The United Nations warned that weather setbacks, which prompted it to slash 25m tonnes from its forecast for the US corn harvest, look set to revive food prices, after a decline to a 21-month low.

Food prices in June dropped 1.8%, month on month, to their lowest since September 2010, led by a 5.6% drop in prices of vegetable oils, the UN's food agency, the Food and Agriculture Organization, said.

The fall in prices of the likes of palm oil and soyoil "was caused primarily by larger than expected oilcrop plantings in northern hemisphere countries, as well as a sizeable decline in crude oil prices, which has weakened demand for vegetable oils from the energy sector", the FAO said.

Indeed, "continued economic uncertainties" played a role in depressing overall food prices, which fell last month to a level 15.4% below their peak in February last year.

'Deteriorating crop conditions'

However, the organisation also flagged the recent price rises of farm commodities, "mostly because of adverse weather", noting in particular the dry weather in much of the US.

"This may result in a rebound of the food price index in July."

Separately, Commerzbank said that "the agricultural sector is currently the high flyer in the commodities markets," flagging a rise of more than 20% in the S&P GSCI's agricultural index since the start of June.

While the FAO had forecast US corn leading a revival in world cereals production this year, it said that "the deteriorating crop conditions due to the continuing dryness and above-average temperatures in much of the major growing regions of the country have dampened this outlook".

"Adverse weather is diminishing prospects of an improvement in the corn supply situation," the organisation said, adding that it was "monitoring the development closely".

The FAO slashed its estimate for the US corn harvest by 25m tonnes to 350m tonnes (13.8bn bushels), a figure in line with that from the International Grains Council earlier this week, but below the US Department of Agriculture's estimate of 375.7m tonnes.

Heat damage

The downgrade is the latest in a series for a US crop beset by heat and dryness during the key pollination period.

Many brokers have downgraded estimates for the crop to the range of 150-155 bushels per acre, below the USDA's forecast of 166 bushels per acre, with farmers even more gloomy.

An informal poll of US growers by Agweb showed just 1% believing the yield will hit a range of 160-169 bushels per acre, with 40% foreseeing a figure of 140-149 bushels per acre, and 46% a result of 139 bushels per acre or less.

And the FAO trimmed its forecast for world wheat production too, by 2m tonnes to 678m tonnes, citing setbacks to crops in Australia, China and the former Soviet Union.

The estimate for the overall cereals harvest was cut by 23m tonnes to 2.396bn tonnes.

Rice mountain

Nonetheless, the outlook for cereals supplies in 2012-13 appeared "adequate", thanks largely to record abundant supplies of rice", for which production was seen exceeding consumption by 13.4m tonnes.

"The size of rice stocks carried over into 2013 is forecast to rise… to 167.5m tonnes, which is a record, and represents a very healthy stocks-to-use ratio, at almost 35%," the FAO said.

The organisation also highlighted the impact of excessive Brazilian rains in reviving sugar prices.

"Sugar prices regained some strength towards the end of June on the back of unfavourable harvesting conditions in Brazil, the world's largest sugar exporter."