March 27, 2012
 

UNFAO says world grain prices to remain strong

 

 

As demand from Asia exceeds forecasts and dry weather reduces supply, world grain prices should remain "very firm" over the near term, the senior economist of the UN's Food and Agriculture Organisation (FAO) said on Monday (Mar 26).

 

Drought hurt South American corn and soy fields earlier this season curtailing supplies at a time of higher-than-expected demand from Asia.

 

China's emerging middle class has acquired a taste for beef steaks, which has held strong despite the country's economic slowdown. Steaks and other meat require feed corn and soymeal to produce.

 

"In the near term - this month and next - we are going to still see very firm prices. What happens after that depends on crop development and the weather," the FAO's senior economist Abdolreza Abbassian told Reuters in a telephone interview.

 

"A few months ago we were expecting slower growth in demand," he added. "Macroeconomic factors were making us believe that demand in feed use, for example, would grow at a slower pace. But I think we always underestimate the growth in emerging countries, in Asia in particular."

 

World food prices were up 1% month on month in February, driven by gains in cereals, vegetable oils and sugar, but were still some 10% off a record high hit in February 2011, the United Nation's food index showed.

 

"Demand is definitely growing faster than what we had expected, while supply ended up being less than we expected," Abbassian said. "You put these two things together and it explains what's happening today with prices globally."

 

Food prices hit record highs in February 2011, helping to stoke unrest related to the Arab Spring. Prices have fallen since then but their upturn in the first two months of 2012 is raising inflation concerns.

 

"The fact that the price of certain crops are approaching the peaks of last year tells you something about market direction and sentiment," Abbassian said from his office in Rome, three days ahead of the FAO's Latin American regional meeting to be held in Buenos Aires.

 

The United Nations had expected soy prices to start falling by this point in the year, as Argentina, the world's top exporter of soymeal and soyoil, starts its 2011/12 harvest. But after the December-January drought, which hurt many of the country's fields, the market remains nervous about the weather. Dry conditions are causing concerns in Europe, North Africa and the Middle East as well.

 

"Unpredictability in prices is increasing," Abbassian said. "If the Chinese feel that corn prices could still rise, they may surprise us and buy more, which would send prices up. Considering the agitation in the market, this could lead to panic buying."

 

"If we would have had this conversation a few weeks ago I would not have even considered this as being in the cards," he added. "The events of the last few weeks and the downgrading of crop estimates in South America, Argentina in particular, have definitely added fuel to the upward trend in prices."

 

The Argentine government expects this season's corn crop to total 21.2 million tonnes while the 2011/12 soy harvest is forecast at 44 million tonnes. Initial projections had put corn at up to 30 million tonnes and soy at 53 million tonnes.