World food prices dropped in May for a second month in a row, hit by falls in grains, oilseeds and other commodities, and are likely to fall further in the coming months, the United Nations' Food and Agriculture Organisation (FAO) said on Thursday.

The FAO Food Price Index, which measures monthly price changes for a food basket of cereals, oilseeds, dairy, meat and sugar, averaged 204 points in May, down from 213 points in April, the FAO said in its monthly index update.

"We were expecting decline in May, the surprise is the extent ot it, which showed that markets for oils and fats, dairy products and sugar all had to make sharp downward adjustments," FAO's senior economist and grain analyst Abdolreza Abbassian told Reuters.

"We're in a situation where supplies have improved and we've had quite a big spillover from other markets which were all down, and the strength of the dollar has also had an impact."

However, Abbassian said the steep drop in production in May meant that even if further price declines were seen in June, they would probably be less marked.

The FAO raised its 2012 world cereals output forecast to 2.419 billion tonnes from a previous estimate of 2.371 billion tonnes due to improved expectations for corn prodution in the United States.

Closely watched grain stocks at the end of the 2012/13 season are expected to rise to 548 million tonnes against a previous forecast of 524 million tonnes, the agency said.