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Food prices fall at fastest pace in nearly three years, led by dairy dip - UN

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Food prices ended a firm year on a weak note, undermined by the biggest month-on-month fall in dairy prices in four years, the United Nations said, cautioning over the “uncertainty” surrounding European skim milk powder stocks.


Food prices as measured by an index calculated by the Food and Agriculture Organization, the United Nations’ food agency, averaged 174.6 points in 2017 – a rise of 8.2% year on year, and the highest reading since 2014.


However, the headline gain disguised a month-on-month drop of 3.3% in prices in December, the fastest pace of decline in nearly three years, and which left the index at an eight-month low.


The drop was “led by sharp decreases for vegetable oils and dairy products”, the FAO said, although prices, unusually, fell for all five food categories followed, also including meat, cereals and sugar.


‘Palm oil prices tumbled’


Prices of vegetable oils fell by 5.6% in December, a drop the agency said “mainly reflects lower quotations for palm, rapeseed and soybean oils.


“International palm oil prices tumbled, as stocks in Malaysia and Indonesia swelled to two-year highs on the back of relatively strong production and weak export demand.”


Malaysia this month announced a temporary suspension of palm export taxes in a bid to boost export prospects, which official data on Wednesday showed had come in short of investor expectations in December.


In the rapeseed oil market, “upward revisions of crops in Canada and Australia weighed on prices,” the FAO said, “whereas soyoil quotations were pressured by rival palm oil”.


‘High export supplies’


However, the biggest December price drop was recorded in dairy, values of which tumbled by 9.7% - their biggest month-on-month decline since August 2014.


“High export supplies in the face of subdued demand weighed on the international prices of all the four milk products that constitute the index,” and which comprise butter, cheese, skim milk powder (SMP) and whole milk powder (WMP).


In particular, “uncertainty over the intervention stocks in the European Union continued to put downward pressure on international price quotations for skim milk powder”, the FAO said.


Skim milk powder mountain


Intervention buying has landed the EU with stocks of more than 370,000 tonnes of skim milk powder – the overhang from which is weighing on world values, and prompting a rethink in the European Commission of its market support scheme.


Reportedly, the commission is considering from this year purchasing skim milk powder through a tender, rather than the guaranteed price scheme previously employed.


In the European Union, skim milk powder prices stood at E144 per 100 kilogrammes as of Sunday, down E1 week on week and their lowest on data going back 17 years.


Prices of butter - which soared last year, in part thanks to a reluctance to manufacture the product because of the low values of SMP also thrown off – also started 2018 on a weaker note, dropping E2 to E453 per 100 kilogrammes, the lowest since May and down 30% from a September high.


Sugar price decline


Despite the December decline, dairy prices last year averaged 32% higher than in 2016, “with the largest increase recorded for butter followed by whole milk powder (WMP) and cheese, whereas SMP prices remained stable”.


Average meat prices were 9% higher, while those of cereals and vegetable oils gained 3%.


Sugar prices put in the weakest performance, dropping 11.2% in 2017 on a year-average basis, helped by a 4.1% month-on-month drop in December.


“The fall in sugar prices in 2017 largely reflected a bumper harvest in Brazil, the world’s largest producer, along with strong production recoveries in India and Thailand,” the FAO said, also noting shorter term pressure from “subdued demand and expectations of a large surplus in 2018”.

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