December 23, 2010

Global grain inventories remain tight

Although world grain production is better than expected, supplies remain tight for the current and next crop season because of higher demand, according to the UN Food and Agriculture Organisation (FAO).

The FAO raised its projection of world wheat output to 653 million tonnes this year from a previous estimate of 648 million tonnes after better than expected crops in Australia, Russia and other countries and increased its overall cereals output view.

In an update of its key Crop Prospects and Food Situation report, the Rome-based agency cut its view of the growth of the EU winter wheat sown areas to 1% from an earlier estimate of 3% as bad weather hit major east European producers.

"We have also increased the utilisation numbers. The output increase is not going to give us more supplies, especially from exporting countries," said FAO's economist Abdolreza Abbasssian.

The FAO's upward revision of global grain crop this year was largely driven by improved outlook for wheat crops in Australia, a major producer in the world, but wheat quality there could be downgraded because of bad weather, Abbassian said.

Australia is headed for a record wheat crop of 26.8 million tonnes in 2010/11 but heavy rains have hit the crop quality, the Australian Bureau of Agricultural and Resource Economics and Sciences said earlier in December.

The FAO said tightening of the cereal market in the 2010/11 crop year had already led to a sharp rise in world prices of all major cereals in recent months, with wheat and coarse grains trading at around 50% above the previous year's levels.

"The corn market remains tight and it is going to be quite a market driver into the spring, pulling prices of wheat and other crops as well," Abbassian said.