Wheat production to again outstrip use as dairy prices set to remain weak

Global food commodity markets are on a stable path for the year ahead,according to the UN Food & Agricultural Organisation (FAO).

It says solid production prospects and abundant stocks point to a broadly stable outcome for prices and supplies.

World wheat production in 2016 will outstrip utilization for the fourth year in a row, boosting inventories of the world’s most important cereal to a 15-year high, with major surges in China and the US.

Total wheat utilization will actually decline marginally as more of the world’s farmers turn to maize to feed their livestock.

In addition, dairy prices are projected to remain weak.

Meat production in general is expected to be stable although poultry output – largely for export – is forecast to grow.

Lower food prices than last year means that the world’s food import bill is on course to fall to $986 billion this year – below $1 trillion for the first time since 2009 – according to FAO’s biennial Food Outlook.

The FAO Food Price Index – a trade-weighted index tracking international market prices for the cereals, vegetable oils, dairy, meat and sugar commodity groups – rose in May for the fourth month in a row, increasing by 2.1% from April, but still some 7% below the level reported one year ago.

Prices rose across the index with the exception of vegetable oils.

The FAO Sugar Price Index led the increase, surging 11.7% from the previous month.

The FAO Dairy Price Index, which is 24% below its level of a year-ago, also eked out a 0.4% increase thanks to improved prices in the EU and sustained international demand for whole milk powder and butter.

The FAO Meat Price Index rose 2%, spurred by brisk import demand from Asia for pigmeat from the European Union.

The FAO Cereal Price Index rose 1.6% from April, led by a sharp increase in maize prices and buoyed by stronger quotations for aromatic rice varieties.

World cereal utilization, meanwhile, is expected to be 2,546m tonnes for the  year, a slight markdown from the May projection.

At the same time, the forecast for global cereal stocks was raised to 642 million tonnes – less than 2m tonnes below their all-time high – driven by a historical revision to China’s wheat inventory.