Pandemic and Oil Slump Generally Depress Food Commodity Prices; Higher Prices for Rice, Wheat, Pork

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World food prices for major commodities declined sharply in March, driven mostly by demand-side contractions linked to the effects of the Covid-19 pandemic caused by the novel coronavirus coupled with the dramatic drop in global oil prices due primarily to expectations of further economic slowdown as governments implement mobility lockdowns and other restrictions to respond to the health crisis.

The FAO Food Price Index compiled by the Rome-based Food and Agriculture Organization of the United Nations, which tracks monthly changes in the international prices of commonly traded food commodities, averaged 172.2 points during March, down 4.3 percent from February.

“The price drops are largely driven by demand factors, not supply, and the demand factors are influenced by ever-more deteriorating economic prospects,” said FAO Senior Economist Abdolreza Abbassian.

The FAO Sugar Price Index posted the biggest drop, down 19.1 percent from the previous month. Causes include lower demand from out-of-home consumption linked to the confinement measures imposed by governments and/or health authorities in many countries, and lower demand from ethanol producers due to the steep fall in crude oil prices.

The FAO Vegetable Oil Price Index declined 12.0 percent in one month, mainly stemming from falling palm oil prices linked to the plunge in crude mineral oil prices and rising uncertainties over the pandemic’s impact on vegetable oil markets worldwide. Soy and rapeseed oil prices followed the trend.

“Oil prices have fallen by more than half during the past month, which catalyzes a large downward impact on biofuels, which are an important source of demand in the markets for sugar and vegetable oils,” said FAO analyst Peter Thoenes.

The FAO Dairy Price Index fell by 3.0 percent, driven by declining quotations and global import demand for skim and whole milk powders, due largely to disruptions in the dairy supply chains because of the containment measures aimed at controlling the spread of Covid-19.

The FAO Cereal Price Index in March declined 1.9 percent from February and stood at nearly its level of March 2019. International wheat prices declined, as the effects of large global supplies and broadly favorable crop prospects outweighed those of increased import demand from North Africa and some small export limitations imposed by Russia. Maize prices also declined due to both large supplies and much weaker demand from the biofuel sector.

Rice Prices Continue to Rise

International rice prices, by contrast, rose for the third consecutive month, with Indica quotations buoyed by stockpiling spurred by concerns over the pandemic and reports that Vietnam might introduce export bans – which the Southeast Asian nation’s government has since downplayed.

Export prices of rice from Thailand, the world’s second largest shipper, are at a six-year high, according to a Bloomberg dispatch published on April 6. Pointing out that purchasing power has been eroded in many countries hit hard by coronavirus-related economic disruption, it reported that the retail price of rice in Nigeria soared by more than 30% during the last four days of March.

Keep International Trade Flowing

FAO Director-General QU Dongyu told national leaders at the recent G20 Summit “to make sure that agricultural trade continues to play its important role in contributing to global food security” and to avoid policies that stymie trade flows that underpin food-supply systems. The FAO is closely monitoring prices and logistical issue for food commodities with an eye to alerting countries of emerging problems that could exacerbate potential disruptions during the pandemic.

The FAO Meat Price Index averaged 176.0 points in March, down 1 point or 0.6 percent from February, falling for a third consecutive month, though still 11.6 points (7.0 percent) above its level in the corresponding month last year. In March, international quotations for ovine and bovine meats continued to fall, reflecting large export availabilities, especially in Oceania, as producers offloaded herd stocks earlier than anticipated, while imports eased in the face of logistics bottlenecks moving products overseas.

By contrast, pig meat quotations rose due to overall market tightening, as internal and foreign demand surged, while logistical problems and restrictions on the movement of workers affected meat processing. Poultry meat quotations remained largely stable, as supplies were adequate to meet current import demand, although exports began to show signs of slowing.

Ample Cereal Supplies

FAO’s forecast for 2020 world wheat production remains unchanged from the previous month, at the near record level of last year, which, coupled with ample inventories, will help shield food markets from turmoil during the coronavirus crisis.

In this month’s Cereal Supply and Demand Brief, released on April 2, the FAO hiked its estimate for worldwide cereal output in 2019 to 2,721 million tons, a 2.4 percent increase from 2018 . By type, 2019 estimates now stand at 1,445 million tons for coarse grains, 763 million tons for wheat and 512 million tons for rice (milled basis).

While localized disruptions, mostly due to logistical issues, pose challenges to food supply chains in some markets, their anticipated duration and magnitude are unlikely to have a significant effect on global food markets, according to the FAO.

The FAO’s 2020 forecast for world wheat production is unchanged from last month at 763 million tons, with expectations of lower outputs in the European Union, Ukraine and the USA compensated by anticipated production gains in Russia, India and Pakistan – although locust infestations in the latter two countries could temper the foreseen increase.

Meanwhile, Bloomberg reported this week that wheat futures on the Chicago Mercantile Exchange spiked by more than 8% in March, while the Canadian durum is at its highest level since August of 2017.

Bumper harvests of maize (corn) are expected in Brazil and Argentina, according to the FAO, and South Africa’s output is forecast to recover strongly after last year’s drought. Elsewhere, sowing decisions may be influenced by the downturn in international corn prices.

The FAO’s forecast for world cereal utilizations for 2019/20 has been raised slightly to 2,722 million tons, a 1.2 percent annual increase. World cereal stocks at the close of the 2020 seasons are expected to contract by 8 million tons from their opening levels, pushing the global cereals stock-to-use ratio down to 30.7 percent, which is still regarded as a comfortable level. World trade in cereals is forecast to increase by 2.3 percent from the previous year to reach 420 million tons.