FAO global cereal supply and demand indicators

The ratio of world cereal ending stocks in 2007/08 to the trend world cereal utilization in the following season is forecast to fall to 18.8 percent, the lowest in 3 decades. In spite of the increase in world cereal production in 2007, supplies are not sufficient to meet demand without a sharp drawdown of stocks, the main reason for the drop in the stock-to-use ratio. The ratio for wheat is forecast to fall to 22.9 percent, well under the 34 percent level observed during the first half of the decade. The ratio for coarse grains is put at only 14.5 percent. In spite of a record coarse grains production in 2007, supplies by the end of the current season are forecast to tighten because of the strong surge in world demand. The stock-to-use ratio for rice is put at 23.4 percent, also a very low level, which again reflects the tightening of the supply and demand balance for rice this season.

Early indications suggest that the ratio of world cereal stocks to utilization may not improve significantly in the next season (2008/09) even though production in 2008 is forecast to increase sharply. This is mainly because the low level of carryover inventories expected at the end of the current seasons will mean total supply (production plus stocks) will still be relatively low compared to expected utilization in the following year (2009/10).

Given the relatively poor aggregate grain harvest of the major exporting countries in 2007, mainly reflecting adverse weather in parts of the EU and in Australia, combined with strong demand in domestic markets and for exports, the ratio of their aggregate cereal supplies compared to normal market requirements in 2007/08 is estimated to remain at a relatively low level of 117 percent. This represents a surplus of just 17 percent, and would indicate only a small improvement compared to the previous season in the ability of these exporters to meet the global demand for wheat and coarse grains imports.

The ratio of the major exporters' ending cereal stocks to their total disappearance is forecast to plunge to 12.8 percent at the end of the 2007/08 seasons. For wheat, the ratio is the smallest, at only 10.6 percent, which explains the reason for high and volatile market prices. For coarse grains, the ratio is expected to decrease further from the previous year's already low level to 11.7 percent. Strong domestic use of maize in the United States, especially for the production of biofuels, is expected to absorb most of the expansion in its production in 2007. The ratio for rice is expected to remain steady at around 16 percent.

World cereal production is estimated to be up 4.7 percent in 2007, which would represent a relatively strong rebound after two consecutive years of contraction. However, in view of the tightly balanced situation demonstrated by the first 3 indicators, another good crop is needed in the new season.

Early indications point to an increase of 2.6 percent in world cereal production in 2008, which if realized, could contribute in stabilizing the market and help to improve the supply situation.

Following four years of significant and sustained growth from 2003 to 2006, the cereal production of LIFDCs increased just marginally in 2007. Excluding China Mainland and India, which account for some two-thirds of the aggregate cereal output, production in the rest of LIFDCs is estimated down by 1.5 percent after two consecutive years of substantial increases. At a time when international cereal prices are at very high levels, this will put a heavy burden on the financial resources of countries that have to resort to imports during the current year to cover their consumption needs.

The tightening of the global cereal balance in 2007/08 continues to push up prices of all cereals. The most significant increase has been for wheat, for which the price index during the first 9 months (July 2007 to March 2008) of the current marketing season averaged over 91 percent more than in the same period in 2006/07. The maize index gained 23 percent during the same period but this relatively modest increase comes after a 45 percent surge in 2006/07. Following the sudden jump in rice prices in recent weeks, the rice index averaged 46 percent higher during the first three months of 2008 compared to the same period in 2007. Higher prices are contributing to a significant rise in the cereal import bill of the LIFDCs, which is currently forecast to jump by 56 percent in 2007/08 compared to 2006/07, to about USD 39 billion, up USD 6 billion from the previous forecast in February. This sharp increase in the bill caused by the rise in cereal prices underlines the growing financial burden facing the LIFDCs.

1 The first indicator is the ratio of world cereal ending stocks in any given season to world cereal utilization in the following season. Utilization in 2008/09 is a trend value based on extrapolation from the 1997/98-2006/07 period.

2 The second indicator is the ratio of the exporters’ grain (wheat and coarse grains) supplies (i.e. a sum of production, opening stocks, and imports) to their normal market requirements (defined as domestic utilization plus exports of the three preceding years). The major grain exporters are Argentina, Australia, Canada, the EU and the United States.

3 The third indicator is the ratio of the major exporters’ ending stocks, by cereal type, to their total disappearance (i.e. domestic consumption plus exports). The major wheat and coarse grain exporters are Argentina, Australia, Canada, the EU and the United States. The major rice exporters are India, Pakistan, Thailand, the United States, and Vietnam.

4 The fourth indicator shows the aggregate cereal production variation from one year to the next at the global level.

5&6 In view of the fact that the Low-Income Food-Deficit Countries (LIFDCs) are most vulnerable to changes in their own production and therefore supplies, the FAO’s fifth indicator measures the variation in production of the LIFDCs. The sixth indicator shows the annual production change in the LIFDCs excluding China Mainland and India, the two largest producers in the group

7 The seventh indicator demonstrates cereal price developments in world markets based on changes observed in selected cereal price indices.