The avoidance of "panic" has helped keep food prices, relatively, low despite a series of disappointing harvests, the United Nations said, even as it cut further its forecast for world cereals supplies.
The UN food agency, the Food and Agriculture Organization, underlined the squeeze on world grain supplies by trimming its estimate for world cereals inventories at the close of 2012-13 to 497.4m tonnes, a drop of 25m tonnes year on year.
The decline reflected in particular weaker hopes for wheat stocks, for which the estimate was cut by 5m tonnes from last month to 167m tonnes, thanks largely to a forecast that Chinese inventories will fall to their "lowest in over a decade".
The estimate reflected higher ideas of feed use of wheat rather than the idea, held by some observers, that China's crop this year was far lower than the 118.0m tonnes that Beijing believes. Indeed, the FAO pegged the crop at 119m tonnes.
The figure is also well below the 55.0m-tonne estimate forecast by the US Department of Agriculture, whose data are closely watched by markets.
Wheat's 2012-13 stocks to use ratio, a measure of the availability of supplies and therefore pricing potential, will drop to 2 and therefore pricing potential, will drop to 24.0%, "the second lowest since the FAO records began in 1980".
The lowest figure, of 22%, was set in 2007-08, preceding the run up in prices to a record high which still stands in the Chicago futures market.
Signally, stocks among major exporters, which in being readily available to buyers have a huge impact on prices, will drop to 13.9% of demand.
"This ratio is still higher than the 12.9% low registered in 2007-08, but well below the 18.6% projected at the start of the current season, thus pointing to a signiﬁcant tightening of global wheat supply-and-demand balance in 2012-13," the FAO said.
Food prices drop
Nonetheless, world prices of cereals, including wheat, fell 1.2% last month.
"Current wheat prices reflect reduced trade activity, while corn values are down, mostly due to slowing demand from the livestock and industrial sectors."
That, and lower vegetable oil values, fostered a 1% drop in overall food prices last month, despite a 3% rise in dairy prices thanks to "firm world demand" and a 1.6% increase in sugar values, reflecting "short-term export tightness" in top shipper Brazil.
And, indeed, food prices so far in 2012 have been 8% lower than in the same period of 2011, fostering expectations of a 10% drop to $1,140bn in world spending on food imports this year.
The decline reflects "improved international co-ordination and market transparency", fostered by the launch of the G20's Amis farm data service, Jose Graziano da Silva, the FAO director-general, said.
This has "helped to prevent panic, and to stop the worst drought in decades turning into a food price crisis as has happened in the past".
Indeed, "droughts or floods are not what causes crises – it's a lack of governance", he said.
There is a rich history of government trade restrictions causing soaring crop prices, as in the rice market in 2007-08, where values in some markets tripled despite what appeared on paper ample world supplies.
The comments follow, to the surprise of many observers, Russia's eschewing of a wheat export ban this year, despite a drought hit harvest.
Ukraine has stepped back from plans for a ban, following condemnation from observers including the European Union.