World food prices stable, low stocks pose risk of spikes: U.N.

ROME Thu Feb 7, 2013 6:25pm IST

ROME (Reuters) - World food prices stabilized in January after falling in the previous three months, the United Nations food agency said on Thursday, but it warned that adverse crop weather could cause violent price spikes due to tight grains stocks.

Global food prices surged in mid-2012 following the worst U.S. drought in more than half a century and dry weather in other key grains exporters, raising fears of a food crisis similar to the one in 2008.

But prices eased in the last three months of 2012 due to expectations that large South American production will replenish tight global cereals supplies.

On Thursday Brazil said it would produce a record 83.4 million metric tons (91.93 million tons) of soybeans this season due to unprecedented expansion in area planted after a disappointing harvest last year, and also forecast a record corn crop.

The Food and Agriculture Organisation (FAO) said its food price index, which measures monthly price changes for a basket of cereals, oilseeds, dairy, meat and sugar, averaged 210 points in January, unchanged from December.

The Rome-based agency raised its view of world cereal output in 2012 to 2.302 billion metric tons, up 20 million metric tons from its previous forecast, but still 2 percent lower than the bumper crop in 2011.

Its outlook for world cereal stocks by end of season in 2013 remained unchanged at 495 million metric tons, down 3 percent from their opening level.

"We should be expecting excellent crops in 2013," said FAO senior economist Abdolreza Abbassian. "But the weather could turn negative, and because we are in a tight situation, prices could react violently and rise," he said.

FAO expects wheat output to increase in 2013, due to a 4-5 percent increase in the winter wheat area in the EU and good weather. However the outlook is less favorable in the U.S. due to dry conditions in some areas.

It said that prospects were also good for the maize crop in South America's main producing countries.

RISING DEMAND

An increase in production is crucial for markets, Abbassian said, because demand is also likely to rise as economies start to recover in 2013.

FAO raised its estimate for world cereal use in 2012/13 by 0.6 percent to 2.326 billion metric tons, up nearly 13 million metric tons from the 2011/12 season.

A weaker dollar is boosting demand for dollar-denominated commodities, Abbassian said, and rising oil prices will underpin food prices in coming months, he said. Higher energy prices increase transport costs which farmers pass on to consumers.

"There could eventually be some support from the energy prices and economic growth could lead to higher animal feed use," he said.

In January, FAO said a rise in oils and fats prices was offset by falling cereals and sugar prices. Dairy and meat prices were roughly stable.

A separate report by G20 food market body, the Agricultural Market Information System (AMIS), noted on Thursday that maize prices had started to pick up in mid-January on expectations of higher feed use and concerns about weather in South America.

The FAO's index is below a peak of 238 points hit in February 2011, when high food prices helped drive the Arab Spring uprisings in the Middle East and North Africa.

In the summer of 2012 it began surging to levels close to those seen in 2008, when riots, some deadly, broke out in several poor countries.

(Editing by Keiron Henderson)

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