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Food Outlook: Global Market Analysis, June 2011

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Halfway into this turbulent year and with new marketing seasons for major food crops commencing soon, this is a critical time to evaluate current developments in global food markets and to draw the early outlook for 2011/12. In a remarkable turn of events, earlier prospects for more comfortable supply situations and stable prices gave way to increasingly worrisome outlooks and to an escalation of international prices to levels not seen in decades. In fact, the FAO food price index in May stood at a near historical high of 232 points, down only 6 points from the February record. While unfavourable weather was the main culprit, a host of other unpredictable factors negatively impacted stability in the food markets, including the catastrophe in Japan, an unprecedented wave of political unrests engulfing many countries in North Africa and the Near East, another strong increase in oil prices, prolonged uncertainty in financial markets and in the global economy.
In the cereal market, barley, maize and wheat are being, for the most part, influenced by production problems and depleting inventories. Maize stocks have fallen to a critical low in the United States, the world’s largest maize producer and exporter. Rice is an exception thanks to a record world output and large opening stocks. In addition, generally good cereal production in importing countries, as opposed to exporting countries, also dampened the impact of high international prices this time around as compared with 2007/08. In the oilseeds sector, prices have also risen sharply, supported by a tightening supply and demand balance. Quotations for dairy and meat have not been spared, as prices have been propelled (to record levels in the case of meat) by climbing costs of production, low animal inventories and virtually exhausted product stockpiles. On the back of dwindling export supplies, sugar markets experienced a sharp price surge too, before retreating in recent months. Against this backdrop, food import bills are projected to soar to an all-time high of almost USD 1.3 trillion.
Positive price prospects always boost plantings and this year is no exception. Higher expected returns, combined with good weather, have already resulted in larger outputs in the southern hemisphere, for grains as well as for soybeans. Winter plantings in northern hemisphere countries have also registered notable increases. However, in many instances, the prospect for an expansion in grain production this year does not rest on larger plantings alone but also on expectation of a return to regular climatic conditions. In the Russian Federation, more normal weather after last year’s devastating dryness is expected to improve supplies. Encouragingly, the country has announced the lifting of its export ban from July 2011. Weather permitting, excellent crops are also anticipated in Ukraine. However, difficult spring weather conditions prevail in many important producing regions, which eventually, may hamper yields. In Europe and North America, too much rain in some places (maize in the United States) and lingering dry condition in others (wheat in the United States and in the EU) are a major concern. With many countries already struggling with elevated domestic food prices, the conclusions of this year’s harvests, especially for those crops that are currently the tightest, such as maize, will be decisive in determining future prices. Given the sharp run down on inventories and only modest overall global production increases for the majority of crops, world prices are likely to remain high and volatile. The most critical months still lie ahead in terms of shaping final crop outcomes. FAO is monitoring the situation closely and, as in the past, will keep the international community informed.