High and volatile food prices in the months to come
An uncertain economic environment prevails
8 June 2006, Rome - Recent months have seen commodity markets as a whole becoming more volatile with a steady upward trend in prices, according to the June edition of FAO’s Food Outlook report.
“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,” the report said.
“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,” according to the report.
Food import bill growing, especially for poorest countries
FAO is forecasting an increase of over 2 percent 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 percent, while that of low-income food-deficit countries is forecast to jump by nearly 7 percent.
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.
International prices 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 season’s 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 percent.
World sugar prices reached their highest level in 25 years in February 2006, when raw sugar prices exceeded US¢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 percent to 149.7 million tonnes, with consumption rising by 2 percent 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.
Meat and meat products
After a brief recovery in 2005, global meat markets have again been unsettled by animal disease concerns in 2006. Consumer responses to the increasing incidence of avian influenza, together with disease-related bans on North American beef and South American red meat exports, are largely shaping meat markets in 2006.
Expectations of the lowest meat consumption gains in 25 years, uncertain price prospects and escalating trade restrictions in 2006 are expected to limit global meat output to 272 million tonnes. Meanwhile, trade is expected to reach 20.5 million tonnes, up only marginally, in response to sluggish global poultry import demand from major markets and the imposition of animal disease-related trade bans.
The June issue of Food Outlook introduces a new format. The new Food Outlook will be published twice a year and will focus on developments affecting global markets for food and feed commodities.
Information Officer, FAO
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