May 6, 2011

 

Global food prices show increase

 

 

International food prices increased slightly last month, the UN's food agency said on Thursday (May 5), adding that concerns on US grain crops were even out by hopes for better productions in Russia and Ukraine after the 2010 drought.

 

Rising food prices have become hugely sensitive around the world after fuelling protests that toppled the rulers of Tunisia and Egypt earlier this year, with unrest spreading across North Africa and the Middle East.

 

The UN Food and Agriculture Organisation's (FAO) senior economist and grain analyst Abdolreza Abbassian said the world faced a precarious situation, even as food prices rose only marginally in April after a record-breaking run.

 

"This is really the weather month. The whole world is watching what is happening on the corn market in the US," Abbassian said.

 

US corn futures eased on Thursday (May 5) after a rally driven by tight supplies of US old crop and forecasts that rain could slow planting already running late in the Midwest Corn Belt, but corn remained the stand-out performer among grains.

 

Abbassian said corn prices would remain high if farmers failed to catch up on planting delays but if the planting situation improved, a good correction in prices could be seen.

 

"We need a record crop in the US, given the huge demand," he said.

 

FAO Director General Jacques Diouf said on Tuesday (May 3) a weak trend in world food prices had already begun to reverse and prices were set to rise again as concerns persist over Chinese and US winter crops.

 

Corn prices on the CBOT last month pushed above wheat prices for the first time in 15 years as US stocks dwindled to their tightest since the 1930s.

 

David Hallam, Director of FAO's Trade and Market Division, said the falling US dollar and rising oil prices had been driving commodities prices higher, particularly grains which had additionally been supported by drought in the Black Sea area and rains in Australia last year.

 

"With demand continuing, strong prospects for a return to more normal prices hinge largely on how much production will increase in 2011 and how much grain reserves are replenished in the new season," Hallam said.

 

The FAO expects world wheat output to rise 3.5% in 2011 and total cereals output to recover this year after farmers increased plantings encouraged by high prices, but weather remains crucial, especially in the main producing countries.

 

Russia and Ukraine where harvests were hit by a severe drought in 2010 will play a part in the recovery as they experience a huge recovery in grain crops this year.

 

"We are going to see quite a big recovery in production in Russia, although it may not be as good as one would have hoped for, but it is still a huge recovery compared to last year's disastrous output," he said.

 

"We are going to get extra crop in Ukraine...hopefully, we are going to see a record crop in India, very good crop in Pakistan. In general, on the wheat front we feel far more comfortable than we are with the corn."

 

The FAO global food price index which measures monthly price changes for a basket of cereals, oilseeds, dairy, meat and sugar, averaged 232.1 points in April, 2% off record highs in February.

 

The FAO index stood at 231.0 points in March when it fell from record highs following eight months of successive rises, according to FAO's updated data.

 

The UN body again expressed concern about strong inflows of financial liquidity which have powered commodities markets in the past few years.

 

French President Nicolas Sarkozy has called for tough measures to limit speculation in commodities markets, which he blames for driving up global prices of oil and food.

 

"I think some degree of control rather than restriction will be required in order to cap unnecessary or excessive speculation which is a real factor behind price volatility," Abbassian said.