MercoPress. South Atlantic News Agency

FAO anticipates ‘tight’ cereal markets in 2011/12 and lower prices

The monthly food price index fell 2% in September mostly on lower prices for grains sugar and oils

Despite improved production prospects, world cereal markets are likely to remain fairly tight in 2011/2012, FAO announced this week. Prices on the other hand will tend to decline as a result of softer demand because of worsening economic conditions.

FAO quarterly Crop Prospects and Food Situation (CPFS) report forecast world cereal production will total 2 310 million tons this marketing season, 3%t or 68 million tons higher than in 2010/11.

This was 3 million tons 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% (30 million tons) rise in global wheat production, a 3% (14 million tons) rise in the rice harvest and a 2.1% (24 million tons) hike for coarse grains.

Total cereal utilization in 2011/12 is also forecast to increase slightly at 2 302 million tons, 1.3% 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 monthly Food Price Index fell 2% 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.

Global cereal stocks by the close of seasons in 2012 are forecast at 494 million tons, 7 million tons up from their opening level. The increase would principally stem from a 10 million ton 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 tons to 161 million tons, the lowest level since 2007. Overall, the stock-to-use ratio for cereals is expected to remain low at around 21%.

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 tons, representing a 5% 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.