World food price index expected to fall for May

A farmer loads rice while harvesting on a paddy field in Thuy Huong village, outside Hanoi June 3, 2012.

MILAN (Reuters) - World food prices are expected to have fallen in May for a second month, easing inflation and food security concerns, as intensifying worries about a slowing global economy and euro zone debt led to a sell-off in grains and other commodities.

The United Nations' Food and Agriculture Organisation (FAO) will update its monthly Food Price Index on Thursday. It is also due to update its outlook for crops.

The FAO index, which measures price changes for a basket of cereals, oilseeds, dairy products, meat and sugar, fell in April after rising in the first three months of 2012.

Improvement in the security of food supplies amid the economic downturn was high on the agenda of a summit of leaders of the G8 industrial powers last month. Last year record high food prices in February contributed to the protests known as the Arab Spring in the Middle East and North Africa.

In May, an improved outlook for crops in some major producing countries, a strengthening U.S. dollar, which hits competitiveness of dollar-denominated commodities, and growing concerns about the debt crisis in Europe pushed prices down.

"We had a combination of generally better supply prospects, stronger dollar and the problems in the European Union, which is a huge market for almost all commodities," FAO senior economist and grain analyst Abdolreza Abbassian said.

On the broad commodities markets, May was one of the worst months since the 2008 financial crisis as growing fears over the euro zone's debt problems and weak U.S. data crushed investor risk appetite.

Economic gloom in Europe and fears about Greece's potential exit from the common currency zone will keep the pressure on prices, Abbassian said.

"There are real economic problems in Europe, and there are no real solutions for them at this stage, which definitely sends a negative sentiment to the market across the board," he said.

The benchmark Thomson Reuters-Jefferies CRB index tumbled nearly 11 percent in May, the second-largest monthly drop since the darkest days of 2008, stoking debate over whether the decade-long bull market for raw materials may be winding down.

Benchmark Chicago Board of Trade corn futures dropped more than 12 percent in May as financial investors and others bailed out of the market amid prospects for a record large crop.

CBOT soybean futures fell 11 percent last month, weighed by weak demand and as speculators cut their positions. Wheat fell just 2 percent amid concerns over dry weather in the United States and in exporting countries including Russia and France.

Crude oil tumbled into its biggest monthly loss since December 2008 in May, cutting costs of food and inputs transportation, output of fertilizers and farm machinery use.

On the physical markets, whose prices FAO uses to calculate its food index, the average monthly price of U.S. wheat fell to $276.25 a tonne in May from $279.50 a tonne in April, the FAO's database showed.

U.S. soybeans fell 2.6 percent to $542.31 a tonne, while corn edged 0.4 percent up to $274.30 a tonne, the database showed.

(editing by Jane Baird)