Global food prices remained stubbornly high in August, buoyed by a worrying outlook of low grain supplies and stocks, the UN food agency warned on Thursday, giving little respite to policy makers facing higher inflation but faltering economic growth.
The FAO food index dipped to 231.1 points in August, down less than a point from July, but it still hovered only 3 percent below a all-time peak hit in February, data from the UN Food and Agriculture Organisation (FAO) showed on Thursday. "What it (the index) really tells us is that prices are remaining high," FAO''s senior economist and grain analyst Abdolreza Abbassian told Reuters Insider TV in an interview.
"The slight variations of the past two months are really marginal for us to be able to make any assessment about any decline that in any way would help countries combat food inflation," Abbassian said. Surging demand for food, especially from emerging countries, and some bad harvests have helped boost the food index by 44 percent over the past two years.
The European Central Bank kept euro zone interest rates unchanged on Thursday due to worries about growth even though inflation remained at 2.5 percent in August, well above its target of 2 percent. High food prices have helped fuel unrest in poor nations and were an element sparking uprisings in North African and the Middle East earlier this year.
CEREAL OUTPUT FORECAST CUT The FAO cut its 2011 cereal output estimate to 2.307 billion tonnes, down 6 million tonnes from its previous estimate, largely due to a downward revision of US corn crop prospects, but it will still be 3 percent higher than output in 2011.
"Things are going back to fundamentals. Fundamentals are tight and prices therefore are remaining high," Abbassian said. Benchmark US grain futures rose sharply in August on the back of concerns about summer heat cutting yields of corn and soybeans, with corn futures jumping 14 percent for the month. Abbassian said the corn supply situation was a cause for concern and the US corn situation "is not going to recover at least for another year", according to early harvest indications.
The 3-percent increase in cereal output in 2011 is not sufficient to stop the drawing down of inventories, and global cereal stocks by the close of seasons in 2012 are forecast to remain close to their already low opening levels, the FAO said.
Abbassian said a tight supply situation may prompt demand rationing in the short term and, in particular, may reduce demand for meat and dairy products if their prices continued to rise on the back of increasing grain prices. The FAO Food Price Index of 55 commodities fell to 231.1 points in August, down from 231.9 points in July and 233.2 points in June, as weaker oils and dairy prices offset more expensive grains.
The index - which measures monthly price changes for a food basket of cereals, oilseeds, dairy, meat and sugar - was still 26 percent higher than a year ago. The index touched an all-time peak of 238 points in February. The FAO Cereal Price Index averaged 253 points in August, up 2.2 percent from July and 36 percent higher than in August 2010, powered by a rise in international rice and maize prices.
The FAO Oils Price Index averaged 243.6 points in August, following a declining trend since March and driven down mostly by the recent increase in the global output and export supplies of palm and sunflower oil. The FAO Dairy Price Index averaged 220.6 points in August, down from 227.8 points in July but still 14 percent higher than the same period last year, driven down by a fall in milk prices.
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