November 4, 2011

World's agricultural commodity markets to remain tight



In spite of better supply and slower demand growth, agricultural commodity markets are expected to stay tight with high prices and instability, according to the UN food agency on Thursday (Nov 3), increasing its outlook of global grain production in 2011.


According to Reuters, UN's Food and Agriculture Organisation (FAO) said in its Food Outlook that global food prices have fallen in the last few months helped by improved crops but remained high and subject to swings in unstable financial and equity markets.


"Letting international markets continue in their present state, volatile and unpredictable, will only aggravate an already grim outlook for world food security," the FAO said as Group of 20 world leaders meet in France amid hopes they would address increased global food price volatility.


World food prices, measured by FAO, hit an 11-month low in October, due to sharp falls in grains, sugar and other farm commodities, the agency said ahead of a European Central Bank meeting which was widely expected to leave interest rates unchanged but delivered a surprise 25 basis point cut.


However, food prices in October remained 5% above year-ago levels and if commodities demand, hit by general economic gloom, was stronger prices would not have fallen that much, FAO's senior economist said.


"Demand remains extremely uncertain," the economist said.


Food prices grabbed the attention of world policy makers after hitting record highs in February and helped stoke the unrest of the Arab Spring in north Africa and the Middle East.


World cereals output is expected to rise 3.7% to a record 2.325 billion tonnes this year, powered by a 6% jump in better-than-expected wheat production, the Rome-based agency said, raising its previous forecasts.


The FAO also raised its outlook on output of coarse grains, including corn, forecast a record rice crop and raised its estimate of global grain stocks at the end of 2011/12 season to 506.6 million tonnes, up 3.3% from the previous season.


The economist said global grain stocks were sufficient to meet demand and cushion possible weather shocks this season but the outlook for 2012/13 was uncertain and unexpected events could rock fragile stability.


Russia's wheat exports are expected to rise to at least 18.5 million tonnes in the 2011/12 marketing season, close to the record of 2008/09, due to a 37% jump in its wheat output in 2011 after a severe drought in 2010, the FAO said.


Wheat shipments from Ukraine are expected to triple to nine million tonnes while wheat exports from Kazakhstan are seen jumping 30% to 7.2 million tonnes, the FAO said.


Wheat markets remained volatile with prices moving in tandem with swings in much tighter corn markets, mostly due to increased use of wheat as animal feed, the agency said, adding that US corn trades close or even at a premium to wheat.


Winter wheat areas for 2012 are expected to be stable or slightly higher in the northern hemisphere thanks to generally favourable planting conditions, apart from dry weather in parts of the US and in Ukraine, it said.


Output of most food commodities will have to rise in 2012 to meet even slowly increasing demand. Food cereal demand is forecast to keep pace with population growth while feed demand is expected to resume growth after two years of stagnation. Demand from the biofuels industry is seen subdued.


"Input costs, from fertilisers to energy, remain high, interest rates have climbed in many emerging economies, all of which could dampen production next year and, hence, draw down stocks and boost prices further," the FAO said.

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