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article imageUN warns world food prices may increase by up to 20 percent

By Lynn Herrmann     Nov 18, 2010 in Food
The Food and Agriculture Organization (FAO) of the United Nations warned on Wednesday that world food prices could rise by as much as 20 percent during the next year because of low harvests and anticipated reserve rundowns.
According to the FAO, international food import bills may exceed the one trillion dollar mark in 2010. Most commodity food prices have risen sharply over 2009 prices, with wheat and white maize prices having risen by up to 40 percent in recent months.
In its latest edition of Food Outlook, the agency said:
“With the pressure on world prices of most commodities not abating, the international community must remain vigilant against further supply shocks in 2011 and be prepared.”
The report notes recent weather events as being the cause for unseen production shortfalls, in turn casting a negative influence on the world’s cereal supply.

“Rarely have markets exhibited this level of uncertainty and sudden turns in such a brief period of time.”
Dissatisfying yields in Canada, the EU and the US, along with production cuts in primary grain producing countries in the Commonwealth of Independent States (CIS) has resulted in a downward revision in the world’s cereal supply.
Although the world’s cereal production for 2010 was the third largest crop on record, it is two percent below the 2009 level.
While attention has begun focusing on plantings for the 2011-12 marketing season, the report notes that setting the tone for international market stability is dependent on the success of next year’s crops.

“Against this background, the size of next year’s harvest becomes increasingly critical. For stocks to be replenished and prices to return to more normal levels, large production expansions are needed in 2011, especially for wheat and major coarse grains.”
Global production in 2010 for wheat is predicted to decline by at least five percent over 2009 production levels. Noting Russia’s ban on wheat exports in Russia, the report notes world wheat closing inventories are forecast to fall ten percent below the 2010 level.
A continued decline in the US dollar, tighter wheat supplies and increased maize prices have resulted in the recent surge in wheat prices. The increased maize prices were due in part to less than anticipated US yields, thanks to unfavorable weather conditions.
“Considering that prices of coarse grains at this time of the year, corresponding with the main harvest period in northern hemisphere, should normally be at their seasonal lows, there is a strong likelihood that prices may rise even further from these already high levels.”
Rice production suffered serious weather-related setbacks in 2010, led by the flood damage to crops in Asia, especially Pakistan. However, rice production for the season is expected to reach record levels, with no foreseen drawdown of reserves. Bangladesh and Indonesia became active rice buyers during the second part of 20210, with that demand raising the 2010 trade forecast by five percent above 2009. Most of that demand will be met by increased exports from the US and Viet Nam.
World sugar production is expected to increase in the 2010-11 season by 7.7 percent over the 2009-10 season, thanks in part to strong international prices during the past year.
Global sugar production is expected to surpass consumption for the first time since the 20078-08 season. However, a five percent decline in world trade is expected to keep sugar prices high and volatile during the first part of 2011.
Due to high feed costs, weak consumer demand and reduced animal inventories, world meat production - including pig, bovine and poultry - is expected to increase by a meager one percent during 2010.
Imposing stiff sanitary restrictions by major importers of of poultry, the world’s most widely traded meat, is likely to restrict expansion of world exports of the product.
The FAO’s Meat Price Index shows 2010 world meat prices between January and October were 14 percent higher than during the same period in 2009, and were comparable to the high prices seen in 2008.
Strong economic growth in Asia and strong import demand in the Russian Federation, along with increased consumption in developing countries has caused dairy products to reach historically high levels in 2010.
The FAO’s forecast for 2010 world dairy production is expected to be 1.7 percent above 2009 levels.
In September 2010, fish product prices were only one percent below the record prices of September 2008. The drastic fall in prices at the end of 2008 resulted in aquaculture producers reducing stocking levels, a move that affected future production.
Increased demand for fish in Asia and South America has since rebounded, resulting in increased prices for shrimp, salmon, tilapia and catfish. Price outlook for the remainder of 2010 and early 2011 is expected to remain stable.
Overall, next year’s harvests are critical.
“International prices could rise even more if production next year does not increase significantly - especially in maize, soybean and wheat. Even the price of rice, the supply of which is more adequate than other cereals, may be affected if prices of other major food crops continue climbing.”
However, current weather conditions continue providing a negative outlook for next year’s harvests, with both Russia and the US expecting less-than-favorable production.
The report’s overall message is negative, noting:
“Against this backdrop, consumers may have little choice but to pay higher prices for their food.”
More about World food prices, United Nations, Food agricultural organization
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