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Food prices may face volatility, after stable finish to 2016 - UN

World food prices ended a somewhat depressed year on a stagnant note, the United Nations said although it prepared consumers for the potential for more volatile movements ahead.

Food prices were flat month on month in December, with a "sharp", 8.6% fall in sugar prices offsetting growth in dairy and vegetable oil values, said the UN food agency, the Food and Agriculture Organization.

Average values for 2016 fell for a fifth successive year, although by a modest 1.5%.

"Bumper harvests and prospects for staple cereals offset upward pressure on FAO's food price index from tropical commodities such as sugar and palm oil, where production was impacted by El Nino," the agency said.

'Economic uncertainties'

However, the agency flagged the potential for greater price volatility ahead for world which is facing changes including the election of a US president with a somewhat radical agenda, and the ongoing ructions in Europe over Brexit.

"Economic uncertainties, including movements in exchange rates, are likely to influence food markets even more so this year," said Abdolreza Abbassian, FAO senior economist.

The FAO highlighted, for instance, how currency moves had already played a large role in December's sugar price slump, on top of reports of bigger-than-expected output of the sweetener in Brazil.

"The sharp fall in international sugar prices in December was mainly driven by a continuous weakening of the Brazilian real against the US dollar, boosting sugar exports from Brazil, the world's largest sugar producer and exporter," the agency said.

'Restrained production, buoyant demand'

The headline annual average price data, showing continued decline in food prices in 2016, also disguised a trend of recovery in values over the year, with the FAO's index ending the year 12.0% above where it started.

Vegetable oil prices appreciated most strongly over the year, by 29.3%, boosted by the dent to palm oil output from dryness, blamed on El Nino, in South East Asia, where demand was spurred too by moves to encourage the use of the commodity in biodiesel.

Dairy prices grew by 28.8%, staying "a substantial recovery from mid-year onwards, with butter and whole milk powder recording the largest increases", the agency said.

In December, "restrained milk production in the EU and Oceania and buoyant international and domestic demand continued to underpin the market". 

Harvest upgrades

The worst performing segment of the FAO food price index was cereals, which ended 2016 6.2% below where it started the year, and indeed among its lowest levels in a decade.

The FAO highlighted a weak finish to 2016 for wheat prices, which "weakened as a result of larger-than-expected production estimates in Australia, Canada and Russia, as well as good crop prospects in Argentina".

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