World Food Prices Drop Second Month as Dairy Declines

World food prices fell for a second month in May as the cost of dairy, grains and vegetable oils declined, the UN’s Food & Agriculture Organization said.

An index of 55 food items dropped 1.2 percent to 207.8 points from a restated 210.3 points in April, the Rome-based United Nations agency wrote in an online report today. World food prices are down 3.2 percent from a year earlier.

Dairy prices are continuing their slide from a February record amid rising production in New Zealand, where milk output suffered from drought last year, as well as the European Union and the U.S.

“The market for dairy commodities is adjusting, following a period of exceptionally high prices in 2013 and early 2014 caused by limited export supplies,” the FAO wrote. “The production outlook has improved.”

An index of dairy costs slid 5 percent to 238.9 points in May following a 6.3 percent month-to-month drop in April. Milk collection across New Zealand, the world’s largest dairy exporter, rose 7.7 percent in the 10 months through April, according to Fonterra Cooperative Group Ltd.

U.S. Class III milk spot prices fell 7.2 percent last month after rising to a record in April, U.S. Department of Agriculture data show. Whole milk powder prices fell 8.5 percent in a June 3 auction from two weeks earlier, the eighth straight decline since Feb. 4, according to GlobalDairyTrade.

“In general buyers are purchasing only for immediate needs, in the expectation that prices may fall further,” the UN agency wrote.

An FAO index of grain prices fell 1.2 percent from April to 204.4 points, according to today’s report. Wheat prices fell last month on expectations that bigger crops in Europe will compensate for a decline in the U.S.

Wheat, Corn

U.S. Gulf wheat slumped about 10 percent last month, the biggest drop since June 2011, according to prices tracked by the International Grains Council. Corn prices dropped 8 percent as planting progressed in the U.S., the biggest grower.

Corn “fell in response to favorable growing conditions and good supply prospects,” the FAO wrote. “Wheat prices, which had firmed at the start of the month on slow spring planting in the U.S. and tensions in Ukraine, declined during the second half of the month, with weather conditions improving in the U.S. and shipments from Ukraine continuing normally.”

The FAO raised its outlook for U.S. corn production this year by 15 million tons to 345 million tons. The forecast for world grain production was increased by 21.6 million tons to 2.48 billion tons, outpacing consumption and helping lift 2014-15 ending stocks to 576 million tons from 565 million tons, the FAO said.

Record Crops

China and India may harvest record wheat crops, according to the FAO. The agency predicts a “sharp drop” in Canada on lower planting as well as a drop in the U.S., while conditions in Turkey may cause output to fall “significantly,” it said.

An FAO index of vegetable oil prices dropped 1.8 percent in May to 195.3 points, with prices falling for palm, rapeseed and soybean oil, the UN agency said. Palm oil futures traded in Kuala Lumpur fell 7.6 percent in May, the biggest such slide since Sept. 2012, amid rising inventories in Malaysia, the second-biggest producing country.

The index of world sugar prices jumped 3.7 percent in May to 259.3 points amid forecasts pointing to a possible production deficit in 2014-15, the FAO said. An index of meat prices averaged 189.1 points, nearly unchanged from April.

To contact the reporter on this story: Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net

To contact the editors responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net Sharon Lindores

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