June 7 (Bloomberg) -- Global food prices had their biggest drop in more than two years in May as the cost of dairy products slumped on increased supply, easing strain on household budgets.
An index of 55 food items tracked by the United Nations’ Food & Agriculture Organization fell 4.2 percent to 203.9 points from 213 points in April, the Rome-based agency reported on its website. That was the biggest percentage drop since March 2010.
A stronger U.S. dollar may weaken the effect of falling prices on importers’ food bills, Abdolreza Abbassian, an FAO economist, said by phone from Rome. The U.S. Dollar Index, which tracks the exchange rate against major world currencies, jumped 5.4 percent in May, the biggest monthly gain since September.
“The dollar has strengthened tremendously, so if you’re an importing country and you have to pay in dollars, you’re not really getting the full impact of these sliding prices,” Abbassian said. “You’re not getting the full effect.”
Meat prices may fall in coming months, mirroring a price correction for dairy, according to Abbassian. The FAO Dairy Price Index slumped 12 percent to 164.1 points, the biggest drop since January 2009, while the meat index slipped 0.5 percent to 178.8 points.
“The dairy decline is from a very high level,” Abbassian said. “It’s a delayed correction. It would not surprise me to see the same for meat.”
World milk production is forecast to climb 2.7 percent this year to 750.1 million metric tons, accelerating from last year’s 2.3 percent increase, the FAO has forecast.
Falling agricultural-commodity prices and “really low” freight rates help food-importing countries, the FAO economist said.
Ukrainian consumer prices fell for the first time in more than nine years in May, led by a 0.8 percent month-on-month drop for food and beverages. Turkish inflation last month slowed the most since January 2003 as the central bank tightened lending and food prices slumped.
“International prices for most commodities weakened in recent weeks on generally favorable supply prospects amid growing economic uncertainties and a strengthening U.S. dollar,” the FAO wrote.
The FAO Cereals Price Index dropped for a second month, slipping 1.1 percent to 220.9 points.
Corn futures fell 12 percent in Chicago last month amid expectations for record world production after U.S. farmers increased planting. Wheat slipped 1.6 percent in Chicago, while soybean futures declined 11 percent.
The FAO, in a separate report, raised its outlook for world grain production in 2012-13 to 2.42 billion metric tons from 2.37 billion tons previously. The forecast for the harvest of coarse grains, which includes corn, was lifted to 1.25 billion tons from 1.21 billion tons.
“A lot of the prospects of good supplies still hinge on harvest results, which are still a couple of months ahead,” Abbassian said. “We are now in a market where any bad news on weather could move prices up sharply.”
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