World cereal prices rise, despite all-time high stocks

Worldwide inventories of cereals forecast that cereal production will reach an all-time record level by the end of seasons in 2017. Pic: ©iStock/lisaaMC

Cereal prices are continuing to rise, even though production is forecast to reach record levels by the end of the 2017 season, according to the FAO Food Price Index (FFPI)

January 2017 was the sixth successive month to see an increase.

In fact, the FFPI reached its highest value in almost two years, averaging an increase of 173.8% in January.

This was a 2.1% increase from its December value and 16.4% above the January 2016 level.

The rebound in value – 2016 marked the fifth consecutive year the FFPI has fallen – was driven by a surge in international sugar quotations and increases in export prices of cereals.

Despite the improved availability of cereal and sugar on the global market, the price of both these commodities saw a sharp rise.

The FAO Sugar Price Index rose by 9.9% in January, driven by expectations of a global sugar production shortfall in 2016/17.

This is mainly attributed to a forecasted limited supply from some of the key sugar producing regions, specifically Brazil, the world’s largest sugar producer and exporter, as well as India, the world’s second largest producer, and Thailand.

The FAO Cereal Price Index also increased by 3.4% from December to a six-month high. Both wheat and maize values increased.

This was in reaction to unfavourable weather conditions hampering this season's wheat crops as well as the reported reduced planting in the US. The increased price of maize mostly reflected strong demand and uncertain crop prospects from South America.

What’ the FAO Food Price Index?

The FAO Food Price Index is a trade-weighted measure of the monthly change in international prices of five major food commodities, including sugar, cereals, dairy, meat and vegetable oils.

Worldwide inventories of cereals forecast that cereal production will reach an all-time record level by the end of seasons in 2017, according to FAO’s latest Cereal Supply and Demand Brief.

It predicts that global cereal stocks will reach 681m tons, which is an increase of 1.5% from the December level and 3% from the previous season.

The Brief noted that world wheat inventories, too, are likely hit a new record of 245m tons, marking an 8.3% annual increase.

The FAO has also raised its estimate of global cereal output in 2016 by 15m tons to 2,592m tons. This is primarily due 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.

Production prospects for 2017

Looking ahead, production prospects for 2017 are mixed, according to the FAO.

Low prices have prompted North American farmers to reduce the number of acres sowed to wheat, while the opposite trend has been seen currently in the Russian Federation.

However, in southern African countries, maize output is expected to rebound to near-average levels, thanks to more plantings and better yields after last year's severely dry conditions.

Higher local prices and conducive weather point to larger grain plantings in Argentina and Brazil, too.

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