MILAN, Italy (Reuters) – Global food prices came off record highs in March after unrest in the Arab world and Japan’s earthquake, but new increases are in sight as demand grows and supplies tighten, said the United Nations Food and Agriculture Organization.
Rising food prices have climbed to the top of the international political agenda after contributing to protests that toppled the rulers of Tunisia and Egypt earlier this year, with unrest spreading across North Africa and the Middle East.
The FAO food price index, which measures monthly price changes for a food basket composed of cereals, oilseeds, dairy, meat and sugar, averaged 229.8 points in March, down from February’s record of 236.8 points, falling for the first time after eight months of rises.
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“The decrease in the overall index this month brings some welcome respite from the steady increases seen over the last eight months,” said David Hallam, director of FAO’s trade and market division.
“But it would be premature to conclude that this is a reversal of the upward trend.”
Grain traders generally agreed.
A new Reuters poll on April 7 found that most analysts expect corn prices to keep climbing to record highs even after doubling in the past nine months, with demand from ranchers and ethanol makers, thus far able to withstand record costs.
The March fall was largely driven by disruptions to major grain importers, political unrest in North Africa and the Middle East and natural disaster in Japan, while fundamentals of demand and supply have not improved, the FAO experts said.
“We believe that in the next few weeks, and there are already signs of it, prices will rebound,” said Concepcion Calpe, FAO’s senior economist.
Political instability in North Africa and the Middle East, which affects grain import decisions in the area, would influence already volatile markets, while soaring oil prices would fuel further rises, the FAO said.
The impact of financial investors on agricultural commodity prices could ease in the next few months as tighter monetary policy is expected in the United States with the end of a second round of monetary easing in sight, analysts say.
“In the next two to three months, a lot will depend on the (Federal Reserve) policy given that its current plan expires,” said Antonio Cesarano, head of market strategy at Italy’s MPS Capital Services. “If it (the tightening of U.S. monetary policy) will be the case, then, in the short term, less liquidity available could mitigate rises in commodity prices.
“But the long-term trend is seen bullish mostly due to rising demand, especially in emerging markets,” Cesarano said.
Benchmark U.S. wheat futures lost about three percent during March, while corn futures fell four percent, but both have been rising in April on the back of concerns about tight supplies and unfavourable weather.
The FAO said prices could remain firm in the 2011-12 season because an expected increase in new cereal crops may not be enough to replenish falling stocks and demand is expected to hit a record level in 2010-11.
Humanitarian organization Oxfam called on the governments of the G20 group of major political and economic powers to increase investments in small-scale sustainable agriculture in developing countries.
“Urgent action is needed to avoid a global food crisis like that of 2008,” said Oxfam’s policy adviser Luca Chinotti.
The FAO’s Cereals Price Index, which includes prices of main food staples such as wheat, rice and corn, fell to an average of 251.9 points in March down 2.6 percent from February, but is still 60 percent higher than in March 2010.
