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Global cereal prices set to ease but high prices to continue in medium to long term

August 14, 2013

According to FAO, food commodity markets, in particular for cereals, are set to be more balanced in 2013/14. Indeed, according to FAO, with the world cereal harvest forecast to surge to a record 2,460 million tonnes in 2013, cereal prices could ease, with markets becoming calmer. While global cereals utilisation is forecast to reach 2,402 million tonnes in 2013/14, 3% more than in 2012/13, the 6.5% increase in production should see some replenishment of global cereals stocks. For the second consecutive season the use of coarse grain in feed is forecast to be greater in developing than in developed countries.

According to FAO, prospects for abundant domestic crops in the least developed countries (LDCs), low-income food-deficit countries (LIFDCs) and countries in sub-Saharan Africa are expected to limit their import needs.

However, maize prices in 2013 have been quite volatile, with the monthly average falling by 2% between December 2012 and February 2013, before increasing 2.3% in March, falling 9.3% in April and then rising 5.4% in May to a level 4.4% below December 2012 price levels. Soft wheat prices showed a more consistent decline, with average monthly prices falling by 14.5% between December 2012 and April 2013 before stabilising in May 2013, while average monthly hard wheat prices fell by 11.3% over the same period before recovering by 3.36% in May 2013.

Meanwhile, the FAO-OECD report Agricultural outlook 2013-2022 has warned that expansion of agricultural production is likely to slow in the medium term, with slower area and productivity growth. Wheat and coarse grains yields are estimated to increase by about 12% on average between the base year and 2022, with the area under coarse grains growing faster than the area under wheat. It is held that supply should keep pace with demand at prices that are expected to remain relatively high. In this context, rising prices for both crop and livestock products are projected over the coming decade. It is foreseen that relatively low stock-to-use ratios ratios currently well below historical averages will continue to generate concerns about the vulnerability of global cereal markets.

In terms of demand trends, the FAO-OECD report notes that the additional demand for biofuel feedstocks is driving the large expansion of coarse grains in developed countries, while in developing countries the main driver is the feed demand for livestock production. In this context, trends in China will play a major role, with increasing meat consumption resulting in increasing feed requirements and higher imports of coarse grains.