MILAN World cereals output is expected to rise to a record in 2011 on increased planting after last year's market spike, but worries about stocks will keep prices high and volatile through 2012, the UN's food agency said.
Rising food prices fuelled protests earlier this year toppling rulers in Tunisia and Egypt, prompting unrest across North Africa and the Middle East, major grain importing regions, although prices have dipped from April to May.
Winter wheat futures in Chicago in May remain about 75 percent above the same period last year, the FAO said, after a surge in wheat prices in response to a drought in the Black Sea region which saw Russia ban exports and Ukraine curb them.
"Prices have come down slightly, but they are still very close to record levels," U.N. Food and Agriculture Organisation (FAO) senior economist and grain analyst Abdolreza Abbassian told Reuters Insider in an interview on Tuesday.
"The production situation, although good, is probably not sufficient to build up stocks. So we are going to see this high price situation continue (in 2011 and 2012)," Abbassian said.
World food prices fell in May compared with April, driven by declines in cereals and sugar prices, according to data released by the FAO.
The FAO Food Price Index, which measures price changes for a food basket of cereals, oilseeds, dairy, meat and sugar, fell to 232 points in May from 235 in April but was still 37 percent above May 2010.
Global cereals output is expected to rise 3.5 percent to 2.315 billion tonnes this year, recovering after a 1 percent fall in 2010, but stocks would be still tight, FAO said in its key Food Outlook report (www.fao.org).
Although prospects are encouraging in some countries such as Russian and Ukraine, weather conditions, featuring too little and in some cases too much rain, could hamper maize and wheat yields in Europe and North America, the report said.
BIGGER CROPS, LOW STOCKS
World wheat output is seen rising 3.2 percent to 674 million tonnes this year, but wheat stocks are seen down 2.6 percent at the end of 2011/12 season to 183 million tonnes, the FAO said.
World cereals stocks at the end of 2011/12 season are expected to edge 0.8 percent higher to 494 million tonnes, still well below 534 million tonnes at the end of 2009/10 season.
Russia's decision to lift its grain export ban from July could push prices down but, with an uncertain crop outlook in the United States and in major EU producers, international prices are likely to remain volatile, the FAO said.
Russian wheat exports could reach 13 million tonnes if total grain exports from the Black Sea powerhouse amount to 15 million tonnes as forecast, a deputy agriculture minister said on Tuesday.
"It will be a great bonus for the global supply situation once Russia starts to export, and once Ukraine starts to accelerate its sales," Abbassian said.
But pointing to a muted market reaction to Russia's move to lift the ban, he added: "It is helpful but it is not going to solve all our problems."
Early in May, major international grain markets were hit by the biggest commodities sell-off since 2008, but concerns about adverse weather damaging crops in the biggest producing countries have given some support to prices.
SURGING FOOD IMPORT BILL
Soaring international prices of grains and vegetable oils are likely to help raise global costs of imported foodstuffs by 21 percent this year to a record of $1.29 trillion, with the poorest countries in Africa, Asia and Latin America being hit hardest, the FAO said.
International charity Oxfam, which last week said food prices could double in the next 20 years as the world struggles to raise output, urged G20 farm ministers to start rebuilding the global food system when they meet at the end of June.
"They must regulate the commodity markets, reform flawed biofuels policies which encourage companies to divert food into fuel, and they must help poor countries scale up their food reserves," Luca Chinotti, Oxfam Policy Advisor, said in a statement.
(Editing by Keiron Henderson)