Price rises as cereal demand outstrips supply

By Anthony Fletcher

- Last updated on GMT

Related tags: Cereal

World cereal demand is forecast to surpass supply in the coming
2006/07 marketing year, pushing down stocks to an uncomfortably low
level, according to the FAO.

This will also continue the steady upward trend in prices.

"Amid political uncertainties and surging energy prices, agricultural markets over the past year have also had to confront abnormal incidences of natural disasters, ranging from devastating hurricanes to fast spreading animal diseases,"​ said the June issue of FAOs Food Outlook report.

"Based on current indications, several agricultural commodities are likely to experience still more unstable months ahead and, in most instances, the fundamentals point to even further gains in prices."

FAO is forecasting an increase of over 2 per cent in the world food import bill in 2006 compared to 2005. The increase is expected to be strongest for cereals and sugar and smallest for meat.

Given their higher share as importers of food and feed, the developing countries bill is forecast to grow by 3.5 per cent, while that of low-income food-deficit countries is forecast to jump by nearly 7 per cent.

Wheat

According to the report, a 10 million tonne decrease in world wheat production is forecast this year, with a strong demand outlook set to drive up world trade in 2006/07 to 110 million tonnes. The world balance sheet for 2006/07 is expected to show a sharp drop in ending stocks as well as a decline in the stocks-to-use ratio to 25 percent, the lowest in over three decades.

Against this background and even barring any major or unexpected weather problems in the coming months, wheat prices are likely to remain generally high and volatile in the new season, FAO said.

Course grains

International prices for course grains have started to strengthen in recent months, supported by a robust demand from the ethanol sector, a potential recovery in feed use and tighter export supplies.

World coarse grain production in 2006 is forecast to decline by 13 million tonnes, but trade is tentatively forecast to remain unchanged in 2006/07, at around 105 million tonnes. On current production indications, the new seasons supply and demand balance will be tight, with a sharp anticipated fall in world stocks and a near-record low stocks-to-use ratio of around 15 per cent.

Sugar

World sugar prices reached their highest level in 25 years in February 2006, when raw sugar prices exceeded $0.19 per pound. The major factors underpinning these price levels were unprecedented rises in crude oil prices, as well as the continued supply deficit in the world sugar market for the third consecutive year.

In 2005/06, world sugar production is set to grow by 3 per cent to 149.7 million tonnes, with consumption rising by 2 per cent to 149.9 million tonnes. Developing countries are expected to account for most of the increases, particularly those with strong economic performances, such as China and India.

Consumption in developed countries is expected to remain stagnant, due to low population growth and dietary concerns. For the remainder of 2005/06, world sugar prices are expected to remain firm at current levels, the report said.

Related topics: Ingredients

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