July 8, 2011


FAO reports world cereal prices still high despite slight drop



Cereal prices dropped slightly in the world markets in June, but were still 71% higher than a year ago, with the fall attributed to improved weather conditions in Europe and the lifting of Russia's export ban.


The United Nations Food and Agriculture Organization (FAO) Cereal Price index averaged 259 points in June, down 1% from May, the FAO reported.


After two consecutive revisions to the US crops and planting prospects for 2011, FAO's latest forecast for world cereal production for 2011-2012 stands at nearly 2,313 million tonnes, 3.3% higher than last year and 11 million tonnes above FAO's last forecast on 22 June.


World cereal use for 2011-2012 is forecast to grow by 1.4% from 2010-2011, reaching 2,307 million tonnes, just five million tonnes under forecast production.


World cereal stocks at the close of the crop season in 2012 are now expected to stand six million tonnes above their opening levels.


While wheat and rice inventories are expected to become more comfortable, coarse grains stocks, especially maize, would remain tight because of low 2010 supplies and continued wet conditions in the United States, according to FAO.


Falls in the prices of wheat, corn and soybeans as well as a broad pullback across a wide range of commodity markets in June had been expected to drag on the index and defuse food price inflation, one of the factors which sparked unrest in Arab countries earlier in the year.


"It is possible to see a slightly less of an influence from the food price increases than you have seen in 2010/11 in 2011/12," said FAO's senior economist and grain analyst Abdolreza Abbassian.


"However, the high price in relative terms compared to the historical level is going to be with us. Unfortunately, the volatility will not diminish, given the fact that stocks and reserves are quite tight," Abbassian said.


Abbassian said downward pressure on grain prices may last for another couple of weeks, but strong demand, especially from feed and biofuels industries, would prevent prices from considerable falls and keep them at historically high levels.


The agency's Dairy Price Index averaged 232 points in June, largely unchanged from 231 points in May, while the Meat Price Index averaged 180, marginally up from May with poultry meat rising 3% and climbing to a new record, while pig meat prices declined.


Overall, the FAO Food Price Index rose 1% to 234 points last month, 39% higher than in June last year, but 4% below its all-time high of 238 points in February this year, raising fears of a repeat of the 2007/2008 global food crisis when soaring prices triggered deadly riots in some developing countries.


A strong rise in the price of sugar in the international markets drove up the index.


The FAO Sugar Price Index rose 14% from May to June, reaching 359 points, 15% below its January record. Production in Brazil, the world's biggest sugar producer, is forecast to fall below last year's level.

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