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A labourer smokes while taking a break from spreading maize crop to dry at a wholesale grain market in the northern Indian city of Chandigarh September 29, 2011. (AMIT DAVE/REUTERS)
A labourer smokes while taking a break from spreading maize crop to dry at a wholesale grain market in the northern Indian city of Chandigarh September 29, 2011. (AMIT DAVE/REUTERS)

Food prices on downward trend: FAO Add to ...

World food prices are likely to fall again after sliding in September under pressure from increased grain supplies and lower demand, the UN said on Thursday, easing inflation concerns ahead of an expected European Central Bank interest rate decision.

But global economic uncertainty and still tight cereal reserves would add volatility to prices, Abdolreza Abbassian, senior economist and grain analyst at the United Nations’ Food and Agriculture Organization (FAO), told Reuters Insider TV.

“It is likely that the prices will remain under a downward pressure for some time,” Mr. Abbassian said in an interview after the FAO said its global food price index fell 2 per cent in September from August as cereal crops outlook improved.

“I think volatility will remain with us, unfortunately ... We are in for a very bumpy period ahead,” Abbassian added.

World food prices came into the limelight after they hit record highs in February and were a factor in the Arab Spring wave of unrest in north Africa and the Middle East.

The FAO Food Price Index, which measures monthly price changes for a food basket of cereals, oilseeds, dairy, meat and sugar, averaged 225 points in September, 4.5 points down from August due to falls in grain, sugar and edible oils prices.

The September Index was 13 points below the 238 points peak hit in February, when it triggered fears of a repetition of the 2008 food crisis which sparked riots in some poor countries.

Global food prices have fallen back in the last few months, and a drop in September mirrored the situation on the main commodities markets, Mr. Abbassian said.

Investor concerns about a global economic slowdown which may undercut demand helped fuel a sell-off on international grain markets in September.

Benchmark U.S. corn futures plunged 23 per cent in September -- the biggest monthly drop in more than 15 years -- also hit by larger-than-expected supplies announced by the U.S. government.

In its Crop Prospects and Food Situation, the FAO has raised its 2011 cereal output estimate to 2.31 billion tonnes, 3 million tonnes above its previous view, driven by a 4.6 percent annual rise in global wheat production to 685.2 million tonnes on the back of better crops in Europe and Asia.

Cereals output in Russia, which was hit by a severe drought last year, is expected to jump 46 per cent to 87.6 million tonnes in 2011, the FAO said. Russia’s Prime Minister Vladimir Putin said on Wednesday the country would harvest 95 million tonnes of grain this year.

Looking ahead, FAO said wheat planting conditions were generally favourable in the northern hemisphere, apart from the United States, and given attractive prices, farmers are expected to keep similar planted areas or increase them.

Global rice output is expected to increase 3 per cent this year and world production of coarse grains such as maize and barley is seen rising 2.1 per cent, the FAO said.

But it also said world cereal markets were likely to remain fairly tight in 2011 and 2012.

“Despite the expected production gains, ... 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,” the Rome-based agency said.

Worsening economic conditions could lead to higher unemployment and lower incomes for the vulnerable and needy in the developing countries, it added.

Mr. Abbassian said there have been signs of grain demand rationing recently, but a greater increase in supplies was needed to rebuild stocks considerably and boost food security.

Global cereal stocks by the close of season in 2012 are forecast at 494 million tonnes, 7 million tonnes up from their opening level, the FAO said.

The increase would be driven mostly by a 10 million tonne build-up of world rice inventories, while wheat stocks are expected to grow only marginally and coarse grains stocks are seen falling by 4 million tonnes to 161 million tonnes, the lowest level since 2007.

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