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FAO Food Price Index Remains Steady in January

World cereal production falls in 2012 but prospects are favorable for 2013

Published on: Feb 12, 2013

The Food Price Index held steady at 210 points in January 2013 after three straight months of decline, according to the Food and Agriculture Organization of the United Nations. Increases in oil and fats prices offset lower cereals and sugar quotations while dairy and meat values remained substantially unchanged.

The pause in the Index's decline tallies with a significant upward revision in FAO's latest forecast for 2012 world cereal production. This is now estimated at 2 302 million metric tons - 20 million metric tons up on December's forecast.

FAO's monthly Cereals Supply and Demand Brief noted that the revision mostly reflects adjustments to maize production estimates in China, North America and the European CIS countries. But even at the new level, global cereal output would still be 2% down on the 2011 record crop.

World cereal production falls in 2012 but prospects are favorable for 2013
World cereal production falls in 2012 but prospects are favorable for 2013

Early prospects for 2013 cereal production point to increased world wheat output. Contributing largely to this prospect is an estimated 4% to 5% increase in the area under wheat in the European Union, where weather conditions have also been generally promising.

But in the United States, the outlook is less favorable. Despite an estimated 1% increase in winter wheat plantings and prospects for spring wheat areas to expand, severe drought conditions continue to plague the southern Plains, where the condition of crops is reported to be very poor.

"Given the tight supply situation, weather remains an important determinant of prices. For several cereals, production needs to increase significantly this year in order to avoid unexpected price surges," said FAO Senior Grains Economist Abdolreza Abbassian.

World cereal stocks decline

World cereal stocks at the close of the crop seasons ending in 2013 are put at around 495 million metric tons, giving a global cereal stock-to-use ratio of 20.6%, down from 22% in 2011-12 but above the low of 18.7% in 2007-08.

World trade in cereals in 2012-13 is forecast to fall to 297.5 million metric tons, down 6% from the previous season but nearly 2 million metric tons higher than the December forecast. Among the emerging features of the world grain market in 2013 is the resumption of large wheat exports from India of 6.5 million metric tons and record maize shipments from Brazil of 22 million metric tons easing the global grain supply/demand situation.

International prices

Regarding current international prices, the FAO Cereal Price Index dropped 1.1%, or nearly three points, to 247 points in January. The Cereal Index has been falling since October, mostly reflecting improved crop conditions.

The FAO Oils/Fats Price Index averaged 205 in January, up 4.4%, or 9 points, from December, reversing declines in the last four months. The rebound was mainly driven by palm oil on account of fresh import demand.

The FAO Dairy Price Index averaged 198 in January, slightly higher than in December.

The FAO Meat Price Index averaged 176 in January, down marginally from December. Quotations of all meat categories were generally stable, although a slight weakening in poultry and pig meat prices was evident.

The FAO Sugar Price Index averaged 268 in January, down 2.2%, or 6 points, from December. Prices declined for the third consecutive month on expectations of a large global production surplus and hefty export availabilities in 2012/13, notably in Brazil and Thailand.

The FAO Food Price Index is a measure of the monthly change in the international prices of a basket of food commodities.