Cereal Prices to Remain High on Imports, UN’s Abbassian Says

Algeria and other wheat importers continue to buy grain even as prices rise, suggesting cereals will be costly in the coming months, a senior economist at the United NationsFood and Agriculture Organization said.

“Demand is not rationing even though prices remain high, and this is going to support prices for some time,” Abdolreza Abbassian at the Rome-based FAO said in an interview yesterday. “Countries are getting concerned as prices are staying high.”

Russia last year banned cereal exports after the country’s worst drought in at least half a century destroyed crops and cut 2010 production, sparking a surge in grain prices across the world. Ukraine also restricted exports. Paris-traded milling wheat futures have more than doubled in the past 12 months.

Governments in Egypt, Algeria, Morocco and Yemen have faced protests amid rising costs and high unemployment, and a revolt toppled Tunisia’s leader.

“There’s also a question of instability in some countries, which could result in some countries purchasing more, and therefore adding more to the demand side,” Abbassian said.

A surge in food and energy costs is stoking inflation in emerging markets and causing riots that may topple governments, Nouriel Roubini, the New York University economist who predicted the financial crisis, said in an interview with Tom Keene on Bloomberg Television’s “The Pulse” yesterday.

Algeria agreed to buy 800,000 metric tons of wheat and ordered the state-run grain agency to speed up imports, Reuters reported yesterday. The country may be building grain stocks to secure future supply, and Saudi Arabia is considering the same strategy, according to Abbassian.

‘Politically Unstable’

“This is something new we’re seeing, anticipating 2011-2012 may be worse than 2010-2011, especially now that North Africa is a little more politically unstable,” the economist said. “Buying and stocking may be the easiest thing to do even if it is the most costly and expensive thing to do, so we may see more of this.”

The direction of grain prices will depend on the 2011 harvest, he added.

“By spring we’ll have a better idea about the Northern Hemisphere wheat crop,” Abbassian said, saying that wouldn’t be before April. “Spring is going to be critical. We have to see what the conditions of the crops of the Southern Hemisphere will be and what the plantings for corn and soybeans will be in the Northern Hemisphere.”

While the world wheat area is expected to increase, Kansas and China are “suffering” from dry conditions that could produce below-average yields, Abbassian said.

‘Situation Is Tight’

Even after the wheat crop north of the equator emerges from winter, uncertainty may continue to support prices, the economist said.

“Even if we get fabulous news, people won’t take it seriously until perhaps the summer, when the harvest becomes more certain,” Abbassian said. “The situation is tight, it certainly has not improved.”

World stocks at the start of 2011 are “much lower” than a year ago, and the inventories are being drawn down “rather heavily,” according to the economist.

“We will be more reliant on production increases in 2011 than last year,” Abbassian said. “We cannot afford surprises. It would be irresponsible to say everything is just fine.”

While stocks at the end of 2010 were “much better” than in 2007, “we have to look at ending seasons in 2011, and stocks are going to be down quite sharply,” Abbassian said. “For corn, they’re pretty tight looking at the major exporters, especially the U.S. The corn situation is tighter than in 2007-2008.”

Chinese Imports

China, the second-largest corn user, may be “virtually out” of the grain and might boost imports after demand from livestock producers sent the domestic price surging, Sterling Liddell, a vice president at Rabo Agrifinance, said at a conference in Chicago yesterday.

In the 12 months that ended Sept. 30, China was a net importer of corn for the first time in 14 years, U.S. Department of Agriculture data shows.

Rice “is the only good news” because price increases for the grain have been relatively limited, Abbassian said.

“Even there we have to be rather cautious, because once countries start to really begin to feel food inflation, policy can sometimes influence the rice market more than production,” he said. “The rice market is always very volatile when the situation gets tight. When it goes up it does beat all the other markets, because it is a thin market and exporters are few.”

‘Left Behind’

World food prices rose to a record in December on higher costs for sugar, grain and oilseeds, the UN reported this month. An index of 55 food commodities tracked by the FAO gained for a sixth month to 214.7 points, above the previous high of 213.5 in June 2008.

High food prices don’t necessarily mean food crises, because most of the world’s population can afford costlier meals, Abbassian said. The 1 billion poorest people in the world would be “left behind,” he said

Almost all countries in Africa are net cereal importers, and the world’s poorest people spend more than 70 percent to 75 percent of their income on buying food, according to the FAO.

Food-exporting countries are “strongly advised” not to restrict shipments to avoid “more uncertainty and disruption” in world markets, the FAO said yesterday.

To contact the reporter on this story: Rudy Ruitenberg in Paris at rruitenberg@bloomberg.net.

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.

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