Tight Cereal Markets as Food Prices Increase Again – FAO

In the face of a growing demand and a decline in world cereal production in 2010, global cereal stocks this year are expected to fall sharply because of a decline in inventories of wheat and coarse grains, according to the FAO.

3/4/2011 --- Global food prices increased for the eighth consecutive month in February, with prices of all commodity groups monitored rising again, except for sugar, FAO said.

FAO expects a tightening of the global cereal supply and demand balance in 2010/11. In the face of a growing demand and a decline in world cereal production in 2010, global cereal stocks this year are expected to fall sharply because of a decline in inventories of wheat and coarse grains. International cereal prices have increased sharply with export prices of major grains up at least 70 percent from February last year.

"Unexpected oil price spikes could further exacerbate an already precarious situation in food markets" said David Hallam, Director of FAO’s Trade and Market Division.

"This adds even more uncertainty concerning the price outlook just as plantings for crops in some of the major growing regions are about to start" he added.

The FAO Food Price Index averaged 236 points in February, up 2.2 percent from January, the highest record in real and nominal terms, since FAO started monitoring prices in 1990.

The Cereal Price Index, which includes prices of main food staples such as wheat, rice and maize, rose by 3.7 percent in February (254 points), the highest level since July 2008.

The FAO Dairy Price Index averaged 230 points in February, up 4 percent from January, but well below its peak in November 2007.

The FAO Oils/Fats Price Index rose marginally to 279 points in February, a level just below the peak recorded in June 2008.

The FAO Meat Price Index averaged 169 points in February, up 2 percent from January. By contrast, the FAO Sugar Price Index averaged 418 points in February, slightly below the previous month but still 16 percent higher than February 2010.

FAO expects winter crops in the northern hemisphere to be generally favourable and forecasts global wheat production to increase by around 3 percent in 2011.This assumes a recovery in wheat production in major producing countries of the Commonwealth of Independent States. So far, conditions of winter crops in those countries are generally favourable.

The latest estimate for the world cereal production in 2010 is 8 million tonnes more than was anticipated in December but still slightly below 2009. This month’s upward revision reflects mostly higher estimates for production in Argentina, China and Ethiopia.

The forecast for world cereal utilization in 2010/11 has been revised up by 18 million tonnes since December. The bulk of the revisionZreflects adjustments to the feed and industrial utilization of coarse grains. Larger use of maize for ethanol production in the United States and statistical adjustments to China’s historical (since 2006/07) supply and demand balance for maize are the main reasons for the revision.