Cereal prices continue to rise despite improved supplies, says FAO

The FAO Food Price Index averaged 173.8 in January, its highest value in almost two years, marking a 2.1% increase from its revised December value and 16.4% above its 2016 January level. The FAO Sugar Price Index surged 9.9% in the month, driven by expectations of protracted supply tightness in Brazil, India and Thailand.

 The FAO Cereal Price Index rose 3.4% from December to a six-month high, with wheat, maize and rice values all increasing. Wheat markets reacted to unfavorable weather conditions hampering this season's crops as well as reduced plantings in the United States, while higher maize prices mostly reflected strong demand and uncertain crop prospects across South America. International prices of rice also rose, in part due to India's ongoing state procurement program, reducing the quantities available for export.

FAO's Food Price Index is a trade-weighted index tracking international market prices for five major food commodity groups. While 2016 marked the fifth consecutive year the index has fallen, January marked its sixth monthly increase in a row.

The FAO Vegetable Oil Price Index rose 1.8%, due mostly to low global inventory levels of palm oil coupled with a slow production recovery in Southeast Asia. Soy oil prices, by contrast, eased on expectations of ample global availability.

The FAO Dairy Price Index was unchanged from December, a marked departure from the 50% increase it posted between May and December last year. The FAO Meat Price Index was also practically unchanged, with a rise in bovine meat quotations - the result of herd rebuilding in Australia - offset by lower prices of ovine and other meats.

Worldwide inventories of cereals are on course to reach an all-time record level by the end of seasons in 2017, according to FAO's latest Cereal Supply and Demand Brief.

Latest figures put global cereal stocks at 681 million tons, up 1.5% from their December forecasted level and 3% from the previous season. World wheat inventories would likely hit a new record of 245 million tons, marking an 8.3% annual increase. Coarse grain stocks are forecast to grow by 0.7% to reach their second-highest level on record, while rice stocks are set to decline slightly although ending the season at a near-record 170 million tons.

FAO has also raised its estimate of global cereal output in 2016 by 15 million tons to 2 592 million tons, due primarily to larger-than-expected wheat harvests in Australia and the Russian Federation.

World cereal utilization as well as trade are also set to be significantly higher than earlier anticipated. Looking further ahead, early production prospects for 2017 are mixed, according to FAO. Low prices prompted farmers in North America to reduce acreage sowed to wheat - to their second-lowest level on record in the United States - while the opposite trend was seen in the Russian Federation.

For rice, excess rains over parts of Viet Nam and inadequate rainfall in Sri Lanka will likely curb rice output. For other grains, generally positive conditions appear to be in place. Maize output in Southern African countries is poised to rebound to near-average levels, thanks to more plantings and better yields after last year's severely dry conditions. High local prices and conducive weather point to larger grain plantings in Argentina and Brazil.