Drop in grain, palm oil values ends rising food price trend

04.08.2016

A slide in grain values close to nine-year lows, and a palm oil market reversal, brought an end to a rebound in food prices, according to the United Nations, which flagged "lacklustre" demand in dairy too.

Food prices fell by 0.8% last month, after five months of gains in which prices had recovered 9.3%, the UN food agency, the Food and Agriculture Organization, said.

The July decline, which took prices 1.4% below year-ago levels, reflected in part a 2.8% retreat in vegetable oil value, led by a drop in palm oil prices to a five-month low.

"Regular rainfall underpinned a seasonal recovery in production in South East Asia, whilst global import demand remained subdued," the FAO said.

Kuala Lumpur palm oil futures hit a nine-month low of 2,186 ringgit a tonne in July, although they have gained sharply this week, touching 2,451 ringgit a tonne on Thursday, helped by ideas of lingering damage to South East Asian output from El Nino-induced dryness.

The US Department of Agriculture's Jakarta bureau this week forecast 2016-17 output in Indonesia, the world's top producer, at 33.5m tonnes, 1.5m tonnes below the USDA's official estimate.

'Very large world supplies'

However, the main driver of last month's fall in food prices was a decline of 5.6% in cereals prices to their lowest level, but one, since May 2007, undermined in particular by increasing expectations for corn output in the US, the top producer of the grain.

"Corn values dropped sharply as weather conditions in the key growing regions of the US proved more favourable than was predicted," the FAO said.

"Wheat prices also fell in July mainly on very large world supplies and, in particular, prospects for abundant export availabilities from the Black Sea region."

Forecasts for Russia's crop have seen a series of upgrades, most lately from crop transport group Rusagrotrans, which on Tuesday lifted its estimate for the country's overall grains harvest by 2.8m tonnes to a record 115.8m tonnes.

This includes an estimate of a record 70m-71m tonnes for wheat output.

'Lacklustre international demand'

The falls in vegetable oil and cereals prices more than offset upward pressure on food values from stronger prices of meat, sugar and in particular dairy, which saw a 3.2% rise in values month on month.

"Price rose for all the dairy commodities that compose the [dairy food price] index, in particular for butter," the FAO said, in comments which follow a recovery in values at GlobalDairyTrade, the benchmark physical dairy auction.

However, the FAO - flagging that dairy values "remain at very low levels compared to recent years" - noted cause for caution, underlining that "in Oceania, generally favourable rainfall at the start of the 2016-17 milk year has improved yield prospects".

It also highlighted the "lacklustre international demand, especially for milk powders" which is driving European Union officials to mull measures to curtail the bloc's milk output.

 


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