World food prices fall for third consecutive month
Geneva, 8 May (Kanaga Raja) – The international prices of a basket of key agricultural food commodities fell for the third month in a row in April, as a result of significant contractions in demand for many commodities due to the COVID-19 pandemic, the Food and Agriculture Organization (FAO) has said.
According to FAO, its Food Price Index (FFPI) averaged 165.5 points in April 2020, down 5.7 points (3.4 percent) from March and the lowest since January 2019.
“The April decline marked the third consecutive monthly fall in the value of the Index, largely attributed to several negative impacts on international food markets arising from the COVID-19 pandemic,” it said.
The FAO Food Price Index is a trade-weighted index that tracks the monthly change in the international prices of a basket of key food commodities.
The FAO Cereal Price Index averaged nearly 164.0 points in April, down marginally from March but still up almost 4.0 points (2.4 percent) from April 2019.
Among major cereals, international prices of wheat and rice rose significantly in April, but a sharp drop in maize quotations kept the overall value of the FAO Cereal Price Index close to its level in the previous month, said FAO.
Wheat prices averaged 2.5 percent higher month-on-month, reflecting strong international demand amid reports of a quick fulfilment of the export quota from the Russian Federation, which was implemented in late March and is not expected to be adjustable until the end of the current marketing season on 30 June.
The imposition of temporary export restrictions and logistical bottlenecks in some suppliers fuelled a 7.2 percent monthly increase in international rice prices, although increases were capped by the easing and eventual repeal of export limits, namely in Viet Nam, towards the end of the month.
In contrast, international maize prices registered a third consecutive month of decline, pushing down the overall value of the coarse grains index by 10 percent from the previous month.
“Already large export availabilities, supplemented by newly harvested crops in South America, amid weaker demand for animal feed and fuel ethanol, continued to put strong downward pressure on maize prices,” said FAO.
According to FAO, its Vegetable Oil Price Index averaged 131.8 points in April, shedding 7.2 points (or 5.2 percent) from last month and hitting its lowest level since August 2019.
The third consecutive monthly decrease in the index mainly reflects falling palm, soy and rapeseed oil values, whereas sunflower oil prices strengthened, it said.
“The continued decline in palm oil prices was driven by the plunge in international crude oil quotations and sluggish global demand for palm oil in both the food and energy sectors because of the COVID-19 pandemic.”
Higher-than-expected palm oil output in Malaysia added to the downward pressure on prices, it said.
Weakening demand also pushed down soy and rapeseed oil prices, with soy-oil values also affected by higher than anticipated crushings in the United States.
In contrast, international sunflower oil prices rebounded in April, underpinned by firm import demand amid concerns over tightening exportable supplies.
The FAO Dairy Price Index averaged 196.2 points in April, down 7.3 points (3.6 percent) from March, registering the second consecutive month of decline and now down 18.8 points (8.8 percent) from its value in the corresponding month last year, said FAO.
Quotations for butter, skim milk powder (SMP) and whole milk powder (WMP) fell by over 10 percent in April, reflecting increased export availabilities and mounting inventories amid weak import demand.
“With milk production in the northern hemisphere normally rising at this time of the year, diminished restaurant sales and reduced demand from food manufacturers also weighed on prices,” it said.
In contrast, price quotations for cheese rebounded moderately on account of limited spot supplies from Oceania, where production is seasonally declining.
According to FAO, its Meat Price Index averaged 168.8 points in April, down 4.7 points (2.7 percent) from March, registering the fourth consecutive monthly decline.
In April, international quotations for all meat types represented in the index fell, as a partial recovery in import demand, mainly in China, was insufficient to balance a slump in imports from other countries, caused by continued COVID-19-related economic hardship, logistical bottlenecks and a steep fall in demand from the food services sector due to lockdowns, it said.
“Notwithstanding reduced levels of meat processing as labour shortages mounted, plummeting restaurant sales led to increased stock build-up and export availabilities, also weighing on meat price quotations,” it added.
“The COVID-19 pandemic is hitting both the demand and supply sides for meat, as restaurant closures and reduced household incomes lead to lower consumption, and labour shortages on the processing side are impacting just-in-time production systems in major livestock producing countries,” said FAO Senior Economist Upali Galketi Aratchilage.
According to FAO, its Sugar Price Index averaged 144.0 points in April, down 24.7 points (14.6 percent) from March, marking the second consecutive monthly decrease.
This latest drop was mostly on the back of a collapse in international crude oil prices, it said.
“Falling energy prices means that sugar mills divert more sugarcane for the production of sugar instead of ethanol, a substitute for gasoline, hence expanding sugar export availabilities.”
In addition, a contraction in sugar demand arising from the confinement measures imposed in a number of countries to contain the spread of COVID-19 spawned additional downward pressure on world sugar prices, it added.
CEREAL SUPPLIES ADEQUATE AMID COVID-19
Meanwhile, in a separate Cereal Supply and Demand Brief, FAO has estimated world cereal production for 2019 at around 2,720 million tonnes, rebounding from the reduced 2018 level by 65.3 million tonnes (2.5 percent), mostly on increases in wheat, maize, and barley outputs.
However, FAO lowered its forecast for world cereal utilization for 2019/20 by 24.7 million tonnes since the previous report (in April), as a result of COVID-19 impacts on economic growth, energy markets, and, to a lesser extent, feed demand.
The reduction stems mainly from a 22.4 million tonne downward revision to the 2019/20 maize utilization, mostly in the United States of America and China, reflecting a sudden slowdown in feed and industrial demand, it said.
FAO has forecast global maize utilization in 2019/20 to shrink from the 2018/19 level by almost 9 million tonnes (0.8 percent), bringing the total utilization of coarse grains to slightly below 2018/19 levels.
The forecast for total wheat utilization in 2019/20 has also been subject to a downward revision, with cuts to industrial use, especially in the European Union, more than offsetting upward revisions for Canada.
Nonetheless, said FAO, world wheat utilization in 2019/20 is expected to exceed the previous season’s level by 9 million tonnes (1.2 percent), supported by anticipation of rising food consumption.
Lowered food intake forecasts for Nigeria, combined with expected reduced industrial use in China, have resulted in a 1.5 million tonnes cut in the forecast for world rice utilization in 2019/20, said FAO.
Despite the revision, total world rice use would still exceed the 2018/19 record by 0.7 percent, largely on the back of an expansion in food intake in Asia, it added.
As a result of expectations of reduced utilization, FAO has revised upwards its forecast for world cereal stocks by the close of the 2020 seasons by 22.6 million tonnes to 884 million tonnes, now pointing to a likely increase of 13.6 million tonnes (1.6 percent) from their opening levels and a global cereals stocks-to-use ratio of 31.6 percent, up from 30.7 percent published last month.
The forecast for global coarse grain stocks has been increased by 22.4 million tonnes (5.5 percent) from last month’s report to a new record level of 428 million tonnes, almost exclusively on upward revisions for maize stocks in the United States and China.
The anticipated COVID-19-induced contraction in industrial and feed uses could push US maize stocks to a record 62 million tonnes, which would be 5.6 million tonnes (10 percent) above their opening levels, said FAO.
World wheat inventories are still forecast to remain above their opening level, by 1 million tonnes (0.4 percent), as downward revisions in the European Union are offset by predicted increases in the Russian Federation and Turkey.
World rice stocks are expected to approach an all-time high of 183 million tonnes, said FAO.
“India is foreseen to account for much of the anticipated rise in the major rice exporters’ inventories in 2019/20, compensating for expected draw-downs in the United States of America and Viet Nam, as well as in Bangladesh, China, Indonesia and Nigeria.”
FAO said that world trade in cereals in 2019/20 is still expected to rebound from 2018/19, by as much as 11.4 million tonnes (2.8 percent), to 422 million tonnes.
The forecast for global coarse grains trade in 2019/20 (July/June) has been raised slightly since last month, on upward revisions to sorghum trade reflecting foreseen larger purchases by China.
FAO has also lifted its forecast for global wheat trade in 2019/20 (July/June) by 1.5 million tonnes, to 175 million tonnes, representing a 7 million tonnes (4.1 percent) increase from 2018/19.
Reflecting much faster pace in sales, exports by the European Union and Ukraine in 2019/20 are now expected to reach higher levels than anticipated earlier, it said.
“Although some COVID-19 related export restrictions were put into place in March, namely in the Black Sea region, they did not affect the 2019/20 export commitments or expectations and, in most cases, have already been lifted.”
World 2020 (January-December) rice trade forecast is down 600,000 tonnes from last month, and now points to only a minimal (0.9 percent) recovery from the 2019 depressed level, said FAO.
THE OUTLOOK FOR WHEAT IN 2020/2021
FAO said that its forecast for world wheat production for 2020 points to an output of roughly 762.6 million tonnes, a comparable level to the 2019 production which, if materialized, would be the second highest on record.
Smaller harvests are expected in the European Union, North Africa, Ukraine and the United States of America.
These declines will likely be compensated by production rebounds foreseen in Australia and Kazakhstan as well as bigger harvests in the Russian Federation and several countries in Asia, in particular India, it said.
Global wheat utilization in the 2020/21 marketing season will likely stagnate at around 759.4 million tonnes, with anticipated increases in food consumption outweighing expected reductions in feed and industrial uses, especially in the European Union, the United States of America and Canada, primarily on expectations of depressed demand due to the severe COVID-19 pandemic economic contractions.
Based on the current production prospects for 2020 and the projected utilization in 2020/21, FAO said its first forecast of world wheat stocks by the close of crop seasons in 2021 stands at 274.5 million tonnes, up 0.6 percent from their opening levels and would be the second highest on record.
A forecast rise of around 8 million tonnes in China’s wheat inventories is the main driver behind the anticipated increase in global wheat stocks, more than compensating for the anticipated declines in the United States of America and North Africa.
Excluding China, global stocks are heading to a year-on-year decline of nearly 5 percent, to their lowest level since 2013, said FAO.