TWN Info Service on Sustainable Agriculture
7 February 2022
Third World Network

United Nations: Global food prices rebound in January, says FAO
Published in SUNS #9507 dated 4 February 2022

Geneva, 3 Feb (Kanaga Raja) -  The international prices of a basket of key agricultural food commodities rose in January, mainly driven by prices for vegetable oils and dairy products, the UN Food and Agriculture Organization (FAO) has said.

According to the FAO, its Food Price Index (FFPI) averaged 135.7 points in January 2022, 1.5 points (1.1 percent) higher than in December 2021.

"The FFPI's rebound in January was led by solid gains in vegetable oils and dairy sub-indices, partially offset by a decline in sugar prices for the second consecutive month," said FAO, adding that the meat and cereal sub-indices remained largely unchanged.

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 140.6 points in January, up marginally (0.1 percent) from December and 15.6 points (12.5 percent) above its level one year ago.

World wheat prices eased in January, down 3.1 percent, with increased seasonal supplies from large harvests in Australia and Argentina, it said.

"However, support from continued strong demand amidst tight global availability of higher-quality wheat along with uncertainty over exportable supplies, prevented prices from declining further."

In contrast, FAO said maize export prices were firmer in January, gaining 3.8 percent since December, mostly on concerns of persistent drought conditions in the southern hemisphere, namely Argentina and Brazil, adding that spillover effects from the wheat market added upward pressure on maize prices.

Among other coarse grains, international sorghum prices also rose in January, in line with maize price trends, while barley quotations were slightly lower, said FAO.

"The completion of main-crop harvests in major suppliers and purchases by Asian buyers also raised international rice prices in January by 3.1 percent."

According to the FAO, its Vegetable Oil Price Index averaged 185.9 points in January, up 7.4 points (4.2 percent) month-on-month, marking an all-time high.

FAO attributed the rise to higher quotations for palm, soy, rapeseed and sunflower seed oil.

FAO said that after a short-lived drop, international palm oil prices rebounded in January, largely underpinned by concerns over a possible reduction in export availabilities from Indonesia, the world's top palm oil exporter, as well as subdued output in key producing countries.

World soy oil prices also recovered, supported by robust import purchases, particularly from India, it added.

Meanwhile, FAO said that rapeseed and sunflower seed oil prices were buoyed by, respectively, lingering supply tightness and surging global import demand, adding that rising crude oil prices also lent support to international vegetable oil values.

Referring to the latest increase in the prices of vegetable oils, Boubaker Ben-Belhassen, Director of FAO's Markets and Trade Division, said: "Reduced export availabilities on top of other supply-side constraints, especially labour shortages and unfavourable weather, largely pushed vegetable oil prices up to an all-time high. There is a concern the impacts of these constraints will not ease quickly."

According to the FAO, its Dairy Price Index averaged 132.1 points in January, up 3.1 points (2.4 percent) from December 2021, marking the fifth consecutive monthly increase, and placing the index 20.8 points (18.7 percent) above its value in the corresponding month last year.

In January, price quotations for dairy products rose, with the steepest increases in skim milk powder and butter, it said.

According to FAO, the January increase was underpinned by a tightening in global markets, reflecting a reduction in export availabilities, especially from Western Europe, where a reported reduction in milk deliveries in some large milk-producing countries and lower stock levels supported prices.

"Expectations for milk production in Oceania to remain below its average levels in the months ahead added to the tightening in global dairy markets."

In addition, FAO said milk processing and transportation delays due to COVID-19-related labour shortages further contributed to higher dairy prices.

According to the FAO, its Meat Price Index averaged 112.6 points in January, up slightly from December 2021, and lifting the index value 16.6 points (17.3 percent) above its corresponding month a year ago.

FAO said in January, bovine prices reached a new peak, underpinned by strong global import demand exceeding export supplies, mainly from Brazil and Oceania, reflecting lower cattle supplies for processing.

"Meanwhile, pig meat quotations rose slightly, as labour shortages and high input costs dampened global supply, countering the downward pressure from China's slowdown in imports."

On the other hand, FAO said that ovine (lamb and mutton) and poultry meat prices softened further, as global exportable supplies outstripped import demand, despite constrained supplies stemming from COVID-19-related production and transportation delays, and avian flu outbreaks in some large poultry meat producing countries.

According to the FAO, its Sugar Price Index averaged 112.8 points in January, down 3.7 points (3.1 percent) from December, marking the second consecutive monthly decline and the lowest level in the past six months.

"The January decline in international sugar price quotations was mostly related to favourable production prospects and good harvest progress in major exporters, India and Thailand, and improved rains in the key growing areas of Brazil."

In addition, lower ethanol prices in Brazil exerted further downward pressure on world sugar prices in January, said FAO.

However, 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, it added.

CEREAL PRODUCTION REACHES RECORD LEVELS

Meanwhile, in a separate Cereal Supply and Demand Brief, the FAO has lifted its latest forecast for world cereal production in 2021 by 2.1 million tonnes in February and now stands at 2,793 million tonnes, 0.8 percent higher year-on-year.

It said the bulk of this month's change relates to larger-than-previously estimated wheat outputs in Argentina and Australia, along with slightly higher production estimates in the Russian Federation and Ukraine.

Taking these recent revisions into account, the estimate for global wheat production in 2021 is now virtually on par with the 2020 out-turn, it added.

In contrast, FAO trimmed its forecast for world coarse grain production in 2021 by 0.2 percent, underpinned by cuts to sorghum production estimates in Burkina Faso, Niger, and the United States of America.

"Partly offsetting these reductions, maize production estimates have been raised in the European Union, Ukraine, and the United States of America, which registered its second largest crop on record in 2021," said FAO.

Notwithstanding this month's cut, FAO said its forecast for global coarse grains in 2021 still stands 1.3 percent higher year-on-year at 1,501 million tonnes.

FAO has forecast global rice production for 2021 at 517.1 million tonnes, up 0.7 percent from the 2020 record, but 1.3 million tonnes lower than anticipated in December.

"The revision primarily reflects a less buoyant official production assessment for China, which, combined with reductions for Nigeria and Nepal, outweighs upgrades to output estimates for Japan and Viet Nam."

For 2022, with the bulk of the winter wheat crop now dormant in northern hemisphere countries, the global wheat area is foreseen to only grow moderately this year, with high input prices seen to deter a larger expansion, it said.

"In the European Union, aided by conducive weather, wheat crop conditions are generally satisfactory; however, limited snow cover has increased the susceptibility to frost damage in eastern countries. Preliminary indications point to negligible year-on-year changes in acreage."

FAO said encouraged by high prices, winter wheat sowings in the United States of America have risen for a second consecutive year and are estimated to constitute the largest acreage in six years.

It said although the area expansion bolsters overall production prospects, large swathes of the Great Plains are still affected by drought conditions, and forecasts point to a higher-than-normal likelihood of below-average rainfall for the spring period, dampening yield prospects.

In the Russian Federation, winter wheat sowings are estimated to exceed the five-year average, said FAO, adding that beneficial rains and near-average temperatures since November 2021 have favoured good yield prospects for winter wheat crops.

"Conducive conditions have also prevailed in Ukraine, where relatively mild and wet weather in the last quarter of 2021 was followed by snow in December and January, helping harden the wheat crop and improve soil moisture reserves for the spring period."

In India, spurred by remunerative producer prices that are guaranteed by the government, the 2022 wheat acreage is estimated to surpass last year's high level, said FAO.

Similarly, the wheat planted area in Pakistan is estimated to exceed the previous year's above-average level, driven by record-high wheat prices, it added.

In China, field assessments indicate near-average growing conditions and wheat acreage, including the minor spring crop.

FAO said that in the Near East, following a dry start of the season, rainfall improved in several of the main wheat producing countries, including the Islamic Republic of Iran and Turkey.

With prospects still uncertain in some regions, beneficial rains are needed until the harvest period, it added.

"In southern hemisphere countries, the bulk of the 2022 coarse grain crop was planted in late 2021, with the 2022 wheat crop to be sown later in the year. Record maize acreages are forecast in Argentina and Brazil, supported by high grain prices."

While dry conditions are forecast in Argentina's key producing central-eastern area, curbing yield prospects, the weather outlook in Brazil is more favourable, and maize yields are predicted to be near average in 2022.

In South Africa, a small cutback in maize acreage is expected, reflecting excessive rainfall that delayed sowings, plentiful domestic supplies, and high input prices, said FAO.

However, it said yields are likely to remain above average on account of good weather conditions so far, which are forecast to continue.

At 2,805 million tonnes, FAO has forecast world cereal utilization in 2021/22 to increase by 1.6 percent from its 2020/21 level.

It said that this comes despite a downward revision of 4.5 million tonnes, almost exclusively on feed use, since December.

Weaker-than-previously-anticipated feed use of wheat in the United States of America, due to high prices relative to other feed grains, and Argentina, as a result of higher-than-expected exports, account for most of this month's 1.2- million-tonne downward revision to the global wheat utilization for 2021/22, now pegged at 776 million tonnes, still 1.9 percent above the 2020/21 level, it added.

"Similarly, despite a 4.1-million-tonne cut largely attributed to lower maize and sorghum feed use estimates since December, global coarse grains utilization is still forecast to rise by 1.3 percent in 2021/22."

According to the FAO, upgrades to non-food use prospects for various countries in Asia have raised its forecast of global rice utilization in 2021/22 by 0.8 million tonnes since December to 520 million tonnes, up 1.8 percent from a year earlier and a fresh peak.

FAO lifted its forecast for world cereal stocks at the close of seasons in 2022 by 2.2 million tonnes since December to 824 million tonnes, only slightly lower than their opening levels.

Following this month's upward revision of 2.8 million tonnes, FAO said it has forecast global wheat inventories near opening levels at 288 million tonnes.

"Despite the concentration of this month's upward adjustments among major wheat exporters, namely the Russian Federation, mostly owing to a higher production estimate, and the United States of America as a result of reduced export expectations, stocks among major exporters are still seen contracting and remaining tight in 2021/22."

Nearly unchanged since December, FAO has forecast total coarse grain stocks to fall marginally, by 0.4 percent, in 2021/22, largely reflecting a decline in global barley inventories.

In contrast, a rise in maize inventories in the United States of America and a further build-up of stocks in China underpin an expected 2.7 percent rise in global maize inventories from their opening levels, it said.

FAO has forecast world rice stocks at the close of 2021/22 marketing seasons at 188 million tonnes, unchanged from the December expectations and on par with their record opening levels.

FAO said that its latest forecast for world trade in cereals in 2021/22 stands at a record 481 million tonnes, up 1.0 million tonnes from December and an increase of 0.4 percent from the 2020/21 level.

At 193 million tonnes, FAO has forecast global wheat trade in 2021/22 (July/June) to rise by 2.0 percent from 2020/21, driven by stronger import demand from the Near East following reduced harvests in several countries.

On the export side, it said, record harvests are seen supporting record export forecasts for Argentina, Australia, and Ukraine in 2021/22, which, along with higher shipments from the European Union, more than compensate for a decline in sales from Canada, the Russian Federation, and the United States of America due to tighter availabilities.

It said an export quota in the Russian Federation (starting from mid-February) is also seen capping its sales for the remainder of the season.

World trade in coarse grains in 2021/22 (July/June) is nearly unchanged this month and still points to a 1.5 percent contraction from the 2020/21 level, reaching 235 million tonnes, it added.

FAO said that making up the bulk of the decline, global maize trade is expected to fall in 2021/22, mostly reflecting weaker demand from China on account of a record production and larger imports of other feed grains.

Regarding exports, a decline in shipments from Brazil due to reduced production, and the United States of America resulting from tight domestic supply and increased competition from other exporters, are only partially offset by an increase in exports from Argentina and Ukraine, it added.

In 2022 (January-December), international trade in rice is anticipated to reach 53 million tonnes, up from a revised estimate of 51 million tonnes for 2021, said FAO.

It said that at that level, global trade in rice would stand 1.7 million tonnes above December expectations, reflecting less subdued import expectations for countries located in Asia, in particular China and Sri Lanka.