UN food agency ups cereal forecasts as Supply outlook improves

ROME (Reuters) — The United Nations food agency raised its outlook for world cereal production and stocks on Thursday as expectations that ample supply of most food commodities would continue dragged prices down for the second month in a row.

The Food and Agriculture Organisation’s price index, which measures monthly price changes for a basket of cereals, oilseeds, dairy, meat and sugar, averaged 207.9 points in May.

That was a fall of 2.5 points or 1.2 percent from April, when a sharp drop in dairy prices pulled the index down 3.5 points or 1.6 percent from the previous month.

The agency raised its world cereal production forecast to nearly 2.48 billion tonnes, almost one percent higher than it reported the month before. It predicted world cereal stocks at the end of crop seasons in 2015 would be 576 million tonnes, an increase of almost 10 million tonnes from last month’s forecast.

“Markets are experiencing a rather ample supply situation and expect good supply prospects,” FAO senior economist Abdolreza Abassian said. “This is the driving factor behind the downward pressure on prices.”

Dairy prices fell sharply again in May, registering a five percent slide, following a period of exceptionally high prices in 2013 and early 2014 due to limited export supplies.

Cereal prices fell 1.2 percent in the month, mostly due to good corn supply prospects in 2014-15. Vegetable oil prices also declined.

Wheat prices, which had contributed to price rises in recent months partly due to fears of disrupted trade from Ukraine, fell in the second half of May as shipping patterns from the country remained regular and U.S. weather improved, the FAO said.

Concerns over a possible sugar production deficit exacerbated by El Nino weather boosted prices by 3.7 percent in May, but indications of large inventories in India and Thailand subdued the rally in the second half of the month.

Meat prices changed little from April as the ovine meat production year drew to a close in Oceania and concerns about porcine epidemic diarrhea constraining pork supplies from the United States appeared to have calmed.

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