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UN ups world grain stocks estimate to 12-year high

The United Nations highlighted the role of rising world grain stocks in depressing food prices as it hiked its estimate for cereals stocks at the close of 2014-15 to the highest in 12 years.

World food prices fell in June for a third successive month, reflecting declines in all categories except wheat, according to the UN food agency, the Food and Agriculture Organization.

However, the decline was "mostly influenced by lower wheat, corn and palm oil prices that reflected ample supplies and improved global production prospects for these commodities", the FAO said.

Indeed, prospects for supplies have improved dramatically over the last month, thanks largely to higher expectations for coarse grain and wheat crops in the European Union, India and the US, the agency said.

Harvest upgrades

The FAO lifted by 18.3m tonnes to 2.498bn tonnes its forecast for world cereals production in 2014-15, including an upgrade of 4.5m tonnes to 707.2m tonnes in the estimate for wheat output.

While drought in Turkey has dragged output in the Near East down 7.3%, besides hurting US output, "these declines are expected to be more than offset by increases in some other countries, in particular India and China, where record outputs are forecast", the agency said.

The FAO estimated the Chinese harvest at 122.5m tonnes and the Indian crop at 95.9m tonnes, while pegging European Union output at 147.3m tonnes, higher than the estimate from many other commentators.

For coarse grains, such as barley, corn and sorghum, the world production estimate was raised by 13.3m tonnes to 1.287bn tonnes, reflecting "improved prospects in the US", where the corn harvest was upgraded to 354m tonnes, in line with Washington's own estimate.

"Although plantings dropped somewhat compared to the previous year, less abandonment and better yields are expected to maintain production at about the previous year's level at 354m tonnes."

'Highest stocks since 2001'

However, the agency made a small downgrade to expectations for grains consumption, reflecting a "sharp reduction in industrial and feed use of corn in China", with consumption undermined in part by the strong wheat crop.

The impact of higher output, but lower demand, was to raise the forecast for cereals stocks at the close of 2014-15 by 28.1m tonnes to 604.1m tonnes.

"That would represent a 5.3% increase from the 2013-14 season and the highest level since 2001," the FAO said.

Compared with demand, inventories would also set a 12-year high, of 24.3%, up 1 point year on year.

The stocks-to-use ratio, in indicating the level of competition needed between buyers to secure supplies, is a key price indicator, with a higher ratio signalling lower prices.

Stocks comparisons

The estimate comes a week after the International Grains Council estimated world grain stocks ending 2014-15 at 412m tonnes, the highest in 15 years.

The IGC's figure includes only coarse grains and wheat, while the FAO includes rice too, for which the agency highlighted improved production prospects in Myanmar, Pakistan and Tanzania.

The FAO added that, despite the strong cereals supplies, and lower prices, "many people in conflict and drought-stricken areas require external assistance for food".

In the Central African Republic, unrest has left 1.7m people, out of a population of 4.6m, in need for food assistance, with the number of South Sudanese rated as "severely food insecure" up "dramatically" to about 3.5m.

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