Cereal prices forecast to rise as demand soars

By Ahmed ElAmin

- Last updated on GMT

Related tags Cent Wheat Fao

A UN report warning of sharp declines in world cereal stocks, could
foreshadow a potential supply problem - and increased costs - for
food processors.

A Food and Agriculture Organisation (FAO) forecast report this week said the sharp declines are due to a slight decrease in global cereal output and a significant growth in demand.

International prices of most cereals remained firm or rose further in recent months, supported by strong demand and tighter supply prospects, the FAO said in its latest Crop Prospects and Food Situation​ report.

"Increased demand is expected to be driven by a recovery in feed use due to a rebound in poultry consumption,"​ the FAO stated. "In addition, the growing demand for ethanol is likely to boost industrial use of coarse grains, particularly maize"

World cereal output for 2006 is forecast at 2,020 million tonnes, down about one per cent from 2005 levels. However this would still be the third highest on record and above the five-year average, the report said.

Many countries are experiencing severe food difficulties and require external assistance, however, despite what the report called a "generally satisfactory global food outlook".

In Asia, bumper wheat crops were gathered in many countries, the FAO reported.

"Early prospects for the main coarse grain and rice crops are generally favourable, following the timely arrival of the monsoon in the main producing areas,"​ the report stated.

In North America, a smaller wheat crop is being harvested in the US because of reduced plantings and drought. In Europe, prospects are mixed with several larger crops expected in the EU but reductions in the Balkans and CIS countries.

According to a European Commission report published this month, this year's total EU cereal harvest remains in line with the last five years, though droughts continue to put pressure on prices.

Drought is keeping crop yields at low levels in Spain, Portugal, France, Italy and Greece. But overall, detailed scientific analysis by the European Commission's advanced crop yield forecasting system suggests that cereal production, for the moment, remains stable.

This will continue the steady upward trend in prices. Indeed, wheat prices are likely to remain generally high and volatile in the new season, the FAO said.

xIf the drought continues, the affected area could get bigger and crop yield impact worsen. Any resulting impact on irrigation would affect grain maize in addition to sugar beet and potatoes.

Comparing with the 2001-2005 averages, for soft wheat, winter barley and maize the Commission forecasts a potential yield increase respectively of 4.3 per cent, 2.3 per cent and 3.0 per cent.

For durum wheat the forecast is for a potential yield decrease of -2.3 per cent. For spring barley a potential decrease of -4.4 per cent is forecast.

The geographic area affected by the current drought is less extended than that of the extreme droughts in 2005 and in 2003. For instance, the area affected by the drought impact on wheat production makes up 14 per cent of the total EU area in 2006, compared with 17 per cent in 2005 and 23 per cent in 2003.

However, some of the affected regions such as southern France, Catalonia in Spain, Sardinia, and central and north-western regions in Italy, show a worsening situation in terms of the water reserves accumulated since spring.

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