World wheat production will fall for the first time in five years, despite a fresh record harvest in Russia, the United Nations said, as it said that recovering values of the grain had fuelled a rise in food prices to a two-year high.
The UN food agency, the Food and Agriculture Organization, in its first forecasts for world wheat output in 2017-18 pegged it at 744.5m tonnes.
That would represent a fall of 13.5m tonnes year on year, the first decline in output since 2012-13, although is a figure more optimistic than the 735m-tonne harvest predicted by the International Grains Council last week.
Canada's farm ministry has also forecast a 735m-tonne world harvest next season.
The FAO forecast rises in output in many leading producers, including the European Union, where the harvest was seen increasing by 5.5m tonnes to 150.0m tonnes thanks to a recovery in yields "from the relatively low levels of last year", when they were depressed in the likes of France by persistent rains.
China's output was seen rising by 400,000 tonnes to 129.0m tonnes, "given a small increase in the area planted and assuming normal weather conditions from March, when most winter wheat crops will break dormancy".
"Prospects are good in Asia, where larger plantings in China, India and Pakistan are expected to push production upwards."
And Russia's harvest was pegged at a record 74m tonnes, "considering very good conditions of the winter crop and assuming favourable weather conditions during the crop development period".
However, the agency also flagged a "projected decrease in plantings in North America", with sowings in the US forecast last week by the US Department of Agriculture as falling to their lowest in more than a century.
"Furthermore, although the condition of the crop is reported to have improved somewhat in January, it is nevertheless generally lower than in the previous year implying that winter abandonment could increase," the FAO said, putting the harvest at 50.0m tonnes, in line with the USDA forecast.
Australia's next wheat crop, to be harvested late in the calendar year, was also seen declining, to 28.0m tonnes, down 7.1m tonnes from the latest record result.
The agency flagged expectations of a "return to normal production levels in Australia following an exceptionally high output in 2016".
The comments came as the agency cut by 5.4m tonnes to 239.6m tonnes its forecast for world wheat inventories at the close of 2016-17, although that would still represent a record high.
The revision reflected largely a downgrade to expectations for stocks in India.
And it flagged the role of rising wheat prices in fuelling a 0.5% increase in its food price index for last month to its highest level in two years. The index has now rebounded 17.5% from a nadir reached early in 2016.
Last month's price increase was led by a 2.5% rise in cereals values, with the FAO noting that "wheat quotations gained 3% on stronger pace in trade activities, combined with logistical issues in the US ports".
Train deliveries to US Pacific North West ports have been disrupted by blizzards, avalanches and heavy rains, forcing some buyers to turn elsewhere for short-term suppliers.
Indeed, Japan this week released to domestic consumers 330,000 tonnes of its emergency supplies of 850,000 tonnes of corn, thanks to the squeeze on imports from the US.
Meat prices also increased last month, by 1.1%, with the FAO noting that "in Australia, quotations climbed as herd rebuilding reduced availability of bovine meat.
"Meanwhile, the ending of the seasonal slaughter peak for ovine meat in Oceania impinged on supply and triggered a price increase."
Dairy prices rose by a modest 0.6%, but to a fresh two-year high – and with values up 52% from a tough reached in April last year.
"While dairy markets are awaiting the emerging trend for export availabilities from the European Union and the US as the current dairy year unfolds, supplies to the international market continue to be adequate considering the level of demand," the FAO said.
"Looking at the general market trends over the past 12 months, butter fat has been the dairy commodity in strongest demand, which caused butter and whole milk powder prices to increase by substantially more than those of skimmed milk powder and cheese."
By Mike Verdin