(Reuters) - World cereals output is expected to rise to a record in 2011 on increased planting after last year's market spike, but worries about stocks will keep prices high and volatile through 2012, the UN's food agency said.

Rising food prices fuelled protests earlier this year toppling rulers in Tunisia and Egypt, prompting unrest across North Africa and the Middle East, major grain importing regions, although prices have dipped from April to May.

Winter wheat futures in Chicago in May remain about 75 percent above the same period last year, the FAO said, after a surge in wheat prices in response to a drought in the Black Sea region which saw Russia ban exports and Ukraine curb them.

"Prices have come down slightly, but they are still very close to record levels," U.N. Food and Agriculture Organisation (FAO) senior economist and grain analyst Abdolreza Abbassian told Reuters Insider in an interview on Tuesday.

"The production situation, although good, is probably not sufficient to build up stocks. So we are going to see this high price situation continue (in 2011 and 2012)," Abbassian said.

David Fuller's view Most official/governmental estimates for world food supplies have erred on the side of over optimism throughout the last 12 months, not least those from the USDA, as this site has frequently mentioned. Government agencies too often decide to 'manage' bad news for political reasons. Aside from being misleading, this is also patronising. Most adults would prefer candour from supposedly authoritative sources, regarding food or energy supplies, inflation rates and our individual medical conditions.

With scarce food supplies, hording and panics tend to increase when people discover they have been misled.

Following last year's generally poor harvests in many regions, due mainly to turbulent weather conditions, prices for most agricultural commodities soared as you can see from this 10-year chart of the S&P GSCI Agriculture Official Close Index. However there has been some respite in recent months, evidenced by a medium-term peak in late Q1 and a welcome progression of lower rally highs is now evident. While they persist, a downward bias will be clearly evident. A sustained break to a new all-time high would be required to reaffirm the secular uptrend evident on this chart.

While demand for agricultural commodities is usually in a gradually rising upward trend, in line with GDP and population growth, supply will always be the key variable. Many farmers were obviously going to increase plantings in response to higher prices which we also saw in 2007 and 1H 2008. However, adverse weather conditions, from floods to droughts, across much of the western hemisphere's agricultural regions this spring have compromised crop potential. These developments have been documented by this service. China also experienced severe drought in its main corn growing province.

These problems were once again accurately forecast by the Browning Newsletter which Fullermoney has been very pleased to post for the benefit of subscribers. Fortunately, the author Evelyn Browning-Garriss has been more optimistic about summer growing conditions in the western hemisphere. This is essential to offset the risk of potentially serious shortages.

The crop reports for wheat from Russia and the Ukraine have been favourable, unlike last year and this is reflected by the current price.


Wheat reports are also more favourable for the USA, Canada and France, although it may be a case of too-little-too-late in terms of bumper harvests.


Weather conditions for staple foods will remain crucial throughout the growing and harvest season, not least for corn. (See also Eoin's comments on rough rice, soybeans and corn last Friday.)