Rising demand in Asia and Africa, recent floods in Asia and droughts in Africa are combining to lift global food prices.
Despite improved production prospects, world cereal markets are likely to remain fairly tight in 2011/2012, FAO said today.
FAO's quarterly Crop Prospects and Food Situation (CPFS) report forecast world cereal production will total 2 310 million tonnes this marketing season, 3 percent or 68 million tonnes higher than in 2010/11. This was 3 million tonnes more than FAO forecast last month, largely because of improved expectations for wheat and rice crops.
The overall year-on-year increase includes a 4.6 percent (30 million tonnes) rise in global wheat production, a 3 percent (14 million tonnes) rise in the rice harvest and a 2.1 percent (24 million tonnes) hike for coarse grains.
Total cereal utilization in 2011/12 is also forecast to increase slightly at 2 302 million tonnes, 1.3 percent up from 2010/11.
But despite the expected production gains, the report warns that because of the slowdown in the global economic recovery and increased risks of recession, there is uncertainty as regards the impact on world food security. Worsening economic conditions could result in higher unemployment and lower incomes for the vulnerable and needy in the developing countries.
The report said the anticipated recovery in global cereal production combined with lower than earlier anticipated demand, including for ethanol, are contributing to a decline in prices. In September, international prices of all cereals with the exception of rice fell sharply, driven by large export supplies from the Black Sea region and prospects for a weakening of demand.
FAO's monthly Food Price Index, also published today, fell 2 percent in September compared to August, to 225 points, mostly on lower international prices of grains, sugar and oils. The Index is now 13 points below the peak of 238 reached in February 2011, but still higher than its September 2010 value of 195 points.
Stocks up slightly
Global cereal stocks by the close of seasons in 2012 are forecast at 494 million tonnes, 7 million tonnes up from their opening level. The increase would principally stem from a 10 million tonne build-up of world rice inventories, as wheat stocks are anticipated to grow only marginally and, in the case of coarse grains, to contract by 4 million tonnes to 161 million tonnes, the lowest level since 2007. Overall, the stock-to-use ratio for cereals is expected to remain low at around 21 percent.
After declining over the previous two years, the total cereal imports of Low-Income Food-Deficit Countries in the 2011/12 marketing year are forecast to increase by about 4 million tonnes, representing a 5 percent rise over 2010/11.
This is consistent with the situation of the stagnant cereal production of LIFDCs, excluding India, in 2011 and some anticipated stock building during the marketing year.
Hot spots with grim outlook
Reviewing the food situation at regional level, CPFS noted that the humanitarian crisis in Eastern Africa, and especially in famine-ravaged southern Somalia, continues to claim lives and decimate livestock and that the immediate outlook in drought-affected pastoralist areas remains grim as the lean season progresses. Four million people are in crisis in Somalia, with 750 000 people at risk of death in the next few months in the absence of adequate response.
However, ongoing relief interventions should start to improve the situation later in the year.
Irregular rains threaten crop prospects
In West Africa, several areas of the Sahel have been affected by irregular rains during the 2011 cropping season. An early cessation of rains will lead to significant drop in production and increased food insecurity in these regions.
In Far East Asia, a record 2011 cereal harvest is anticipated, but severe localized monsoon floods in several countries - Bangladesh, Democratic People's Republic of Korea, India, Lao People's Democratic Republic, Pakistan, Thailand and the Philippines - may dampen the final outcome. In particular, flooding in Sindh province of Pakistan has resulted in severe devastation affecting over 8 million people, destroying some 880 000 hectares of standing crops and causing the death of large numbers of livestock.
FAO's latest estimates indicate that 32 countries around the world are in need of external assistance as a result of crop failures, conflict or insecurity, natural disasters, and high domestic food prices.
FAO Food Price Index fell for the third consecutive month Release date: 06/10/2011
» The FAO Food Price Index (FFPI) averaged 225 points in September 2011, down 2 percent, or 4.5 points, from August. The FFPI is only 13 points below the peak of 238 reached in February 2011, though still higher than its September 2010 value of 195 points. The recent decline reflected decreases in international prices of most commodities included in the Index, with prices of sugar , grains and oils falling most.
» The FAO Cereal Price Index averaged 245 points in September, down 3 percent, or 7.3 points, from August, 11 percent below its peak in April 2008 though 18 percent higher than in September 2010. Except in August , the Index has followed a downward trend since April, largely on expectation of a strong rebound in world cereal production. While a tight maize supply prospect and policy changes in rice provided support, the index fell in September reflecting generally improved supply prospects, expectations of slowing demand and the strengthening US Dollar.
» The FAO Oils/Fats Price Index averaged 238 points in September, down 2.3 percent, or nearly 6 points, from August. The index has been falling since March although it still remains high in historical terms. The recent declines of the index reflect good production and comfortable stock levels of palm oil in South East Asia, combined with growing export supplies of sunflower oil following exceptionally good harvests in the Black Sea region.
» The FAO Dairy Price Index averaged 218 points in September, slightly down from 221 points in August but still 10 percent higher than in September 2010. Among the various products, butter prices suffered the sharpest drop, losing 3 percent, followed by casein and cheese which retreated by about 1 percent each. Prices of whole milk powder were virtually unchanged. The prices of all dairy products remain, on average, 10 percent higher than the corresponding period last year.
» The FAO Meat Price Index averaged 175 points in September, marginally down from the previous month, mostly on account of a 3 percent drop in pig meat prices. Poultry prices also fell, but marginally, while prices of bovine and ovine meat trended slightly upwards, amid tight supplies. Despite their recent weakness, all meat prices remain above the levels prevailing in 2010, with the index up 14 percent from September 2010, mostly a reflection of rising costs and low inventories.
» The FAO Sugar Price Index averaged 379 points in September, down 3.8 percent from August, and 5 percent from the peak it reached in July 2011, reflecting positive production prospects in Europe, India, and Thailand. In addition, better than expected sugar output in Brazil, the world's largest sugar producer, contributed to the easing in prices in recent weeks.
Go to Global Food Price Monitor, for details on domestic food price developments.
Shayne Heffernan oversees the management of funds for institutions and high net worth individuals.
Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services. www.livetradingnews.com