Global food prices have dropped sharply in May due to generally favourable supplies, growing global economic uncertainties and a strengthening of the US dollar, FAO said today.

The FAO Food Price Index, measuring the monthly change in international prices of a basket of food commodities, fell by four percent in May. It averaged 204 points and was 9 points down from April. This was the lowest level since September 2011 and about 14 percent below its peak in February 2011. "Crop prices have come down sharply from their peak level but they remain still high and vulnerable due to risks related to weather conditions in the critical growing months ahead," said FAO's grain analyst Abdolreza Abbassian.

FAO at the same time raised the forecast for world cereal production by 48.5 million tonnes since May, mainly on the expectation of a bumper maize crop in the United States.

FAO's latest forecast for world cereal production in 2012 stands at a record level of 2 419 million tonnes, 3.2 percent up from the 2011 record.

The bulk of the increase is expected to originate mainly from maize in the United States amid an early start of the planting season and prevailing favourable growing conditions. As a result, the global coarse grain production is forecast at 1 248 million tonnes, a huge 85 million tonnes increase from the previous year.

However, with planting still to be completed and much of the crop at very early stages of development, the final outcome will depend greatly on weather conditions in the coming months.

With the main northern hemisphere rice crops now in the ground in several countries, the forecast of global rice production in 2012 is firmer and points to a 2.2 percent increase from 2011, to some 490 million tonnes, mostly reflecting larger plantings in Asia.

For wheat, latest indications point to a contraction of about 3 percent in production in 2012, to 680 million tonnes, still well above the average of the past five years.

The global cereal utilization is forecast to expand by at least 2 percent in 2012/13, to 2 376 million tonnes, with feed utilization growing by 3.8 percent, while food consumption is expected to increase by just over 1 percent, largely keeping pace with world population growth.

At the current forecast level, world cereal production would exceed the anticipated utilization in 2012/13 (which has been revised up since last month by 19 million tonnes or 1 percent) and lead to a significant replenishment of world cereal stocks, up 36 million tonnes, or 7 percent, from the previous season.

» The FAO Food Price Index (FFPI) averaged 204 points in May 2012, down as much as 9 points (4 percent) from April and the lowest since September 2011. At this level, the FFPI would be about 14 percent below its peak in February 2011. International prices of most commodities (composing the FFPI) weakened in recent weeks on generally favourable supply prospects amid growing economic uncertainties and a strengthening US dollar.

» The FAO Cereal Price Index averaged 221 points in May, down 2.3 points (1 percent) from April. Wheat prices fell most following improved weather conditions and influenced by maize prices, which plunged following the release of the USDA report projecting a record maize crop in the United States. By contrast, international rice prices rose slightly, mainly on increased purchases ahead of the Ramadan period.

» The FAO Oils/Fats Price Index averaged 234 points in May, down as much as 17 points (6.8 percent) from April. The drop, which was led by falling soy and palm oil quotations, reversed the upward trend witnessed since December 2011. While larger than expected soybean plantings in the United States and weakening grain prices weighed on the soy complex, palm oil values fell in response to a temporary recovery in production and falling crude oil prices. Macro-economic concerns, in particular regarding the EU, also triggered fears of a general slowdown in import demand.

» The FAO Meat Price Index averaged 179 points in May, barely 1 point below its April value. The prices of the various meats followed different directions, falling in the case of pigmeat, rising for poultry meat and stable for bovine and ovine meats. On average, meat prices in the first five months of this year were 2 percent higher than in the corresponding period last year, with bovine meat advancing the most.

» The FAO Dairy Price Index averaged 164 points in May, down 22 points (12 percent) from April and the lowest level since October 2009. Cheese and butter retreated the most, followed by skim milk powder. By contrast, whole milk powder quotations were up, largely reflecting a tightening of supplies in Europe. The recent slide in international dairy prices, uninterrupted since the beginning of the year, mirrors a rebuilding of supplies in major export markets.

» The FAO Sugar Price Index averaged 295 points in May, down 29 points (9 percent) from April and as much as 17.6 points (5.6 percent) below their level in May 2011. Sugar prices declined for the third months in a row, reflecting larger availabilities in India, the EU and Thailand, and new supplies from Brazil entering the market. Markets were also pressured by declining oil prices and the strengthening of the US dollar.

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