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Europe: FAO report raises forecasts for cereal production, stocks

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The FAO Food Price Index averaged 172.6 points in October, up 0.7% for the month and 9.1% from a year earlier, with the staple grains’ index rising for the first time in three months.

The Index, which has risen continuously throughout 2016 except for a brief dip in July, is a trade-weighted index tracking international market prices for five major food commodity groups.

October’s rise was driven primarily by jumps in sugar and dairy prices.

The FAO Sugar Price Index rose 3.4% in October amid reports of production shortfalls in Brazil’s Centre South region and India’s Maharashtra state.

The FAO Dairy Price Index rose 3.9% from September, led by rising prices of cheese and in particular butter, as a result of sustained internal demand in the European Union after a period during which stocks were drawn down.

By contrast, the FAO Oils/Fats Price Index declined 2.4% from September, largely linked to weaker palm oil quotations as a consequence of sluggish global import demand.

The FAO Meat Price Index also fell, dropping 1.0% in October, with the drop largely driven by slacker demand for European pig meat from importers in China.

The FAO Cereal Price Index, meanwhile, rose 1.0% in October, buoyed by tightening supplies of high-quality wheat even as the overall prospects for global wheat harvests have improved.

Updated forecasts

World cereal production for 2016 should amount to 2 571 million tons, up marginally from FAO’s October forecast and 1.5% above the 2015 output.

The updated figure, released on November 10, 2016 in the Cereal Supply and Demand Brief, reflects a substantial upgrade of the outlook for world wheat production, which is now expected to rise to 746.7 million tons, a 4.3 million increase from FAO’s October forecast.

The Russian Federation’s wheat output is now anticipated to set a new record, while favorable weather is also boosting yield prospects in Kazakhstan.

The increase in world wheat and barley production more than offsets the expected 4.8 million ton decline in the 2016 global maize crop due to weather-induced yield downgrades for Brazil, China, the European Union and the US.

The forecast for global rice production was largely unchanged.

Early signs from the planting of the 2017 winter wheat crop in the northern hemisphere indicate that US farmers are reducing the area because of low price prospects and a subdued export outlook due to a stronger US dollar.

However, wheat plantings in the Russian Federation and Ukraine are ahead of last year’s pace.

Meanwhile, sowing of summer 2017 cereal crops is underway in southern hemisphere countries, and conducive weather conditions are leading to expansion in South America.

The maize area planted in Argentina is expected to expand by 6.0% from last year’s high level.

Total cereal utilization for the 2016/17 season is now forecast at 2 562 million tons, up slightly from October and 1.7% higher than a year earlier.

Global food consumption of cereals is forecast at 1,106 million tons, up 1.3% from a year earlier and sufficient to maintain a broadly stable per capita consumption level globally.

World cereal stocks will likely increase to nearly 662 million tons by the end of the 2017 seasons, driven by growing wheat inventories, especially in China, the U.S. and Russia.

Coarse grains stocks are projected to drop by 1.7%, led by reductions in China, Brazil and South Africa.

World rice inventories are expected to fall slightly to 169.8 million tons.