UN sees bigger grain crops and price pressure in 2010

United Nations Food and Agricultural Organisation (UN FAO) forecasted that world cereals output will rise this year to near-record highs, swelling overall supplies and putting pressure on already weakened prices.

 

The global wheat output is forecast to fall for the third consecutive year, but at 676.5 million tonnes it would still be close to 2008 record levels, the FAO said, raising its earlier forecast for 2010.

 

Overall cereals output is seen rising 1.2% to 2.280 billion tonnes on the back of a 1.4% gain in coarse grains output, the FAO said in its Food Outlook (www.fao.org), trimming both earlier forecasts based on the latest data.

 

A 0.9% fall in wheat output this year is expected to be almost entirely offset by larger opening stocks, but stocks are expected to drop 1% to 194 million tonnes at the end of the season in 2011, the agency said.

 

"Against the backdrop of an economic slowdown in many countries, this generally favourable wheat supply outlook is likely to maintain downward pressure on international prices," the FAO said.

 

Competition between major producers is seen heating up as all are expected to have large supplies, but European exporters may benefit from a weaker euro against the US dollar, the Rome-based FAO said.

 

However, a large surplus in the Black Sea region is likely to put a lid on a surge in EU exports, it said.

 

Corn output is expected to rise to 835 million tonnes from 815 million tonnes with likely record crops in US, the world's biggest producer and exporter.

 

Corn prices are seen coming under more pressure from brimming supplies of alternative feed, including wheat, meals and distilled grains.

 

"From sugar to wheat, most indicators point to increasing world supplies, a leading factor behind the sharp declines in international prices of major food staples this year," the FAO said.

 

Oilseeds prices, which have resisted a big downturn, may fall in the coming months as supply increases, it said.

 

In another sign that prices could ease in the next few months, dry bulk freight rates for large ships, which carry commodities including grains around the world, are likely to weaken later this year as new vessels enter the market, the International Grains Council said on Thursday (June 3).

 

The FAO also said implied volatility, the market's expectations of the future price moves of a commodity inferred from the prices of derivative contracts, for wheat, corn and soybeans may have stabilised.

 

"Implied volatility has undergone a gradual moderation in the past 12 months, suggesting that markets are a little more assured than they were last year," the FAO said.

 

Dairy markets remain firm with robust demand and sluggish milk output growth. Meat sector prices have been rising due to falling production and increased demand and fish prices are strong thanks to growing demand and limited supplies, FAO said.

 

The global cost of imported foodstuffs is set to rise 11% to $921 billion this year on the back of a projected 17% jump in non-cereal products which account for about two-thirds of global food import spending, the FAO said.