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

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.

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