World food prices rise in March on dairy surge - FAO

ROME (Reuters) - Global food prices rose 1 percent in March, the United Nations' food agency said on Thursday, pointing to a surge in dairy costs, while cereals prices were little changed and seen facing downward pressure in coming months.

The Food and Agriculture Organisation's (FAO) price index, which measures monthly price changes for a basket of cereals, oilseeds, dairy, meat and sugar, averaged 212.4 points in March, up 1 percent from 210.7 in February and its highest since October 2012.

"All the dynamic this month comes from the dairy," said FAO senior economist Concepcion Calpe. "In general the situation is relatively calm."

FAO's dairy price sub-index jumped 22 points in March to 225.3, one of its largest changes ever recorded. The rise was fuelled mainly by prolonged hot, dry weather in Oceania which has hit pastures and led to milk production falling off steeply.

The organisation's dairy index is based on New Zealand spot prices, which it said have surged as buyers bid against each other to meet commitments.

Cereals prices on the other hand were little changed, and Calpe said they could see declines in coming months due to an expected recovery in output.

"We are optimistic for the coming crops. The previous year was particularly bad so barring something dramatic the direction should be upwards for production," she said. "If this is what happens we could see prices trending downwards."

Grain prices, which touched record highs late last summer, have been under pressure recently as acreage dedicated to crops has increased, reserves look fatter than previously thought, and livestock producers have cut herd sizes due to high feed costs.

The Rome-based agency raised its estimate of world cereal output in 2012 to 2.309 billion tonnes, up 3 million tonnes from a forecast made in March.

It maintained its forecast for world wheat production in 2013 at 690 million tonnes, up 4.4 percent from last year.

It expected world cereal stocks at the close of seasons ending in 2013 to approach 500 million tonnes.

The FAO's index is below a record peak of 237.9 points hit in February 2011, when high food prices helped drive the Arab Spring uprisings in the Middle East and North Africa.

Over the summer last year, a historic U.S. drought and dryness in Eastern Europe fuelled the third spike in global food prices in four years, with the index reaching 215.7 points in September 2012.

(Reporting By Catherine Hornby; editing by Steve Scherer and Keiron Henderson)