World cereals output is expected to rise this year to near-record highs, swelling overall supplies and putting pressure on already weakened prices, the UN's food agency said on Thursday.

The global wheat output is forecast to fall for the third consecutive year, but at 676.5 million tonnes it would still be close to 2008 record levels, the Food and Agriculture Organisation (FAO) said, raising its earlier forecast for 2010.

Overall cereals output is seen rising 1.2 per cent to 2.280 billion tonnes on the back of a 1.4 per cent gain in coarse grains output, the FAO said in its Food Outlook (fao.org), trimming both earlier forecasts based on the latest data.

A 0.9 per cent fall in wheat output this year is expected to be almost entirely offset by larger opening stocks, but stocks are expected to drop one per cent to 194 million tonnes at the end of the season in 2011, the agency said.

"Against the backdrop of an economic slowdown in many countries, this generally favourable wheat supply outlook is likely to maintain downward pressure on international prices," the FAO said in its report.

Competition between major producers is seen heating up as all are expected to have large supplies, but European exporters may benefit from a weaker euro against the U.S. dollar, the Rome-based FAO said.

However, a large surplus in the Black Sea region is likely to put a lid on a surge in EU exports, it said.

Maize output is expected to rise to 835 million tonnes from 815 million tonnes with likely record crops in the United States, the world's biggest producer and exporter.

Maize prices are seen coming under more pressure from brimming supplies of alternative feed, including wheat, meals and distilled grains.

Global sugar output is expected to rise 3.5 per cent to 156.3 million tonnes in the 2009/10 marketing year, the report said, but forecast a deficit of 6.3 million tonnes.

Early estimates for 2010/11 show that sugar output is likely to rise sharply due to higher sugarcane plantings as farmers benefit from higher prices and lower fertiliser costs. That could lead to a small surplus for the first time since 2007/08.

Staples prices fall

World prices of key food staples have dropped in the first five months of 2010 driven by falls in sugar and cereals. The FAO's Food Price Index fell to 164 points in May from 174 points in January, off its 214-point peak in the spring of 2008.

"From sugar to wheat, most indicators point to increasing world supplies, a leading factor behind the sharp declines in international prices of major food staples this year," the FAO said.

Oilseeds prices, which have resisted a big downturn, may fall in the coming months as supply increases, it said.

In another sign that prices could ease in the next few months, dry bulk freight rates for large ships, which carry commodities including grains around the world, are likely to weaken later this year as new vessels enter the market, the International Grains Council said on Thursday.

The FAO also said implied volatility -- the market's expectations of the future price moves of a commodity inferred from the prices of derivative contracts -- for wheat, maize and soybeans may have stabilised.

"Implied volatility has undergone a gradual moderation in the past 12 months, suggesting that markets are a little more assured than they were last year," the FAO said.

Dairy markets remain firm with robust demand and sluggish milk output growth. Meat sector prices have been rising due to  falling production and increased demand and fish prices are strong thanks to growing demand and limited supplies, it said.

The global cost of imported foodstuffs is set to rise 11 per cent to $921 billion this year on the back of a projected 17 per cent jump in non-cereal products which account for about two-thirds of global food import spending, the FAO said. – Reuters