Vegetable Oil Strength Helps to Push World Food Prices Higher in January

Surging vegetable oil markets pushed world food prices higher in January, ever closer to the all-time peak notched more than a decade ago.

The Food and Agriculture Organization of the United Nations (FAO) reported Thursday its food price index averaged 135.7 points last month, up 1.1% from December and near the early 2011 high of just under 140 points.

The bulk of the rise in the overall food price index in January was due to strength in vegetable oils. The FAO’s vegetable oil price index climbed 4.2% month-on-month to reach an all-time high. Quotations for all major oils rose, the FAO said, also supported by rising crude oil prices. Palm oil prices were largely underpinned by concerns over a possible reduction in export availabilities from Indonesia, the world’s leading exporter, while soy oil prices were supported by robust import purchases, particularly from India.

Meanwhile, rapeseed oil prices were pushed up by lingering supply tightness, and sunflowerseed oil quotations were impacted by supply tightness and surging global import demand, the FAO added.

In comparison, the FAO’s cereal price index increased by just 0.1% in January, as a 3.8% increase in world corn export prices was largely offset by a 3.1% drop in wheat prices due to large harvests in Australia and Argentina. The FAO meat price index increased just slightly in January, while dairy was up 2.4%.

Boubaker Ben-Belhassen, Director of FAO’s Markets and Trade Division, said vegetable oil prices could remain stubbornly high due to a variety of factors.

“Reduced export availabilities on top of other supply-side constraints, especially labour shortages and unfavourable weather, largely pushed vegetable oil prices up to an all-time high. There is a concern the impacts of these constraints will not ease quickly.”

The FAO sugar price index was the only subindex to post a decrease in January, down 3.1% from the previous month due to favourable production prospects in major exporters India and Thailand, as well as improved rains and lower ethanol prices in Brazil.