UN pegs grain prices at 10-year low - and cautious on revival prospects

06.10.2016

The United Nations, citing "ample" cereals supplies, stoked doubts over prospects for a revival in grain prices - which it revealed had fallen to their lowest in 10 years.

The UN food agency, the Food and Agriculture Organization, said that "international wheat prices are likely to remain stable and relatively low during the 2016-17 season".

For coarse grains, a group which includes barley, corn and sorghum, it said that "with large export availabilities and weak export demand prospects, international prices could remain subdued".

The comments came even as it unveiled a drop in its cereals price index, a sub-set of its much-followed food price index, of 1.9% last month to its lowest since October 2006.

'Improved crop prospects'

The FAO said that "ample global supplies, especially export availabilities" of grains were behind the latest drop in cereals prices, which are now down 47% from their peak reached in 2008 when supplies of wheat in particular were far tighter.

Indeed, the agency said that for wheat the global stocks-to-use ratio - a key measure of commodity availability, and thus of pricing potential – was poised to reach 31.7% in 2016-17, "well above the historic minimum of 22.7% registered in 2007-08".

The inventory estimate reflected a, further, upgrade of 1.6m tonnes to a record 742.8m tonnes in the organisation's forecast for world wheat output this season, thanks largely to "improved crop prospects in Argentina and Australia", where harvest has just begun.

Wheat consumption will this season actually rise faster than production - by nearly 15m tonnes, driven by a 6.2% surge in use for livestock feed, "reflecting the ample availabilities of low quality wheat at competitive prices".

However, the increase will still leave use nearly 12m tonnes short of output, allowing growth in stocks to a 15-year high of 234.2m tonnes.

Inventory breakdown

For coarse grains, the FAO actually downgraded its estimate for world stocks at the close of 2016-17 by 8.3m tonnes to 256.1m tonnes, reflecting raised expectations for consumption.

"The most significant expansion concerns corn, which could see much greater volumes fed to animals in the US and China, supported by larger domestic supplies and more competitive prices than in the previous season," the agency said.

"Relatively low prices are also likely to stimulate industrial uses, in particular of corn for the production of starch and biofuels."

World coarse grain inventories were now seen falling by 2.9m tonnes year on year to 256.1m tonnes, although the FAO stressed that this reduction was being led by efforts by China's to drawdown the country's huge state inventories.

Coarse grains stocks in major exporting countries – whose supplies, being freely available to the world market, are more important for price prospects – would see a "build-up" to the equivalent of 13.0% of demand, from 11.4% last season.

Surge in sugar, dairy prices

The FAO said that food prices overall rose last month, by 2.9% to a 19-month high, with the drop in cereals prices more than offset by surges in sugar and dairy values.

Sugar prices soared 6.7%, a fifth consecutive month-on-month increase, "on the back of unfavourable weather conditions in the Centre South main producing region in Brazil, the world's largest sugar producer and exporter," the agency said.

"Reports of lower production in India, the world's second largest sugar producer, and tight supplies in Thailand and China, also added to the upward pressure on prices."

Meanwhile, dairy prices jumped 13.8%, the biggest monthly increase in seven years, reflecting rises in values of "all dairy products, in particular butter, which was bolstered by reduced stocks and strong internal demand in the European Union.

"The current price surge stems from expectations that falling milk production in the EU and a muted opening to the dairy year in Oceania would result in tighter availabilities for export, following excess supplies in the preceding two years," the FAO said.

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