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For 2011 February, another new peak for world food prices, FAO index rises higher

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The UN Food and Agriculture Organization (FAO) has said that 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 it 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% 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.

Food Price Index – The FAO Food Price Index averaged 236 points in February, up 2.2% 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% in February (254 points), the highest level since July 2008.

The FAO Dairy Price Index averaged 230 points in February, up 4% 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% from January. By contrast, the FAO Sugar Price Index averaged 418 points in February, slightly below the previous month but still 16% higher than February 2010.

Cereal supply and demand – FAO expects winter crops in the northern hemisphere to be generally favourable and forecasts global wheat production to increase by around 3% 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 utilisation in 2010-11 has been revised up by 18 million tonnes since December. The bulk of the revision reflects adjustments to the feed and industrial utilization of coarse grains. Larger use of maize for ethanol production in the USA and statistical adjustments to China’s historical (since 2006-07) supply and demand balance for maize are the main reasons for the revision.

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Wheat sends food prices up, US agriculture exports to be $107.5 bn

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Surging wheat prices drove international food prices up 5% last month in the biggest month-on-month increase since November 2009, the Food and Agriculture Organization (FAO) has announced. The FAO Food Price Index (FFPI) averaged 176 points in August, up nearly nine points from July, FAO said in its latest update on the global cereals supply and demand situation. The 5% increase brought the Index up to its highest level since September 2008, but still 38% down from its peak in June 2008.

FAO Food Price Index

FAO Food Price Index, 2010 September

The FFPI surge mainly reflected the sudden sharp rise in international wheat prices following drought in the Russian Federation and the country’s subsequent restrictions on wheat sales. But other drivers included higher sugar and oilseed prices. FAO’s update said that the forecast for world cereal production in 2010 has been lowered by 41 million tonnes to 2,238 million tonnes from 2,279 million tonnes reported in June.

However, even at this lower level, world cereal output in 2010 would be the third highest on record and above the five-year average. Among the major cereals, wheat accounted for most of the cut, reflecting mainly smaller crops in the leading producers in the CIS due to adverse weather. Under the present forecast world cereal utilization would slightly exceed production in 2010-11. This would trigger a 2% contraction in world ending stocks from their 8-year-high opening levels and to a small decline in world cereal stocks-to-use ratio. At 23%, however, the ratio would still remain well above the 19.5% low witnessed in the 2007-08 food crisis period.

A further cut in the forecast for 2010 world wheat production since FAO’s last update on 4 August puts this year’s wheat crop at 646 million tonnes, down 5% from 2009 but still the third highest ever. The latest revision reflects a further cut in the estimate of this year’s harvest in the Russian Federation to 43 million tonnes (from 48 million tonnes in August) more than offsetting higher forecasts for crops in a number of other countries including the United States and China.

FAO Food Commodity Price Index, 2010 September

FAO Food Commodity Price Index, 2010 September

The forecast for world wheat ending stocks in 2011 was also lowered, to 181 million tonnes, down 9% from their 8-year high opening level. The stock-to-use ratio for wheat in 20010-11 was projected at 27%, down 3% from the previous season but still 5% higher than the 30-year low in 2007-08.

World production of coarse grains was forecast to reach 1 125 million tonnes, down 6 million tonnes from the previous forecast in June but up marginally from 2009 and the second highest on record. Maize production was heading towards an all-time high of 845 million tonnes, with expectation of record crops in China and in the United States. But world barley production was forecast to fall by 22% to a 30-year low of only 129 million tonnes in 2010, driven mostly by a sharp cut in production in the CIS and in the EU as a result of poor weather.

The forecast for global rice production in 2010 was also revised downward and now stands at 467 million tonnes, 5 million tonnes lower than the June 2010 forecast but still 3% more than in 2009 and a  historical record. Much of the revision was the consequence of Pakistan’s floods but it also stemmed from lower expectations in China, Egypt, India, Laos and the Philippines. The recent disturbances in  world cereal markets will be examined by delegates meeting at a special one-day session of FAO’s Intergovernmental Group on Grains and Intergovernmental Group on Rice convened for 24 September at FAO headquarters in Rome.

World Food Day 2010

16 October is World Food Day 2010

Industrial agriculture news sources such as Agweb are reporting the United States Department of Agriculture’s (USDA) agriculture products exports for financial year 2010, which have just been released. Increased exports of grain and feed at higher values along with increased livestock, poultry, and dairy product exports all helped to push up the forecast for US ag exports in fiscal year (FY) 2010. USDA has said the value of US ag exports for FY 2010 will be US$107.5 billion, up US$3 billion from their May forecast. And their first look at FY 2011 has the value of those shipments projected at US$113 billion, up US$5.5 billion from FY 2010 forecast.

On the import side, USDA now puts FY 2010 imports at a value of US$77 billion, up US$500 million from their May forecast. For FY 2011, USDA sees the value of US ag imports rising to US$81.5 billion. USDA now expects a slightly larger trade surplus for US agriculture for FY 2010 – US$30.5 billion, up US$2.5 billion from May, and for FY 2011 they expect the trade surplus will be US$31.5 billion. Analysts for USDA’s Economic Research Service (ERS) also included this caution:

“The three major threats to world growth in 2011 are the EU economy tanking due to their debt situation, the U.S. economy going into a recession, and a continuing widening of the Chinese trade surplus. A major near-term risk to the world recovery is a potential spillover of the crisis brought on by high government debt in Greece, Portugal, Spain, Italy, and Ireland.

“The consensus forecast for 2010 and 2011 is of continuing recovery in both the developed and developing economies, with a few regional rough patches. The case for moderate world growth for the rest of 2010 and solid growth for 2011 is based on low interest rates, increasing trade flows, and the willingness of central banks to keep financial assets on current balance sheets, encouraging easier private credit and strong growth in corporate profits. At this time, that scenario is much more likely than any or all of the downside scenarios.”