Prices for cereal-sourced ingredients to rise on eroding stocks and use

- Last updated on GMT

Related tags: Maize, Cereal, Rice

Prices for cereals still vulnerable to upside risk in 2005/06 as
world crop predictions suggest supplies could fail to meet demand,
resulting in a drawdown of already vulnerable global stocks,
reports Lindsey Partos.

If world demand hits, as predicted, 2 billion tonnes, the UN's Food and Agriculture Organisation (FAO) cautions that cereal output in 2005 - slated at 1.97 billion tonnes - may not be enough to meet next year's demand, without eating into carry over reserves.

"If so, world cereal stocks by the end of the seasons in 2006 could decline to 425 million tonnes,"​ reports the UN-backed organisation.

Food manufacturers and their ingredients suppliers have, in the last 18 months, witnessed a sharpening of margins brought about through exponential price rises for key raw materials.

Wheat, along with corn and soy, are the starting point for a range of food ingredients, from starch to gluten, used widely in food applications.

But in each of the last four years world grain production has fallen short of consumption, forcing a draw-down of global stocks for wheat, rice, corn and soybeans to 30-year lows.

The FAO report predicts cereal stocks-to-use ratio at around 21 per cent, similar to the current season with stronger production (2005/06 although lower than 2004, still above average of previous five years) but demand still above trends.

According to the FAO, wheat stocks, for example, for 2004/05 came in at 163.6 million tonnes, a hefty 20 per cent fall on the 202 million tonnes in 2002/03.

The 4 per cent decline on 2004 levels is largely expected in the major producing (and exporting) countries in North America and Europe, where, despite generally satisfactory conditions so far for the crops already in the ground, the overall cereal area is expected to be down slightly, and yields are assumed to drop from last year's record levels.

On the basis of individual cereals, the most significant increase is expected for maize followed by wheat, while rice carryover stocks are expected to decline again this season, reports the FAO.

"Against this backdrop of ample exportable wheat and coarse grains supplies, international prices for these grains are generally weak and below the levels in the previous season,"​ says the FAO.

Last month wheat traded at $157 a tonne, a 9 per cent fall on March 2004 prices of $171 a tonne.

Rice prices have risen since last November reflecting adverse weather conditions for the secondary paddy crop in several major producing countries. As of February, Thai rice prices were well above their level a year ago at $295 a tonne for white rice, up from $253 in March 2004.

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