World food prices plunge to over two-year low: FAO

The FAO Food Price Index averaged 122.3 points in June, down 1.4% month on month and 23.4% below the record high reached in March 2022 after Russia invaded Ukraine, the UN's Food and Agriculture Organization said July 7.

The downward trend in food prices for June was primarily led by indexes for vegetable oils, dairy and sugar, while those for cereals and meat remained largely stable. This was also lowest level in over two years, when the food index was pegged at 122.1 in April 2021.

The FAO food index reached an all-time high of 159.7 in March 2022 as Russia's invasion of Ukraine exacerbated commodity gains sparked by the coronavirus pandemic and tightness in global supply chains.

The Black Sea grain initiative, an agreement struck with Russia in July last year for a 120-day term, allows for the passage of food out of three Ukrainian ports. It has since been extended several times, but Russia has made no commitment yet beyond the current expiry July 17.

Corn pressures cereal prices

Global cereal prices fell for the fifth consecutive month to average at 126.6 points in June, down 2.1% on month, the FAO said. The index was 23.9% lower year on year, it added.

"The month-on-month decline reflects a fall in the world prices of all major cereals," the report added. "International coarse grain prices fell the most, down 3.4% since May."

Global corn prices have declined for the fifth month in a row due to increased seasonal supplies from Brazil and Argentina. The report also said that recent showers in key corn-producing regions in the US also eased pressure on global prices.

The FAO has slightly cut its forecast for global coarse cereal production in marketing year 2023-24 to 1.512 billion mt against 1.513 billion mt seen a month ago. Global coarse cereal exports are seen largely steady at 221.1 million mt, compared with 221.4 million mt seen in June, it added.

International wheat prices also fell by 1.3% in June, as harvests kicked off in Northern Hemisphere.

"Ample supplies in the Russian Federation, where also the wheat export tax decreased in the month of June, continued to weigh on prices," the report added.

More favorable crop conditions in the US also eased global prices, it said.

The FAO has increased its forecast for global wheat production in MY 2023-24 to 783.3 million mt, against 776.7 million mt seen a month ago. Global wheat exports are seen at 195.3 million mt, compared with 193.7 million mt seen in June, it added.

Global rice prices also declined by 1.2% in June amid weak demand for non-Indica rice.

Vegetable oil's decline

The global vegetable prices was at 115.8 points in June, lowest level since November 2020 and down 45.3% year on year while declining 2.4% on a monthly basis. This was primarily led by a drop in palm and sunflower oil prices, which largely offset the surge in soy and rapeseed oil prices.

International palm oil prices dropped for the second consecutive month in June, mainly reflecting prospects of seasonally higher outputs from leading producing countries. This coincided with lingering subdued global import demand from major buyers. Meanwhile, world sunflower oil prices continued to fall amid ample global exportable supplies.

However, international soybean oil prices rebounded from the previous month, largely underpinned by concerns over excessive dryness in pockets of major growing regions in the US. Similarly, world rapeseed oil prices recovered moderately on unfavorable weather conditions in parts of Canada and Europe.

Lower international cheese prices spurred a 22.2% annual decline in the dairy index on June at 116.8 points, which fell 0.8% from May. Meanwhile, whole milk powder prices fell slightly on lower import purchases by North Asian buyers and increased supplies, especially from New Zealand.

However, world butter prices increased due to "active demand for spot supplies, mainly from the Middle East and increased internal retail sales in Western Europe." Skim milk prices rose slightly on higher import purchases to meet short-term needs amid concerns over supplies during the seasonally declining production phase in Western Europe.

The cost of meat on global markets dipped 6.4% over 12 months at 117.9 points but was flat in monthly terms. Poultry prices rose "on the back of high import demand from East Asia amid ongoing supply challenges linked to the widespread avian influenza outbreaks", the FAO noted.

Meanwhile, pig meat prices increased, underpinned by lingering tight supplies in leading producing regions, especially the EU. By contrast, international bovine meat prices declined due to increased exportable availabilities, especially in Australia.

Sugar halted a four-month run of price increases, falling 3.2% from May at 152.2 points, mainly triggered by favorable progress of the sugarcane harvest in Brazil and sluggish global import demand, particularly from China.

The component sugar index was up 30% from a year. However, concerns over the potential impact of the El Niño phenomenon on 2023-24 sugarcane crops, along with the strengthening of the Brazilian real against the US dollar, limited the declines in world prices.