Agricultural commodity markets are set to remain tight with prices high and volatile despite improved supply and weakening demand growth, said the United Nations' food agency raising its estimates of global grain output in 2011.

Food prices grabbed the attention of world policy makers after hitting record highs in February and helped stoke the unrest of the Arab Spring in north Africa and the Middle East.

Global food prices have fallen in the last few months helped by improved crops but remained high and subject to swings in unstable financial and equity markets, the UN's Food and Agriculture Organisation said in its Food Outlook.

"In spite of improved supply prospects and weakening demand, agricultural commodity market conditions remain fairly tight, which is the major factor underpinning prices... The general picture still points to firm markets well into 2012," the FAO said in the report. (www.fao.org)

"Letting international markets continue in their present state, volatile and unpredictable, will only aggravate an already grim outlook for world food security," the FAO said ahead of a G20 meeting in France on November3 and November4.

The head of the World Bank said on Tuesday the food crisis was far from over, especially in poor countries, and called on G20 leaders to find ways to deal with increased price volatility.

World food prices, measured by FAO, hit an 11-month low in October, due to sharp falls in grains, sugar and other farm commodities, the agency said ahead of an ECB meeting widely expected to leave interest rates unchanged.

World cereals output is expected to rise 3.7 percent to a record 2.325 billion tonnes this year, powered by a six percent jump in better-than-expected wheat production, the Rome-based agency said, raising its previous forecasts.

The FAO also raised its outlook on output of coarse grains, including maize, forecast a record rice crop and raised its estimate of global grain stocks at the end of 2011/12 season to 506.6 million tonnes, up 3.3 percent from the previous season.

Thanks to a 37-percent jump in wheat output in Russia, which was hit by a severe drought last year, wheat exports from the country is expected to rise to at least 18.5 million tonnes in the 2011/12 marketing season, close to the record of 2008/09.

Wheat shipments from Ukraine are expected to triple to 9 million tonnes while wheat exports from Kazakhstan are seen jumping 30 percent to 7.2 million tonnes, the FAO said.

Wheat markets remained volatile with prices moving in tandem with swings in much tighter maize markets, mostly due to increased use of wheat as animal feed, the agency said, adding that U.S. maize trades close or even at a premium to wheat.

Winter wheat areas for 2012 are expected to be stable or slightly higher in the northern hemisphere thanks to generally favorable planting conditions, apart from weather in parts of the United States and in Ukraine, it said.

Output of most food commodities will have to rise next year to meet even slowly increasing demand, the agency said. Food cereal demand is forecast to keep pace with population growth while feed demand is expected to resume growth after two years of stagnation. Demand from the biofuels industry is seen subdued.

"Input costs, from fertilizers to energy, remain high, interest rates have climbed in many emerging economies, all of which could dampen production next year and, hence, draw down stocks and boost prices further," it said.

Global food import costs are expected to rise close to $1.3 trillion in 2011, with the cost of food purchases for the least developed countries soaring by over a third from 2010, it said.-Reuters