Global food prices hit all-time high in February, says FAO

Food & nutrition

Geneva, 8 Mar (Kanaga Raja) – The international prices of a basket of key agricultural food commodities reached a new all-time high in February, mainly driven by large increases in prices of vegetable oils and dairy products, the UN Food and Agriculture Organization (FAO) has said.

According to the FAO, its Food Price Index (FFPI) averaged 140.7 points in February 2022, up 5.3 points (3.9 percent) from January and as much as 24.1 points (20.7 percent) above its level a year ago.

This represents a new all-time high, exceeding the previous high of February 2011 by 3.1 points, said FAO.

The February rise was led by large increases in vegetable oil and dairy price sub-indices. Cereals and meat prices were also up, while the sugar price sub-index fell for the third consecutive month, it added.

“Concerns over crop conditions and adequate export availabilities explain only a part of the current global food price increases. A much bigger push for food price inflation comes from outside food production, particularly the energy, fertilizer and feed sectors,” said FAO economist Upali Galketi Aratchilage.

“All these factors tend to squeeze profit margins of food producers, discouraging them from investing and expanding production,” Galketi Aratchilage added.

The FAO Food Price Index is a trade-weighted index that tracks the monthly change in the international prices of a basket of key food commodities.

According to the FAO, its Cereal Price Index averaged 144.8 points in February, up 4.2 points (3.0 percent) from January and 18.7 points (14.8 percent) from one year ago.

FAO said that in February, prices of all major cereals increased from their respective values last month.

“World wheat prices increased by 2.1 percent, largely reflecting new global supply uncertainties amidst disruptions in the Black Sea region that could potentially hinder exports from Ukraine and the Russian Federation, two major wheat exporters.”

Coarse grain export prices also rose by 4.7 percent, said FAO, adding that world maize prices increased by 5.1 percent month-on-month, underpinned by a combination of continued crop condition concerns in Argentina and Brazil, rising wheat prices, and uncertainty regarding maize exports from Ukraine, a major exporter.

Among other coarse grains, both sorghum and barley export prices firmed month-on-month as well, gaining 5.9 and 2.7 percent, respectively.

International rice prices increased by 1.1 percent in February, primarily sustained by the appreciation of currencies of some exporters against the US dollar and strong demand for fragrant rice from Near East Asian buyers.

FAO said that its Vegetable Oil Price Index averaged 201.7 points in February, up 15.8 points (8.5 percent) month- on-month and marking a new record high. FAO attributed the continued price strength mostly to rising palm, soy, and sunflower oil prices.

In February, international palm oil prices increased for the second consecutive month due to the sustained global import demand that coincided with the reduced export availabilities from Indonesia, the world’s leading palm oil exporter, it said.

In the meantime, FAO said world soy oil values continued to rise on deteriorating soybean production prospects in South America.

“International sunflower oil prices also increased markedly, underpinned by concerns over the disruptions in the Black Sea region, which could potentially lower exports. Surging crude oil prices also lent support to the vegetable oil complex.”

According to the FAO, its Dairy Price Index averaged 141.1 points in February, up 8.5 points (6.4 percent) from January, marking the sixth successive monthly increase and placing the index 28.0 points (24.8 percent) above its value in the corresponding month last year.

FAO said in February, international quotations for all dairy products represented in the index firmed, underpinned by the continued tightening of global markets on the back of lower than expected milk supplies in Western Europe and Oceania.

“Besides tight global supplies, persistent import demand, especially from North Asia and the Middle East, led to steep increases in whole milk powder and cheese price quotations.”

FAO said that international skim milk powder prices rose significantly as well, reflecting a lower volume of milk deliveries for drying plants in Western Europe, while butter prices received a boost from the high demand for spot supplies.

According to the FAO, its Meat Price Index averaged 112.8 points in February, up 1.2 points (1.1 percent) month- on-month and 15.0 points (15.3 percent) from its level a year ago.

FAO said that in February, international bovine meat quotations reached a new record high, driven by strong global import demand amidst tight supplies of slaughter-ready cattle in Brazil and the high demand for herd rebuilding in Australia.

“Pig meat prices also edged up, reflecting increased internal demand and scaled-back hog supplies in the European Union and the United States of America.”

FAO said that quotations for ovine (lamb and mutton) meat weakened for the fourth consecutive month due to high exportable supplies in Oceania.

Meanwhile, it said poultry meat prices fell slightly due to reduced imports by China following the end of the Spring Festival and lower domestic demand in Brazil.

According to FAO, its Sugar Price Index averaged 110.6 points in February, down 2.1 points (1.9 percent) from January, marking the third consecutive monthly decline and reaching its lowest level since last July.

“Favourable production prospects in major exporting countries, notably India and Thailand, coupled with improved growing conditions in Brazil continued to weigh on world sugar prices,” it said.

FAO said that ethanol prices in Brazil declined for the third successive month in February on the back of reduced domestic demand, exerting further downward pressure on world sugar prices. However, it said the strengthening of the Brazilian Real against the US dollar, which tends to restrain shipments from Brazil, the world’s largest sugar exporter, prevented more substantial sugar price declines.

HIGHER CEREAL PRODUCTION

Meanwhile, in a separate Cereal Supply and Demand Brief, FAO said its latest forecast for world cereal production in 2021 has been raised by 2.2 million tonnes and is now pegged at 2,796 million tonnes, 0.7 percent higher on a yearly basis.

FAO said this month’s upward revision stems from higher estimates for world maize and rice production, while the global production estimate for sorghum has been lowered, moderating the expected monthly aggregate upturn.

Incorporating these changes, the FAO has forecast global coarse grains production to now stand at 1,501 million tonnes, 1.2 percent higher year-on-year. “The bulk of the increase rests on higher maize production in the European Union (EU) and India, which more than offsets the estimated low coarse grains production in the Sudan.”

FAO said its forecast for world wheat production remains unchanged this month at 775.4 million tonnes, reflecting an increase in Australia’s output, reinforcing the record level, which was counterbalanced by minor downgrades to the estimates for the EU, Iraq and Paraguay.

Following a 2.2 million tonne upward revision, FAO said world rice production in 2021 is now anticipated to reach 519.3 million tonnes, up 0.7 percent from 2020 and marking a new peak. “Compared to February’s expectations, the increase primarily mirrors more buoyant output prospects for India, where official assessments indicate a record main-crop harvest attained this season.”

This revision, alongside an upward adjustment to Madagascar’s output estimate, overshadows a downgrade for the United Republic of Tanzania, said FAO.

FAO lowered its forecast for global cereal utilization in 2021/22 to 2,802 million tonnes, 3.5 million tonnes down from the previous report and 1.5 percent (41 million tonnes) above the 2020/21 level.

It said the bulk of this month’s downward revision is due to a 3-million-tonne reduction in global wheat utilization, mostly on lower-than-anticipated use in India on expectation of higher exports. Nonetheless, it said that wheat utilization is still forecast to increase year-on-year by 1.5 percent, to 772.8 million tonnes, driven primarily by an expected greater food consumption.

Similarly, 2021/22 global coarse grains utilization has been scaled down marginally since the previous forecast, to 1,509 million tonnes, reflecting slightly lower feed use expectations, but it is still seen increasing by 1.4 percent from the 2020/21 level, said FAO.

FAO said that its forecast of world rice utilization in 2021/22 has undergone only minor changes since February, continuing to point to a 1.7-percent year-on-year expansion to reach a record high of 520 million tonnes.

Following an 11.6-million-tonne upward revision this month, global cereal stocks ending in 2022 are now forecast to increase marginally (0.5 percent) from their opening levels to reach 836 million tonnes, it said.

FAO said that a higher estimate of wheat inventories in the EU, due to an upward historical production revision and lower expected exports, is primarily behind a 3.6-million-tonne upward adjustment to the global wheat stocks this month, now forecast at 291 million tonnes, up 1.0 percent above opening levels.

According to FAO, its forecast for global coarse grains stocks has also been lifted this month by 4.7 million tonnes, stemming almost entirely from higher global maize stocks in India and the EU as a result of higher production estimates.

FAO said an upgrade to anticipated reserves held by India has raised its forecast of world rice stocks at the close of 2021/22 marketing season by 3.2 million tonnes above February expectations to 190.9 million tonnes, which is 0.9 percent above the 2020/21 high.

FAO said its forecast for world trade in cereals in 2021/22 has been raised month-on-month to 484 million tonnes, up 2.7 million tonnes from the previous forecast and 0.9 percent (4.5 million tonnes) above the 2020/21 level.

“This forecast does not yet assume potential impacts of the conflict in Ukraine on trade flows from Ukraine and the Russian Federation,” the FAO emphasized.

For the remainder of the 2021/22 season (March 1-June 30), Ukraine is forecast to export approximately 6 million tonnes of wheat and 16 million tonnes of maize, while the Russian Federation is forecast to export approximately 8 million tonnes of wheat and 2.5 million tonnes of maize, said FAO.

FAO said it is closely monitoring the developments and will assess the impacts on the 2021/22 global cereal trade in due course.

Meanwhile, FAO has currently forecast world wheat trade in 2021/22 (July/June) at a record 194 million tonnes, 2.5 percent (4.8 million tonnes) above the 2020/21 level. “This reflects an increase of 1.1 million tonnes since the previous report on stronger than earlier expected demand from Kazakhstan and Saudi Arabia.”

On the export side, FAO said record harvests are seen supporting greater than previously anticipated sales by India and Australia.

FAO said the coarse grains trade forecast for 2021/22 (July/June) has also been lifted by 1.4 million tonnes since the previous report, but it is still forecast to contract by 0.9 percent (2.1 million tonnes) from the 2020/21 level, reaching 237 million tonnes.

FAO said that the contraction is primarily driven by an expected 1.7-percent decline in global maize trade. Ample exportable availabilities and an intensification of demand, especially from African and Near East Asian buyers, are forecast to sustain a third successive annual expansion in international trade in rice in 2022 (January- December) to 53.4 million tonnes, it added.

EARLY OUTLOOK FOR CROPS IN 2022

Looking ahead to the 2022 world cereal out-turn, FAO said its preliminary forecast for global wheat production points to a fourth consecutive annual increase to 790 million tonnes.

It said the bulk of the growth is expected to originate in North America, adding that in both Canada and the United States of America, price-driven area expansions and a foreseen upturn in yields underpin prospects of year-to-year production gains that would put the 2022 out-turns above the previous five-year averages.

It said mixed outcomes are anticipated in Europe. In the Russian Federation, an improvement in weather conditions following early seasonal dryness is likely to foster a yearly increase in yields and, provisionally, production in 2022 is forecast at 82 million tonnes.

A contraction in the wheat planted area in Ukraine is foreseen to result in a production decline this year, said FAO, adding that nonetheless, the out-turn in 2022 is still forecast to remain slightly above the five-year average. “This preliminary forecast does not consider the impacts of the conflict,” said FAO.

In the European Union, FAO said that where plantings are estimated to remain almost unchanged on a yearly basis, wheat production is tentatively pegged to fall marginally to 133 million tonnes, due to an expected reduction in yields following the highs registered in 2021.

“Wheat production in the United Kingdom of Great Britain and Northern Ireland is forecast to remain unchanged from the previous year, as the effects of a slightly enlarged sown area are likely to be offset by a downturn in yields, keeping the national output at about 14 million tonnes.”

FAO said that in Asia, small production increases are forecast in India and Pakistan, underpinned by continued supportive government policies and remunerative prices that are estimated to have maintained a high level of sowings. Wheat crop conditions in China (Mainland) are also favourable and production in 2022 is expected to surpass the five-year average, it added.

“In Near East Asian countries, following early rainfall deficits, widespread and above-average precipitation in late 2021 and early 2022 improved crop prospects, and outputs in 2022 are foreseen to be close to average levels.”

Generally favourable precipitation to date in Kazakhstan has bolstered production prospects, and the wheat output is forecast to rise to a slightly above-average level, said FAO.

FAO said in North Africa, widespread drought conditions have affected crops in Morocco, western areas of Algeria and central Tunisia, denting overall wheat production prospects in 2022.

Regarding production of coarse grains, FAO noted that harvesting of the 2022 crops is to begin in the next months in the Southern Hemisphere countries, while in countries north of the equator, plantings have not yet begun. In South America, maize outputs in Argentina and Brazil in 2022 are forecast at well above-average levels, notably in Brazil where the maize output is foreseen to reach a record high of 112 million tonnes, it said.

“The positive outlooks mostly rest on all-time high sowings, after farmers reacted positively to the higher domestic grain prices and strong export demand.”

FAO said in Southern Africa, the production outlook is similarly favourable in South Africa, where, despite a small reduction in plantings, the maize out-turn is foreseen to remain well above average in 2022, resting on beneficial weather conditions.

- Third World Network