FAO food index to hover near record high in March

A vendor looks at vegetables at a greengrocery in the Togoshi Ginza in Tokyo March 23, 2011.

MILAN (Reuters) - Global food prices measured by the U.N.'s food agency may have come off record highs in March after falls in grain prices, but supply concerns and soaring oil prices mean such a move could just be a pause before new peaks.

The United Nations' Food and Agriculture Organization (FAO) on Thursday publishes its monthly Food Price Index, which measures price changes for a basket of cereals, oilseeds, dairy, meat and sugar.

The index hit a record high in February for a second straight month, passing peaks seen in 2008 during a food crisis which sparked riots and panic buying in places as far apart as Haiti, Cameroon and Egypt.

The FAO warned last month that fresh oil price spikes and stockpiling by importers keen to avert popular unrest would rock already volatile grain markets and food prices would remain close to record highs until new crop conditions are known.

World wheat and corn prices fell in the first three weeks of March to levels well below 2008 peaks amid political turmoil in north Africa and the Middle East and natural disaster in Japan, before starting to recover at the end of March.

Benchmark U.S. wheat futures lost about 3 percent for the month of March, while corn futures fell 4 percent, but both have been rising since the start of April on the back of persistent concerns about tight supplies and bad weather.

Strong demand for grains and vegetable oils from biofuels industry is also seen by FAO and other analysts as a driving force for food price rises, despite expected increases in planted areas this year.

Soaring oil prices are also adding to food product costs.

Oil prices on Wednesday rose to their highest since August 2008, driven by unrest in the Middle East and North Africa and dollar weakness ahead of an expected European Central Bank interest rate rise on Thursday.

(Additional reporting by Sybille De La Hamaide; editing by Keiron Henderson)