FAO edges up 2009 cereals crops forecast

The global 2009 cereals crops forecast was raised slightly, but output will be lower than last year's record and prices may rise again driving food costs higher, the United Nations' Food and Agriculture Organisation said today.

World cereals output is expected to fall 3 percent to 2.219 billion tonnes in 2009, with wheat falling 4.2 percent to 655.8 million tonnes, the FAO said today, raising its earlier forecast.

Overall cereals supply should be sufficient to meet demand because the fall in output -- which still remains second only to 2008's record crops -- is expected to be offset by strong stocks and cereals consumption is seen growing at a lower pace than last year, the FAO said in Food Outlook report. (www.fao.org) ''But the growing linkages between the agricultural sector and the energy, financial and currency markets make them increasingly vulnerable to external shocks,'' the agency said.

Further upturn can be seen in wheat prices, which have risen in the past few weeks on the back of higher oil prices, gains in other agricultural commodities and weaker US dollar, but new gains would be limited due to a supply/demand balance, it said.

The bulk of falling wheat output is expected in the main producing countries, with European Union output seen falling 8 per cent to 138.6 million tonnes, US output dropping 19 per cent to 55.1 million and Russia's output down 14 per cent to 55 million.

Wheat imports are expected to fall by as much as 10 million tonnes in the new season thanks to increased output in some major importing countries, especially in North Africa and Asia.

FAO said it was concerned about a recent surge in soybean prices ''given its strong bearing on food and feed prices,'' and also pointed at rising prices of sugar and oilseed products.

World sugar output is expected to drop 5.4 per cent to 158.5 million tonnes in 2008/09 from the record 2007/08 level due to output falls in major producing countries.

Sugar consumption is set to expand, outstripping production for the first time since 2005/06, bringing down inventories and giving support to prices, the Rome-based FAO said.

FOOD PRICES FALL, BUT ECONOMIC CRISIS HITS DEMAND ''However, barring major crop setbacks, with world staple food stocks at more comfortable levels than in 2008, the food economy looks less vulnerable to those external developments than was the case last year,'' the FAO said.

FAO's benchmark Food Price Index has fallen by one-third from last June's peak, the agency said.

The global food import bill is expected to drop by 226 billion dollar in 2009 compared to last year with lower cereals prices accounting for over half of the fall, the FAO said.

But the deteriorating economic environment, with lower purchasing power and falling incomes, has been reducing positive impact of lower food prices, it said.

Fish, meat and milk product demand has been hit by the economic downturn and recurring animal diseases and in turn has triggered a drop in prices which seriously eroded profitability in respective sectors, the FAO said.