October 7, 2011


Grain price decline affects world food prices



World food prices dropped for the third month in September after grain prices slumped, according to a Bloomberg report.


An index of 55 food commodities fell to 225 points last month from 229.5 points in August, the UN's Rome- based Food and Agriculture Organization said. The gauge reached a record 237.7 points in February.


Corn futures in Chicago had the biggest monthly slide in at least 50 years last month, dragging down other grains and taking pressure off rising living costs across the world. China's fourth quarter consumer price index probably rose 4.5%, down from 5% in the third quarter, according to the median of nine estimates.


"The only reason prices are coming down is the economic slowdown," Abdolreza Abbassian, a senior economist at the FAO, said. "If we get more bad demand news, I would not be surprised to see prices go lower."


The global economy will expand 4% this year and next, the International Monetary Fund said on September 20, cutting its June forecasts of 4.3% in 2011 and 4.5% in 2012.


The last time the FAO food price index dropped more than two months in a row was between July 2008 and February 2009, when the index slumped 37% from its previous peak of 224.1 points in June 2008. The gauge is still 16% above its year earlier level of 194 points.


Stocks and commodities dropped last month on concern about a possible Greek default and a spreading debt crisis in Europe. The MSCI Index of stocks fell 9.7% in September and the S&P GSCI Index of commodities dropped 12%.


US supplies of corn were an estimated 1.13 billion bushels on September 1, USDA said about 20% more than the average prediction of 24 analysts in a survey and signalling slower demand for grain used in animal feed and fuel.


"The key to the falling prices is what's happening on the demand side," the FAO's Abbassian said.


Corn dropped 23% on the CBOT in September, the biggest monthly decline in records going back to 1959. Wheat plunged 23% in the month, the biggest such drop since March 1974.


The FAO Cereals Price Index dropped to 245.1 points in September from 252.4 in August, the lowest level since January.


The price slide may attract buyers, according to Abbassian. Countries will spend a record US$1.29 trillion on food imports in 2011, 21% more than in 2010, the FAO estimates.


 "A lot of people will say this is an opportunity so they're going to buy now," Abbassian said. "All you need is a couple million tonnes of purchases and that puts the market back up. The upside can be very fast."


The price of corn in Chicago is still 26% higher than a year earlier and rough rice has advanced 27%. Wheat has dropped 4.4% in the period.


Higher food costs have sent "tens of millions of people" into poverty since late 2010, and the world's hungry people may soon exceed one billion again, Oxfam International said August 3. The number of malnourished people in the world fell last year to 925 million from 1.02 billion in 2009, according to the FAO.


World food output will have to rise 70% by 2050 as the global population climbs to 9.2 billion from an estimated 6.9 billion in 2010, the FAO estimates. The price of staple foods including corn will more than double in two decades without action, Oxfam said in May.


Growth in agricultural output will slow to 1.7% a year through 2020, compared with 2.6% in the previous decade, the FAO and the Paris-based Organization for Economic Cooperation and Development said in a report in June.


World cereal production will climb to 2.31 billion tonnes in 2011-12, the FAO said in a separate report, raising its estimate by three million tonnes on increased forecasts for wheat and rice production.

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