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FAO Food Price Index Reflects Drought

FAO Food Price Index Reflects Drought

Grain and sugar prices fuel a surge in the UN Food and Agriculture Organization food price index

The Food and Agriculture Organization of the United Nations Food Index averaged 213 points in July, driven by higher grain and sugar prices and small gains in fats and oils.

The index measures the monthly change in the international prices of a basket of food commodities. Over the past three months, the index has declined, but the July index showed a 6% (12 point) increase. Though 213 points does not meet the peak of 238 points set in February, it does reflect changing market situations with grain prices in particular.

Grain and sugar prices fuel a surge in the UN Food and Agriculture Organization food price index

The ongoing U.S. drought has deteriorated corn crops, causing 23% increase in the price of corn during July. International wheat prices have also risen in response to higher demand due to tightening corn supply. Overall, the cereal price index, which factors in corn, rice and wheat, was up 17% from the June cereal index. July's index is only 14 points below its all-time high of 274 points.

Increasing cereal prices have much to do with the increasing overall food price index, but a sharp increase in the FAO sugar index contributed as well. Though not fueled by U.S. drought, sugar cost posted 12% (34 point) growth. The FAO estimates that rains during sugar harvest in Brazil are to blame.

The uncertainty of the soybean crop fueled an increase in the fats and oils price index.  Soy oil contributed to the index's 2% increase. The report notes that soy oil spikes price spikes were mitigated by ample supply of palm, sunflower and rapeseed oils.

Meat prices were down 1.7% (3 points) for July, with pork prices down the most of all meat sectors. Poultry and beef saw only a 1% decline in value.

Dairy was unchanged in July after five months of straight decline, but individual products factored into the index were a mixed bag of changes. Butter suffered a 4.2% slide in price, while whole milk powder increased in price by 2.7%. Since the beginning of the year, butter has decreased in value overall, sliding 27%.

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