MARKET SUMMARIES

CEREALS

Turbulent conditions are prevailing in world cereal markets. For most cereals, supplies are much tighter than in recent years while demand is rising for food as well as feed and industrial use. Stocks, which were already low at the start of the season, are likely to remain equally low because global cereal production may only be sufficient to meet expected world utilization. International prices of cereal have risen, fuelling domestic food price inflation in many parts of the world. Trade is expected to contract because of high and volatile prices, coupled with soaring freight rates. In spite of lower imports, many countries are expected to still pay more for purchasing cereals from world markets than they did in previous years.

WHEAT

After repeated downward revisions of production forecasts in a number of major exporting countries, most notably Australia, world wheat output in 2007 is now forecast to rise by only 1 percent from the sharply reduced output in 2006. This relatively insignificant increase in production, coupled with already very low carryover stocks, has resulted in an extremely tight global market situation. As a result, wheat prices have continued rising since the start of the season, reaching record highs in September, and remaining generally strong and volatile in October. High wheat prices have translated into higher food prices in many countries, giving rise to numerous market interventions by governments, in the form of price controls, reduction of import barriers and/or imposition of export restrictions. Such measures are aimed at containing price increases and preventing consumption from falling. Nonetheless, several countries have had to cut their wheat imports, which have become increasingly expensive when considering that freight rates are also soaring. The forecast contraction in world trade and in total utilization levels is largely driven by the prevailing high world price levels.

COARSE GRAINS

While recent reductions in international prices of leading coarse grains have somewhat shifted the spotlight away from coarse grains to other crops, the overall supply and demand balance for most coarse grains remains tight in spite of record production this year. Strong demand for animal feed as well as for ethanol is the main driver in global coarse grain markets but supply tightness in several exporting countries is also providing support to prices. International prices have declined in recent months but they still remain well above the previous season’s levels. Trade is expected to increase despite high prices as high prices have, in part, been caused by higher import demand supported by shortages of feed wheat that have encouraged importers to switch to major coarse grains, especially maize and sorghum.

RICE

Rice prices have continued to strengthen since January 2007, reflecting a tightening of market conditions in key exporting countries and a rebound in import demand, particularly in Asia. Yet, price gains were far smaller than for other agricultural commodities and partly sustained by a weakening of the US dollar. Although still provisional, global paddy production is forecast to rise marginally in 2007, constrained by extensive drought and flooding problems. Trade in rice is reckoned to expand by 2 percent in 2007, with a further 2 percent gain anticipated in 2008, sustained by strong import demand. Global rice stocks carried over from the 2007 season are now expected to increase slightly compared with 2006, but, because of a recent intensification of export restrictions, the tightness in world rice market conditions is not expected to ease soon.

OILSEEDS

Steadily rising for the last two seasons, prices of oilseeds and oilseed products have now reached record levels. The supply and demand outlook for 2007/08 points to continued price firmness. Current forecasts suggest an unprecedented fall in global oilseed production, mostly caused by a shift of plantings from soybean to maize in northern hemisphere countries. Meanwhile, global utilization of oilseed products is expected to keep expanding. Vegetable oils face growing demand, including from the biofuel industry, while rising consumption of livestock products and record feed grain prices are stimulating demand for oilmeals. Given the expected production shortfall, a sharp drop in inventories is expected, which will make prices in the oilseed complex firm and volatile. Over the next few months, markets will closely watch the development of soybean crops in South America. As for the coming 2008/09 season, planting prospects are very uncertain, as adjustments between the oilseed and grain markets are still going on.

SUGAR

World sugar prices have continued to weaken after the highs reached in 2006. The major factor behind the market weakness has been the rising production in traditional importing countries, which depressed import demand. World sugar production in 2007/08 is forecast to reach a new record, with developing countries accounting for most of the growth. The greatest increase in demand is expected among developing countries with strong economic performances, such as China and India. Consumption in developed countries is anticipated to remain relatively unchanged, due to low population growth and dietary concerns. For the remainder of 2007/08, world sugar prices are expected to remain weak.

MEAT AND MEAT PRODUCTS

Global meat output is expected to grow by 1 percent only in 2007, constrained by rising feed costs and a massive culling of pigs in China. An increasing meat demand, particularly from developing countries, is underpinning the production expansion worldwide. Reductions in import restrictions are anticipated to push up global trade in meat products by 1.5 percent in 2007. Overall, the rise in global meat exports is expected to be met by the developing countries as supplies in the developed economies have been affected by poor weather, high feed costs and cyclical herd rebuilding. Reflecting a tightening of supply and demand conditions, the FAO meat price index has been recovering since mid-2006, gaining 4.2 percent between January and August 2007.

DAIRY

International prices of dairy products continued their unprecedented surge that began in late 2006. By September 2007, the FAO dairy price index peaked to an all time high, some 120 percent more than in September 2006. The price surge has resulted from a series of production shocks in some major exporting countries, which have cut their milk supplies, and strong import demand, especially from developing countries. Stocks held by key suppliers, such as the European Union and the United States, have fallen to record low levels, giving further support to prices. Constrained by stagnant milk production growth in major exporting countries, milk product trade is expected to decline marginally in 2007. Global milk production, which is expected to increase 2.3 percent in 2007, may experience further growth in 2008, as high international prices are inducing high domestic prices in key producing areas, stimulating a further expansion of the sector.

FISH AND FISHERY PRODUCTS

Production in fish and fishery products is set to expand in 2007, largely on the back of rising output from aquaculture. There is an expectation that aquaculture will soon account for 50 percent of total fish and fishery production. Trade in fish and fishery products is also foreseen to rise in 2007, on account of buoyant demand in the major markets of the European Union and the United States. By contrast, import demand in Japan continues to follow a long-term downward trend, with an anticipated reduction in deliveries to the country in 2007. China confirms its status as the principal supplier of fish products to the global market place, but at the same time, the country’s relevance as a major importer of fish products is growing. Contrasting price trends are emerging in the fish sector. Following a drop in catches, prices of tuna are expected to remain high for the foreseeable future, much to the consternation of the canning industry. Squid prices are also high, but the major commodity in international trade, shrimp, is in ample supply and quotations remain subdued in all markets. Similarly, farmed-salmon production is on the rise, suppressing prices, particularly in the European Union market. Wild ground fish resources are under pressure and with falling supplies, prices have risen, creating opportunities for white-fish substitutes from aquaculture, especially catfish and tilapia from Asia.

Food import bill

At US$745 billion, the global cost of imported foodstuffs in 2007 would be some 21 percent more than the previous year and the highest level on record. Much of the anticipated growth would be fuelled by higher expenditures on grain based products, in spite of expected net reductions in imported volumes of these foodstuffs. Soaring prices are to blame, especially for wheat, but also freight costs, which have doubled since last year, putting additional pressure on the ability of countries to cover their import expenditures. The combination of rapidly rising prices and record freight rates are also behind much higher global bills for imported dairy products and vegetable oils.