FAO slashes grain forecasts, world food prices stay high

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Global supply of key cereal staples including wheat is to tighten sharply in the 2012-2013 crop season as wheat and corn output feels the pinch of the worst U.S. drought in more than half a century, data from the United Nations food agency showed.

Separate figures indicated a slight easing of pressure on overall food prices on Thursday, but the Food and Agriculture Organisation's (FAO) global index stayed close to levels seen in the 2008 crisis when food riots broke out in some countries.

The FAO's November Food Outlook report pointed to continuing pressure on grains output in the current season following this year's droughts in key producer regions from the Black Sea to the U.S. cornbelt.

Wheat production, which has also suffered heavily in the droughts in eastern Europe and central Asia, was seen falling 5.5 percent to 661 million tonnes, the agency said.

World cereals production is expected to fall 2.7 percent to 2.284 billion tonnes in the 2012/13 season, it said, trimming slightly its previous output forecast of 2.286 billion tonnes.

"This season's world cereal supply and demand balance is proving much tighter than in 2011/12 with global production falling short of the projected demand and cereal stocks declining sharply," the FAO said.

The Black Sea drought is set to cut wheat output in Russia and Ukraine by some 30 percent, while Kazakhstan will see its crop down by more than half.

Wheat production is set to rise in the United States but U.S. maize output was decimated by a drought which caught farmers by surprise and slashed the corn crop.

On wheat, FAO noted that levels were close to the average of the past five years and it said plantings in major producing regions next year would match or even increase over levels seen in 2012, pointing to a rise in production next season.

However senior FAO economist Abdolreza Abbassian said the forecast was still very tentative and it would require a strong rise in production next year to ease pressure on prices.

"Anything short of a significant increase would mean a further need to draw down stocks, which means getting to critically low levels and therefore higher prices," he said.

"We need very strong production for wheat, corn and soybeans, certainly these three important crops," he said.

INDEX EASES

FAO's monthly reading of world food prices showed some easing in October, largely because of a dip in cereals and oils prices in the month but the wider outlook remains volatile and uncertain, Abbassian said.

"It's a very mixed picture," he said. "The uncertainty we are dealing with is not just limited to supply, it's also to do with demand," he said.

The Rome-based agency said its monthly Food Price Index, fell to 213.5 points from 215.5 points the previous month, but stayed near 2008 levels.

It said reduced wheat trade activity and slowing demand for maize by livestock and industrial consumers during the month had cut grains prices, while higher palm oil output in Southeast Asia and weak import demand had reduced edible oil prices.

The FAO lifted its estimate of rice production but cut its forecast for coarse grains output and slightly lowered its estimate of global grains stocks at the end of the 2012/13 season to 497.4 million tonnes.

It said global cereal utilization in 2012/13 would decline slightly from the previous season but would still exceed production.

Declines in animal feed use and industrial maize for ethanol production in the United States would cut utilization of wheat and coarse grains but would be balanced by a 1.5 percent increase in rice consumption. (Reporting By James Mackenzie; editing by Veronica Brown and Keiron Henderson)


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