World cereals output is expected to rise to a new record in 2011 due to more planting and improved yields but low stocks are set to keep prices high and volatile, the United Nations' food agency said.

Global cereals output is expected to rise 3.5 percent to 2.315 billion tonnes this year, recovering after a 1 percent fall in 2010, the UN's Food and Agriculture Organisation (FAO) said on Tuesday in its first estimate of 2011 total global crops.

World wheat output is seen rising 3.2 percent to 674 million tonnes this year, down from an earlier forecast of 676 million due to unfavourable weather in North America and parts of Europe, FAO said in its key Food Outlook report.

Wheat outlook in the main producing countries is patchy with the European Union's output seen flat at 137 million tonnes, US crops falling 8.5 percent to 55 million hit by bad weather while Russia's output is expected to jump 32.5 percent to 55 million, recovering after 2010's severe drought.

Weather in the coming months remains critical for shaping final crop outcomes, the Rome-based agency said.

World coarse grains output is expected to rise 3.9 percent to a new high of 1.165 billion tonnes, driven by maize crops with the bulk of the increase seen in the United States where a record crop of 343 million tonnes is still expected despite delays in plantings due to adverse weather, it said.

Increasing global grain production this year would not be sufficient to rebuild strong stocks which could stabilise prices, the FAO said adding that demand growth is expected to slow down this year, especially from the biofuels sector.

World cereals stocks at the end of 2011/12 season are expected to edge 0.8 percent higher to 494 million tonnes, still well below 534 million tonnes at the end of 2009/10 season.

Wheat stocks are seen down 2.6 percent at the end of 2011/12 season to 183 million tonnes.

"With total cereal production barely meeting consumption, international prices are likely to stay high, especially in the wheat and coarse grain markets," it said.

For example, winter wheat futures in Chicago in May were about 75 percent higher than in the same period of last year, prompting markets to expect high prices in the first half of 2011/12 marketing season, which starts in July, the FAO said.

Russia's decision to lift its grain export ban from July could put some downward pressure on prices but with an uncertain crop outlook in the United States and in major EU producers, it said: "International prices are expected to remain volatile."

Early in May, major international grain markets were hit by the biggest commodities sell-off since 2008, but concerns about adverse weather damaging crops in the biggest producing countries have given some support to prices.

Surging international prices of grains and vegetable oils are likely to help raise global costs of imported foodstuffs by 21 percent this year to a record of $1.29 trillion, surpassing the $1 trillion mark for the third time in the past four years, the FAO said.

The poorest countries are going to be hit hardest because their food import bill is expected to surge 30 percent and account for roughly 18 percent of all their import spending. That compares to a 20 percent jump in the food import bill for developed countries, the agency said.

But even increased spending on food imports would not gurantee greater food availability in poor countries where bigger imports would only compensate for falling domestic supplies, it said.  - Reuters