World food prices have hit a six-year low

Major food commodity prices hit a six-year low in May as cereal prices fell substantially even though this year’s harvest looks favourable, the Food and Agricultural Organisation (FAO) says.

The FAO Food Price Index in May averaged at 166.8 points, down 20.7% from the same time last year, it says.

This latest Food Price Index is also down 1.4% from April 2015, it says.

The FAO upgraded its May 2015 forecast for global wheat, coarse grains and rice production and it also anticipates bigger maize harvests in China and Mexico as well as more abundant wheat harvests in Africa and North America.

The May decline was driven by a 2.9% drop in the dairy price index with milk powders and butter being the main commodities affected, while cheese remained stable, it says.

The lingering low prices characterizing world markets reflects large unsold stocks in New Zealand and the build-up of export supplies in Europe, as production in the northern-hemisphere reaches its seasonal peak, the FAO says.

Uncertainty over the level of China’s purchases of milk powder during 2015 continues to weigh on the market, although lower prices have stimulated buyer interest in the Middle East and North Africa, it says.

There was also a 3.8% decline in the cereal price index and a 1% drop in the meat price index for April, which helped to drive the decline, the FAO says.

The Food Price Index is a trade-weighted index that tracks prices on international markets of five major food commodity groups: cereals, meat, dairy products, vegetable oils and sugar.

In May, the Index reached its lowest level since September 2009, it says.

According to the latest forecasts, global cereal production in 2015 will be 2.524 billion tonnes, only 1% below last year’s record.