Biggest Dairy Surge in 7 Years Extends Global Food-Price Rally

(Bloomberg) – The biggest surge in dairy costs in almost seven years and a rally in sugar helped boost global food prices to the highest in 18 months.

The United Nations’ food price-index rose 2.9 percent in September, the seventh gain in eight months, the group’s Food & Agriculture Organization said on its website Thursday. A gauge of dairy costs jumped 14 percent, the most since November 2009, while an index tracking sugar climbed 6.7 percent.

“The current price surge stems from expectations that falling milk production in the European Union and a muted opening to the dairy year in Oceania would result in tighter availabilities for export, following excess supplies in the preceding two years,” the FAO said.

Prices increased for all dairy products, particularly butter, and sugar costs rose for a fifth month. Raw-sugar futures are trading near a four-year high in New York as poor growing conditions threaten crops in top growers Brazil and India and speculators pile into the sweetener. The FAO’s gauge of 73 different foods rose even as grain prices extended declines on expectations for a glut following bumper harvests around the world.

The group increased its outlook for global grain production in the 2016-17 season by more than 3 million metric tons to a record 2.57 billion tons, it said in a separate report. Wheat output is set to rise 1.2 percent on bigger crops in Russia, the U.S. and India, it said.

In other food prices tracked by the FAO:

Grain prices fell 1.9 percent last month, a third straight decline.

Vegetable-oil prices gained 1.7 percent last month, with palm oil supported by weaker-than-expected production growth and low inventories in exporting and importing nations.

Meat prices were little changed from August.