Global food prices fall for second month on weak vegetable oil, dairy demand: FAO

Global food prices dipped 0.6% in May for the second consecutive month after reaching a record high in March, the UN's Food and Agriculture Organization said in a report June 3.

The FAO's food price index averaged 157.4 points in May, down 0.9 point from April. This modest drop was led by sluggish vegetable oil and dairy prices, but a surge in cereal and meat costs capped a sharper decline in the index.

The index, which has tracked monthly changes in the international prices of a basket of food commodities since 1990, remained 22.8% higher on the year.

"Export restrictions create market uncertainty and can result in price spikes and increased price volatility, the decrease in oilseeds prices shows how important it is when they are removed and let exports flow smoothly," said FAO Chief Economist Maximo Torero Cullen in the report.

Vegetable oil prices fall 3.5%

The FAO vegetable oil price index fell 3.5% on the month to 229.3 points in May, as prices of palm, soy, sunflower, and rapeseed oils fell amid demand rationing, the UN agency said.

Apart from demand rationing, Indonesia's removal of export ban on palm also pushed prices lower. However, lingering uncertainties over the country's export prospects helped put a lid on price decline, according to the FAO.

Physical prices of palm oil and sunflower oil reached all-time highs in March, according to S&P Global Commodity Insights data, after Russia's invasion of Ukraine hampered exports of vegetable oil out of the Black Sea region.

A month later, soybean oil prices in South America surged to historical highs, above the $1,900/mt mark on April 28, as news of Indonesia's export ban pushed prices for alternative oils higher.

The dairy index also dropped 3.5% on the month, as global prices of all milk products fell, with prices of milk powders declining amid growing market uncertainties in the wake of pandemic-led lockdowns in China.

Global sugar prices also lost 1.1% from April after surging in the previous two months, as global availability prospects improved following bumper crop in India. The weakening of the Brazilian Real against the US dollar also resulted in lower ethanol prices and further created downward pressure on sugar prices.

Cereal prices rise 2%

The FAO cereal price index increased 2% on the month to average at 173.4 points in May due to an rise in wheat and rice prices.

According to FAO, international wheat prices rose 5.6% on the month in May, marking the fourth straight monthly increase.

"The steep increase in wheat prices was in response to an export ban announced by India amidst concerns over crop conditions in several leading exporting countries," the FAO said.

India had emerged as a key supplier of wheat in the aftermath of the Ukraine invasion.

According to FAO, global wheat output in marketing year 2022-23 (June-July) is seen at 770.8 million mt, down 6.8 million mt on the year. Global consumption is also seen down 3 million mt on the year to 768.6 million mt. The agency has pegged global ending stocks rising by around 1 million mt to 297.8 million mt.

However, corn prices fell 3% on the year. "Slightly improved crop conditions in the US, seasonal supplies in Argentina and the imminent start of Brazil's main maize harvest led maize prices to decline," it added.

The US, Argentina and Brazil are among the top suppliers of corn.

The global meat prices touched new all-time high of 122 points with an increase of 0.6 percent, led by steep rise in world poultry meat prices. This reflected continued supply chain disruptions in Ukraine along with recent cases of avian influenza amid a surge in demand in Europe and the Middle East.