Falling Dairy, Sugar Prices Drive Food Price Index Lower

Driven by lower prices for dairy and sugar, the UN’s Food and Agriculture Organization (FAO) Food Price Index continued its downward trend in June, dropping just under 1 percent to 165.1 point from the previous month, and almost 44 points from June 2014.

The Cereal Price Index averaged 163.2 points in June, up 2.5 points from May, marking the first month-on-month rise since December 2014. Compared to June 2014, prices have fallen by as much as 17 percent. All of June’s price strength stemmed from wheat and coarse grain prices, which gained 2 percent each, while rice quotations remained under pressure. Although unfavorable weather in some regions provided support to prices, the rise was contained, amid abundant carryover stocks and generally good production prospects.

The Vegetable Oil Price Index averaged 156.2 points in June, up 2.1 points from May, but still 17 percent below its level in June last year. The recent rise was mainly driven by palm and soy oils. Palm oil quotations strengthened, underpinned by improved import demand (by China and India in particular) and continued concerns about dry weather related to El Niño in Southeast Asia. As for soy oil, the firming of prices reflected unusually wet conditions affecting soybean plantings and yield prospects in the United States. Prices of rapeseed also moved up, on account of unfavorable weather in major producing countries.

The Dairy Price Index averaged 160.5 points in June, down 6.9 points from May. Milk powders were the products most affected by the market weakness, although prices of butter and cheese also declined. A favorable opening to the dairy year and the abolition of the milk quota system in the European Union, along with large unsold dairy stocks in New Zealand weighed on the sector, amid uncertainty over the level of China’s dairy imports and the maintenance of import prohibitions by the Russian Federation.

The Meat Price Index averaged 169.8 points in June, essentially unchanged at around this level since March. Prices for pig meat moved higher, while those for bovine and ovine meat declined, with poultry little changed.

The Sugar Price Index averaged 176.8 points in June, down 12.4 points from May 2015. The sharp decline was prompted by reports of higher than expected sugar production in India, the world’s largest sugar consumer, and Thailand. Better than forecasted output in Brazil, the world’s largest producer and exporter, helped by good harvesting conditions for most of the month of June also contributed to the general price decline. Early indications of a possible global production deficit in 2015/16, after five consecutive seasons of surpluses, were not sufficient to ease the downward pressure on sugar quotations.