The FAO Food Price Index surged by 2 percent during January to its highest level in almost two years, fueled by fears of tightening sugar supplies, a downturn in U.S. wheat plantings and uncertain prospects for grain crops in South America. The index fell for five years in a row through 2016 but now has risen for six consecutive months.
The index is a trade-weighted gauge that tracks the international prices of five major commodities – sugar, cereal grains, meat, dairy, and vegetable oils. Sugar prices soared by 10 percent in January, “driven by expectations of protracted supply tightness in Brazil, India and Thailand,” said the FAO.
Its index of cereal grain prices rose by 3.4 percent to its highest reading in six months due to higher prices for wheat, corn and rice. “Wheat markets reacted to unfavorable weather conditions hampering this season’s crops as well as reduced plantings in the United States of America, while higher maize prices mostly reflected strong demand and uncertain crop prospects across South America,” said FAO. Meat and dairy prices were unchanged while vegetable oil prices rose marginally.
“Early production prospects for 2017 are mixed,” said FAO, in looking at grains. U.S. plantings of winter wheat are the second-smallest on record but Russia expanded its plantings. Adverse weather in Asia will constrain rice output. After last year’s drought, corn production in Southern Africa should rebound to near-average levels. “High local prices and conducive weather point to larger grain plantings in Argentina and Brazil, said FAO.