December 13, 2006

FAO predicts high grain prices to impact meat output

Poor crop yields and high demand for biofuels have boosted feed grain prices and could result in curtailing livestock production, according to the FAO's recent Food Outlook report.

Grain prices, particularly for wheat and corn, have reached levels not seen for a decade, said the report.

Poor harvests in key producing countries and a fast-growing demand for biofuel production have driven up grain prices, while supply constraints have also dominated the rice economy, the report said. Higher grain prices could lead to higher prices for red meat and poultry and possible meat shortages later.

Global expenditures on imported food in 2006 could reach a historic high of US$374 billion, registering an increase of 2 percent from the previous year's level, FAO said.

Many countries would reduce purchases, not always in response to improved domestic supplies but because of high international prices, according to FAO report.

Also, higher energy costs might force poor developing countries to curtail expenditures on imported staples like red meat and poultry, to pay for their fuel needs.

World production of coarse grains in 2006 stands at 981 million tonnes, down by 2.1 percent from 2005 but above the average of the past five years. Current strong prices could encourage higher plantings and larger production in 2007, but if industrial use, mainly for ethanol, continues to grow at the current pace, it might take more than one good crop season for prices to retreat from their current highs, the report said.

The strength of grain markets also has ripple effects on the meat and dairy sectors. Renewed consumer confidence as a result of reduced animal disease outbreaks had raised the prospect of a rebound in global meat demand, but expectations of high feed costs have been threatening to postpone a recovery in livestock and meat production, the report said.