World food prices rose for a third straight month in August, led by coarse grains, vegetable oils and sugar, the United Nations food agency said on Thursday.

The Food and Agriculture Organisation’s (FAO) food price index, which measures monthly changes for a basket of cereals, oilseeds, dairy products, meat and sugar, averaged 96.1 points last month versus 94.3 in July.

The Rome-based FAO also said in a statement that worldwide cereal harvests remained on course to hit an annual record in 2020.

The agency’s cereal price index rose 1.9% in August from the month before and 7% above its value a year earlier.

Among the major cereals, sorghum, barley and rice prices rose the most, FAO said. Maize also climbed strongly, pushed up by concerns over US production prospects following recent crop damage in Iowa.

The vegetable oil price index climbed 5.9% month-on-month, returning to around the levels registered when the coronavirus crisis hit the world at the start of the year.

Palm oil was buoyed by expected output slowdowns in major producing countries, which, combined with firm global import demand, were expected to result in lower inventory levels.

Average sugar prices rose 6.7% from July, reflecting forecasts of a reduction in production due to unfavourable weather conditions in the European Union and Thailand. Strong import demand in China also helped push prices higher.

By contrast, the dairy index was little changed on the month, with falls in cheese and whole milk powder offset by stronger butter and skim milk quotations.

The meat index was also largely steady, with bovine and poultry prices in retreat while pig meat prices rose after four consecutive months of declines, as Chinese imports jumped.

FAO revised down its forecast for the 2020 cereal season by 25 million tonnes, largely due to expectations of a lower maize production in the United States.

However, despite this reduction, the agency still expected a record harvest this year of almost 2.765 billion tonnes, up 3% on 2019 levels.

“Record maize harvests are forecast for Argentina and Brazil, while global sorghum production is expected to grow by 6% from the previous year. Worldwide rice production in 2020 is also expected to reach a new record of 509 million tonnes,” FAO said.

The forecast for world cereal utilisation in 2020/21 hit 2.746 billion tonnes, up 2% on the 2019/20 level. The estimate for world cereal stocks by the close of seasons in 2021 was 895.5 million tonnes, down 33.4 million tonnes since July.

Meanwhile, soaring corn prices are stoking food security jitters in China, where food inflation has climbed to the highest in over a decade and President Xi Jinping made a recent high-profile plea for an end to wastage.

The price surge in corn - critical for China’s mammoth dairy and poultry sectors - is the latest in a series of ructions that include a devastating pig disease, pandemic-driven upsets for international suppliers and warnings of a growing food supply gap.

Prices have risen as the country heads for its first real corn shortfall in years in the upcoming 2020/21 season starting in October and could face a deficit of up to 30 million tonnes, around 10% of its total crop, say analysts and traders.

That would be a likely boon for major exporters like the United States and Ukraine, but threatens to push up global prices and have a knock-on impact elsewhere as some corn users switch to other grains.

“It is certain that there will be a corn shortage in the future, and we would need to import a lot next year,” said an executive with a state-owned trading firm, who declined to be identified as he was not authorised to talk to media.

Maintaining food supplies is a major source of political legitimacy for the ruling Chinese Communist Party, but it has struggled to balance central planning with grain market forces.

Struggling with bulging stockpiles, China four years ago abandoned a scheme that paid farmers above-market prices for corn and has since produced less of the grain than it consumes.

The state stockpiles that supplemented supply are now nearly gone.

Corn prices in Jiamusi at the heart of China’s grain basket hit a five-year high at 2,050 yuan ($297) a tonne on August 26, up 27% since the start of the year, before edging down in recent few days.

This has contributed to a broader rise in food prices, also driven by severe flooding in the south, pockets of drought in the northern grain belt, and a continuing meat shortage.

Reuters