FAO estimates higher cereal output

Could keep global prices under downward pressure, with palm oil production also seen as recovering

There has been an upward revision in output forecasts by the Food and Agricultural Organization (FAO) of the United Nations.
 
FAO’s latest report has forecast global cereal output at 2,571 million tonnes (mt) for calendar year 2016, a 1.5 per cent rise from the 2015 production. Apart from cereals, recovery in output of crude palm oil across major producing states hints at its price decline in the coming days.  Rising sugar, dairy and cereal prices had lifted FAO’s food price index by 0.7 per cent to average 172.6 points in October and 9.1 per cent from a year earlier, with the staple grains’ index rising for the first time in three months.
 

“Global cereal output might rise this year following plantings in additional areas and satisfactory development of crops,” said FAO. The updated figure showed a substantial upgrade of the outlook for world wheat production, now expected to rise to 746.7 mt, a 4.3 mt increase from FAO's October forecast. Russia's output is now anticipated to set a record, while favourable weather is also boosting yield prospects in Kazakhstan.
 
The increase in world wheat and barley production more than offsets the expected 4.8 mt decline in the 2016 global maize crop due to weather-induced yield downgrades for Brazil, China, the European Union and  America. 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 US farmers are reducing the sowing area because of lower price prospects and a subdued export outlook, due to a stronger  dollar. However, wheat plantings in Russia and Ukraine are ahead of last year's pace. The Reserve Bank of India in its October monetary policy review estimated subdued momentum in food inflation in the December quarter and the usual seasonal softening of food prices in the early part of the March quarter. This considerably improves the near-term outlook for inflation. Commodity prices are expected to remain quiescent over the rest of the year.
 
These anticipated developments feed into inflation expectations and, in turn, influence wage and price conditions.
 
In fact, agri commodity prices have started softening in November, after rising marginally in October. Prices of almost all global commodities declined by up to five per cent in the first 10 days of November.
 
Dorab Mistry, director, Godrej International, forecasts the crude palm oil price to decline by up to 22 per cent between last month (when the new oil year began) and September 2017. “The price might drop over the next couple of months on expectation of production to recover in the new oil year,” he said in a recent paper.