May 4, 2012

 

World soy output to drop in 2011-12 on inflation uptrend

 

 

With prices poised for fresh highs, the United Nations food agency said that world output of key animal feed ingredient soy is set to tumble in 2011/12, showing the resilience of inflation trends fanned by three months of rising food costs.

 

Record high food prices in February last year helped fuel the Arab Spring uprisings in the Middle East and North Africa. Prices receded in the second half of 2011 but the uptrend resumed in January.

 

The UN's Food and Agriculture Organisation (FAO) said on Thursday (May 3) its Food Price Index, which measures monthly price changes for a basket of cereals, oilseeds, dairy, meat and sugar, fell to an average 214 points in April, from a revised 217 in March.

 

Yet soy prices - already at their highest since July 2008 - are likely to rise further due to tight supplies, driving corn prices higher, the agency's senior economist said. World soy output is estimated to drop 9.5% to 240 million tonnes in the 2011-12 year, one of the steepest on-year falls on record, hit by poor crops in the US and South America, the FAO said. The likelihood that soy would have to compete for cropland with corn, especially in the US, in 2012-13 adds further support to prices, it said.

 

"We think that the soy price, reflecting the tightness of the market, has the potential to increase, so there is now a lot of attention to 2012-13 planting intentions," the FAO's senior economist and grain analyst Abdolreza Abbassian told Reuters.

 

The rise has been driven by Chinese demand and poor yields in key exporter Argentina, after dry weather linked to the La Nina weather phenomenon. The overall index drop reflected a 2.5% on-month fall in corn prices, a 1% fall in wheat and a 5% drop in sugar prices, which offset a 2.2% rise in vegetable oils fuelled by soaring soy prices.

 

"You would see prices most likely remaining under downward pressure in the next couple of months," Abbassian said, noting weather remained a critical factor.

 

The index seemed to have stabilised at a relatively high level of around 214 points, the FAO said in a monthly update. Last week, the World Bank said costlier oil, strong demand from Asia and bad weather had been pushing up global food prices, adding that if current production forecasts for 2012-13 do not materialise, prices could reach higher levels. US soy futures, one of the major drivers on international grain markets in the past few months, have been fuelled by purchases from China, the world's largest buyer.

 

"For the (FAO) index, the conditions associated with oilseeds especially have been supportive," Rabobank senior commodity analyst Keith Flury said.

 

"Inventory levels around the world are certainly low, but everything is very contingent on how the US harvest is realised. Currently conditions are supportive for crops. But we are very cognisant of the fact that there still remains a fair amount of weather between now and the fall and (there are) risks associated with that," he added.

 

In trade, Iran has undertaken a massive grain buying shopping spree, hoarding millions of tonnes against a backdrop of toughened western sanctions, while Syria's cereal import requirement has also increased as the crisis there worsens. Concerns on meat prices are already surfacing, reflected by an expected fall in EU pig numbers of up to 10%.

 

While record total cereal crops are expected this year, strong demand coupled with low initial stocks are likely to lead to tight supplies of coarse grains and soy, which would support prices, the FAO said in its Food Outlook. The FAO has cut its outlook for the world new crop wheat output to 675 million tonnes from an earlier forecast of 690 million, down 3.6% from last year, citing output falls in Ukraine, Kazakhstan, China, Morocco and the EU.

 

International wheat prices in 2012-13 are expected to average lower than in the previous crop year, despite smaller crops and shrinking stocks, due to a fall in consumption and large export supplies, the FAO said. World cereals output is expected to rise in 2012-13 crop year by 1.1% to a record 2.371 billion tonnes, boosting closely watched stocks by 1.7% to 524 million tonnes at the end of the 2012-13 seasons, the agency said in its first forecast of new grain crops.

 

Coarse grains production is seen rising 3.7% to 1.207 billion tonnes, driven by a 4.1% increase in corn output to 916 million tonnes, the agency said, citing preliminary forecasts. But the coarse grains market is set to remain tight due to very low level of stocks, providing further support to prices, it said. World prices of oilcrops and their derived products, which have been rising since the start of this year, are likely to remain firm due to an increasingly tight supply and demand situation of the current season, it said.