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World food prices seen supported by strong demand in 2018

[January 11, 2018] ROME (Reuters) - Strong demand looks set to support world food prices in 2018 although the political situation in oil-producing countries and international trade negotiations may herald more volatility, a United Nations food agency economist said on Thursday.

World food prices rose 8.2 percent in 2017 from the previous year, reaching their highest annual value since 2014, on an index compiled by The Food and Agriculture Organization (FAO).

Food on international markets is still 24 percent cheaper than its 2011 high, and supplies of many commodities in the index of cereals, oilseeds, dairy products, meat and sugar, remain ample.

"The general sentiment is that we know what supplies are, and there is no excuse to think demand would get weak ... so there is momentum being built," said FAO senior economist Abdolreza Abbassian.

The index rose annually despite a 3.3 percent fall in December from the month before, as dairy, vegetable oils and sugar values declined sharply.

Improved global growth prospects have helped fuel demand in most countries but it was too early in the year to predict what effect weather conditions would have on harvests, meaning supply could still exceed expectations, Abbassian said.

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A woman buys vegetables at a market stall in Mexico City, Mexico January 9, 2018. REUTERS/Daniel Becerril

Oil prices were also driving developments, he said.

"If oil prices are the highest in a couple of years, all you need is some sort of unexpected development in one of the big oil producing countries to see a spike in oil and that would definitely spill over to other commodities," Abbassian said.

Demand for biofuel as oil prices rise and surpluses shrink could support values for vegetable oil, sugar and corn.

Last year's market uncertainty about issues such as a planned renegotiation of the North American Free Trade Agreement had not yet been assuaged, Abbassian said.

"I think in 2018 we are going to confront the real consequences of some of these developments," he said. "It's going to be a little more uncertain, a little more volatile and unpredictable."

(Reporting by Isla Binnie; Editing by Edmund Blair)

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