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World food prices rise at fastest since US drought

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World food prices grew at their strongest since the jump provoked by US drought two years ago, the United Nations said, flagging the role in the rise of "brisk demand" and weather setbacks, as well as Ukraine's crisis.

Food prices swelled by 2.6%, month on month, in February, the strongest increase since July 2012 - and a reversal of the declining trend in place since September of that year, when values, and US drought fears, peaked.

The price rise reflects in part the "spikes" in corn and wheat values spurred by unrest in Ukraine even before the deployment of Russian troops dragged values to multi-month highs at the start of this week.

However, "the February increase in the [food price] index cannot be entirely attributed to those events", the United Nations food agency, the Food and Agriculture Organization, said.

"The weather is probably a major force driving up prices for certain commodities like sugar or wheat, but brisk demand is also an important factor underpinning corn, dairy and [vegetable] oil prices," said Concepción Calpe, FAO senior economist.

'Persisting dryness'

Indeed, the comments came as palm oil prices hit a 17-month high of 2,869 ringgit a tonne in Kuala Lumpur, lifted by concerns over the impact of dryness on output in Indonesia and Malaysia, which account for more than 90% of world production of the vegetable oil.

And the FAO itself highlighted setbacks to some US winter wheat seedlings from "extreme cold and dryness.

"In the southern Plains, persisting dryness remains a concern for the development of crops as they start to come out of dormancy in the coming weeks.

"For the white winter wheat, which normally accounts for about 15-20% of the total winter wheat, extreme drought in the main producing areas, notably Washington State, is likely to have an impact on outcome of this year's crop."

Record Chinese crop?

Nonetheless, Ms Calpe added that it was "too early" to say that the rise in food prices last month "is a true reversal" of the downward trend.

The FAO forecast the US wheat crop rising 2m tonnes to 60m tonnes this year, "assuming a normal spring season", above the forecast of 2.16bn bushels (58.8m tonnes) from the US Department of Agriculture.

The FAO was also upbeat on prospects for the European Union crop, pegged at 145.0m tonnes, at the upper end of the range forecast by other commentators, and on the Chinese crop, which it pegged at a record 122.8m tonnes.

The International Grains Council forecasts China's output – which is being increasingly watched, after a poor harvest last year prompted hefty imports - at 119.0m tonnes.

Ukraine divergence

However, the FAO was less sanguine on prospects for Russia's wheat crop which it saw falling 2.1m tonnes to 50m tonnes, a bigger drop that forecast by the IGC, and was particularly downbeat on Ukraine's harvest, which it saw falling 2.5m tonnes to 19.0m tonnes.

The IGC pegs this year's Ukraine wheat harvest at 20.0m tonnes, and Lanworth at 21.2m tonnes.

"Plantings are expected to have declined somewhat in Ukraine," the agency said, although it made no mention of the drought conditions highlighted on Wednesday by Lanworth and Martell Crop Projections.

The FAO pegged the world wheat harvest this year at 704m tonnes, down 12m tonnes year on year but still the second largest on record.

The IGC foresees world production for 2014-15 at 693.6m tonnes, down from 11.4m tonnes on its estimate for 2013-14.


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