FAO Food Price Index highest in 19 months

Canada , Commodities , Food , USA Mar 10, 2014 No Comments

FAO Food Price IndexThe FAO Food Price Index of 55 food items rose to 208.1 points last month, 5.2 points, or 2.6 percent, above a slightly revised index for January, but still 2.1 percent less than one year ago. February’s rebound, the sharpest witnessed since mid-2012, resulted from strengthening quotations of all the commodity groups making up the index, except meat, which fell marginally.

The products that have incurred the strongest rises since last month were sugar (+6.2 percent) and oils (+4.9 percent), followed by cereals (+3.6 percent) and dairy (+2.9 percent).

Unfavourable weather conditions in the southern hemisphere and parts of the United States were the most important cause of the rises, FAO‘s senior economist Abdolreza Abbassian said. Temperatures below 0 degree Fahrenheit (-17.8 degrees Celsius) may have caused some winter kill damage in the U.S. Plains, according to Commodity Weather Group.

Cereal and grain prices were the main culprit, with the sub index, the largest component of the overall index, rising 3.6 percent compared with the data in January. That is its strongest one-month rise since mid-2012, and it was pushed by rising wheat prices as demand rose for animal feed and biofuel. But rice prices rose as well, based on stronger demand from the biggest Asian markets.

The crisis in Ukraine could affect food prices in March and cause market volatility for the foreseeable future unless the situation improves. “The situation in Ukraine didn’t really have an impact on our index last month, its implication, if any, will be felt in March“, Abbassian said. Things could come back to normal once the Ukraine situation improves. Otherwise there could be more volatility in the markets for the foreseeable future.

Russian troops have taken control of the Crimea peninsula to the southeast of Ukraine’s main grain-export ports. Ukraine is forecast to become the world’s third-biggest corn exporter and sixth-biggest wheat shipper by 2013-14, according to the International Grains Council.

“When the situation is very uncertain, like now, you can have prices going in any directions”, Concepcion Calpe, an FAO economist said. “Markets are nervous. What we’ll probably see is an increase in volatility as uncertainty remains.”

In a separate report, the FAO forecast the world wheat crop will drop 1.7 percent this year on lower yields and area in Canada, which had a record high last year, and on countries that were formerly part of the Soviet Union, where yields are seen returning to average after high levels in 2013.

“The overall reductions expected would more than offset the few, and less marked, increases that are foreseen this year, mainly in the EU, India and the United States,” the FAO said in the report.

The UN agency lifted its estimate for 2013 global production of wheat, coarse grains and milled rice by 13.2 million metric tons to a record 2.515 billion tons.

Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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