Bloomberg News

Food Prices Stay Near Record as Wheat Output to Trail Demand

June 07, 2011

(Updates with wheat output forecast in second paragraph.)

June 7 (Bloomberg) -- Global wheat production will lag behind demand, helping to keep food prices high and volatile at least through next year, the United Nations’ Food and Agriculture Organization said.

Wheat output will rise 3.2 percent to 673.6 million metric tons in the season starting in July, trailing demand of 677 million tons, the FAO said in a report on its website today. Food prices stayed near record levels in May on higher meat and dairy costs. Food imports will rise 21 percent to a record $1.29 trillion this year, the FAO said separately.

The FAO’s Food Price Index of 55 food commodities fell 1 percent to 232.4 points from 234.8 points in April, the FAO said. The gauge was at an all-time high of 237.7 in February.

“The high-price situation is not something that’s just going to vanish over one season,” Abdolreza Abbassian, a senior economist at the Rome-based FAO, said in an interview before the index was released. “The fundamentals are still what they are, a very tight situation for almost all commodities.”

The FAO’s wheat price index averaged 242 over the first five months of this year, 72 percent higher than the same period last year, it said. Production will lag behind demand after weather-related losses in North America and Europe curbed crop prospects from the March forecast, the FAO said. Wheat stockpiles will end the year below the 2010 level and drop further by the end of the 2012 seasons to 183 million tons, the FAO added.

More Than Double

Prices for staple foods including corn will more than double in two decades unless action is taken, Oxfam International said last week. World grain stocks will fall for a second year by the end of June 2012, the International Grains Council said May 26.

Output of coarse grains such as corn and barley will rise 3.9 percent to 1.165 million tons, about equal with demand. The FAO’s corn index rose 82 percent this year through May.

The organization’s meat index climbed to an all-time high in May, led by record beef and sheep prices and higher poultry and pigmeat costs.

Agricultural-commodity price swings will persist in coming years because of a mismatch between supply and demand, with food prices expected to remain “high and volatile,” Hafez Ghanem, assistant director-general at the FAO, said last month.

The “dangerous levels” of food prices had pushed about 44 million people into poverty since June 2010, World Bank President Robert Zoellick said in February. Another 10 million may join them should the UN food index rise another 10 percent, the World Bank said April 16. The number of hungry people in the world declined last year to 925 million from more than 1 billion in 2009, according to the FAO.

Still Vulnerable

As prices stay high, “even countries that haven’t experienced high inflation on the food side remain vulnerable,” Abbassian said. “In general terms, the threat of higher inflation might have subsided, but many countries still have to catch up.”

The European Central Bank raised interest rates on April 7, joining nations from China to Sweden that increased borrowing costs this year in a bid to control inflation partly blamed on food costs. Egypt, where rising food prices helped spark protests that led to February’s ouster of President Hosni Mubarak, yesterday forecast “elevated” inflation.

Milk futures rose 0.8 percent in Chicago in May. Corn more than doubled in the past 12 months in Chicago on speculation that more planting in the U.S., the world’s largest grower, will fail to rebuild global stocks. Wheat surged 72 percent as flooding ruined crops in Canada and Australia and drought reduced harvests in Russia and Europe, and soybeans gained 49 percent.

--Editor: John Deane

To contact the reporter on this story: Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net


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