Global grain reserves tighten even as food prices fall

Global food markets face further volatility in 2013 as stocks and supply of key cereals have tightened, the United Nations food agency said on Thursday, even as world food prices fell for a second month in November to their lowest since June. The Food and Agriculture Organisation's (FAO) index measuring prices of foods from grains and oilseeds to meat and dairy averaged 211 points in November, down 3 points from October as sugar, oils and cereals prices declined.
However, the Rome-based agency trimmed its forecast for global cereal production in 2012, estimating a 2.8 percent decline from the previous year to 2.282 billion tonnes. It also slightly cut its forecast for world cereals stocks at the close of crop seasons ending in 2013, expecting them to stand at around 495 million tonnes, down 5 percent from their opening level. World food prices rose over the summer, reaching levels close to those seen during the 2008 food crisis, following the worst drought in more than half a century in the United States and dry weather in the food basket regions of the Black Sea.
But prices then levelled off and have eased in the past two months on demand rationing and supplies from other regions compensating for drought-hit areas, FAO senior economist Abdolreza Abbassian said. He said the outlook for 2013 was uncertain due to a large drawdown in stocks, and that much would depend on the weather situation ensuring better crop production levels next year.
"The lower the stocks, that means any unexpected development creates more variability in the prices than would otherwise," Abbassian told Reuters by phone. "This is what we have been witnessing over the last few years. I don't think 2013/2014 will be that much different until we build up stocks to levels that the trade community feels are comfortable."
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. This year it reached levels close to those seen in 2008 when riots broke out in several poor countries. In a separate report on Thursday FAO called for increased investment in agriculture to reduce hunger in a world struggling with volatile food prices. It estimates that about 870 million people suffer from chronic undernourishment.