213.2 points in June, down 2 points (0.9 percent) from May but still 2 percent higher than the corresponding month last year.

The decline in June was driven by lower price quotations for cheese, more than offsetting a rise in Skim Milk Powder (SMP) prices, while those of butter and Whole Milk Powder (WMP) remained steady.

"Increased export availabilities in the United States and the EU weighed on price quotations for cheese, whereas persistent import demand provided support to the prices of SMP. Butter and WMP quotations rose in Europe, but fell slightly in Oceania."

The FAO Meat Price Index averaged 169.8 points in June, up marginally (0.3 percent) from May but still down 3.3 percent from June 2017.

The small month-on-month increase was largely driven by an upswing in ovine meat (lamb and mutton) values as well as a small rise in pigmeat prices. On the other hand, bovine and poultry price quotations fell slightly.

According to FAO, the higher ovine meat prices were due to solid import demand, amid weak offerings from Oceania, while higher pigmeat prices were driven by firm demand, especially in Europe.

Large export supplies from Australia underpinned the decrease in bovine prices. Ample export availabilities, especially from Brazil, amid weak import demand, pushed down poultry prices, it said.

The FAO Sugar Price Index averaged 177.4 points in June, up 2.1 points (1.2 percent) from May. This marked the first increase after six months of consecutive declines, said FAO.

The rise in sugar prices was due mostly to worries over sugar production prospects in Brazil, the world's largest sugar producing and exporting country, as dry weather conditions continued to negatively affect sugarcane yields.

Reports indicating higher use of sugarcane for the production of fuel ethanol in Brazil had also lent support to international sugar prices.

Meanwhile, in its latest Cereal Supply and Demand Brief, FAO said the latest indications continue to point to a reduction in cereal output in 2018 and negative prospects for the cereal supply outlook for the forthcoming 2018/19 marketing season.

Based on the condition of crops already in the ground and assuming normal weather for the remainder of the 2018 cropping seasons, FAO has forecast world cereal output this year at 2,586 million tonnes (including rice in milled terms), 64.5 million tonnes (2.4 percent) less than the record output in 2017.

The year-on-year decrease mostly reflects anticipated reduced maize output, while a predicted decline in the 2018 wheat production also weighs on global prospects.

On the other hand, rice output is seen expanding to fresh peaks in 2018.

The latest forecast for cereals is down nearly 24 million tonnes than that projected by FAO last month, mainly on lower than previously anticipated projections for wheat production in the EU as well as wheat, maize and barley production in the Russian Federation and Ukraine.

FAO has forecast world cereal utilization at 2,641 million tonnes, 26.5 million tonnes (1.0 percent) higher than in 2017/18.

Total utilization of all major cereals is likely to continue growing in 201 8/19, keeping pace with rising food demand, while overall feed and industrial uses are also likely to expand further, it said.

If current production forecasts materialize, cereal output would not be sufficient to meet the expected total utilization requirements in 2018/19 and, as a result, global cereal stocks accumulated over the past five seasons would have to be drawn down to 749 million tonnes, over 7 percent down from their opening levels.

FAO said that at the current levels of utilization and stock forecasts, the stock-to-use ratio would drop from 30.6 percent in 2017/18 to 27.7 percent in 2018/19, its first decline in four years, while still well above the record low of 20.4 percent registered in 2007/08.

Among the major cereals, the drawdown in maize inventories is expected to be the largest, while wheat and barley stocks are also forecast to decline.

On the other hand, rice ending stocks could increase for the third consecutive season.

According to FAO, world trade in cereals is expected to remain generally robust in 2018/19, with wheat trade seen exceeding the previous season's level, but to still remain short of the peak registered in 2016/17.

Global trade in coarse grains is forecast to hover around record levels, supported by strong import demand for maize, barley and sorghum.

International trade in rice in both 2018 and 2019 is also predicted to remain close to the 2017 all-time record, said FAO.