The Food and Agriculture Organization (FAO) of the United Nations reported a significant decline in the world price index for food commodities in May. The index, which tracks the prices of the most globally-traded food items, averaged 124.3 points, marking its lowest level since April 2021. This represents a 22% drop from its peak in March 2022, when tensions arose from Russia’s invasion of Ukraine.
The decline in the index was primarily driven by slumping prices of vegetable oils, cereals, and dairy products, outweighing the increases observed in sugar and meat. FAO’s cereal price index fell by nearly 5% in May due to favourable supply prospects and the extension of the Black Sea Grain Initiative, enabling shipments from Ukraine.
However, international rice prices continued to rise as a result of tighter supplies in certain exporting countries, raising concerns over staple food prices.
The vegetable oil price index experienced a sharp decline of almost 9% month-on-month due to abundant oilseed supplies and weak demand for palm oil. Similarly, global dairy prices dropped by over 3% as a seasonal increase in milk output in the northern hemisphere offset market demand.
On the other hand, sugar prices showed a 5.5% increase in May, marking the fourth consecutive monthly gain. The rise was driven by concerns over the El Nino weather pattern, which posed additional risks to global sugar supplies. However, sugar markets were influenced by improved weather conditions in Brazil and lower crude oil prices, resulting in a decrease in sugar futures after reaching a 12-year high in late April.
In its separate report on cereals supply and demand, FAO projected a 1% increase in global cereal production to reach 2.813 billion tonnes in 2023. This growth primarily stems from an expected rise in maise output.
Furthermore, global cereal stocks for the 2023/24 season are anticipated to reach a record high of 873 million tonnes, reflecting a 1.7% increase compared to the previous year. This projection is driven by expectations of larger stocks of maise, rice, and barley. However, wheat stocks are expected to decline due to a decrease in production, despite stable demand.
The FAO’s report indicates a complex and evolving landscape for food prices, influenced by various factors such as geopolitical tensions, weather patterns, and market demand. As the world continues to navigate these challenges, stakeholders in the trade finance industry must closely monitor these developments to make informed decisions and mitigate risks effectively.
