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Hefty crop prospects to keep weighing on falling food prices: FAO

Thursday, 8 Aug 2013 | 8:58 AM ET
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Global food prices could decline further in coming months after hitting their lowest level in more than a year in July, the United Nations' food agency said on Thursday, pointing to prospects of abundant grain supplies.

Food prices surged during the summer of 2012 due to a historic drought in the United States but improving prospects for cereal supplies in 2013/14 are fueling the opposite trend this year, the Food and Agriculture Organisation (FAO) said.

"Supplies are proving to be much better than anticipated a few months ago. The weather has been pretty good in many cases and is giving hope for higher production," FAO senior economist Abdolreza Abbassian said.

He said good prospects for maize output in the United States, Argentina and the Black Sea region meant corn prices could lead other markets down this season, reversing their supportive influence on higher prices last summer.

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Food prices could face further downward pressure if the U.S. dollar strengthens, he said. A stronger dollar weighs on dollar-traded commodities as it makes them more expensive to holders of other currencies.

"There is an extent to which prices could fall," Abbassian said. "But I'm not sure we are going to see as much of a decline in coming months as we saw in the past few months."

FAO's food price index, which measures monthly price changes for a basket of cereals, oilseeds, dairy, meat and sugar, fell nearly 2 percent in July, declining for the third month running to 205.9 points compared to 210.1 in June.

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The fall was driven mainly by lower international prices for grains, soy and palm oil, FAO said, while sugar, meat and dairy quotations also declined.

The Rome-based agency raised its forecast for global cereal production in July, expecting it to increase more than 7 percent to 2.479 billion tonnes in 2013/14. Its next output forecast update is due in September.

FAO's price index hit a peak of 238 points in February 2011, when high food prices helped drive the Arab Spring uprisings in the Middle East and North Africa.

In the summer of 2012 it began surging to levels close to those seen in 2008, when riots, some deadly, broke out in several poor countries.

(Read more: Why the crop crunch won't cut your food bill)