Baku, June 7 (AZERTAC). High and volatile agricultural commodity prices are likely to prevail for the rest of this year and into 2012 according to the latest analysis published today in FAO`s biannual Food Outlook.

The report cites a sharp rundown on inventories and only modest overall production increases for the majority of crops as reasons for continuing strong prices.

The next few months will be critical in determining how the major crops will fare this year, the report noted. Although prospects are encouraging in some countries such as the Russian Federation and Ukraine, weather conditions, featuring too little and in some cases too much rain, could hamper maize and wheat yields in Europe and North America.

"The general situation for agricultural crops and food commodities is tight with world prices at stubbornly high levels, posing a threat to many low-income food deficit countries," according to David Hallam, Director of FAO`s Markets and Trade Division.

International food prices, which earlier this year soared to levels seen in the 2007-8 food crisis, dropped a modest one percent in May. The FAO Food Price Index averaged 232 points in May from a revised estimate of 235 points in April but was still 37 percent above May 2010.

Declines in international prices of cereals and sugar were responsible for the slight decrease in the May index, more than offsetting increases in meat and dairy prices.

Current prospects for cereals in 2011 point to a record harvest of 2,315 million tonnes — a 3.5 percent increase over 2010, which marked a one percent drop over 2009.

Global wheat output is expected to be 3.2 percent up from last year`s reduced crop, mostly reflecting improved yields in the Russian Federation.

World production of coarse grains is set to climb 3.9 percent, exceeding the record set in 2008. Most of the increase is expected from the Russian Federation and the other members of the Commonwealth of Independent States (CIS).

Although preliminary, world paddy production prospects are for a record harvest of 463.8 million tonnes — a two percent increase over last year on expectations of improved weather conditions.

World cereals stocks at the close of the crop seasons in 2012 are put at 494 million tonnes, up only two percent from sharply reduced opening levels.

Demand for cereals has also been increasing so that the 2011 crop, even at record levels, is expected to barely meet consumption, providing support to prices. But "the Russian Federation`s announcement that it will remove its cereals export ban from July 2011 could help relieve some of that pressure," according to FAO`s grain analyst, Abdolreza Abbassian.

In the oilseeds market, supplies in 2011/12 may not be sufficient to meet growing oil and meal demand, implying further reductions in global inventories.

By contrast, the global supply and demand balance for sugar points to some improvements, supported by large anticipated production in 2010/11, which is likely to surpass consumption for the first time since 2007/08.