C E R E A L S

SUPPLY/DEMAND ROUNDUP

The cereal supply and demand outlook for 1995/96 has changed relatively little since the last report in December. Latest information confirms that world cereal supplies are very tight in the current 1995/96 season. World cereal production in 1995 fell about 3 percent from the previous year. To meet currently expected utilization in 1995/96, global cereal stocks will have to be drawn down by almost 50 million tons from their already low opening level to well below the 17-18 percent range that the FAO Secretariat considers the minimum necessary to safeguard world food security. Against this backdrop, global food security in the coming 1996/97 season depends crucially on a good 1996 cereal crop. Although early indications point to a recovery in output this year, the market is extremely volatile because of the erosion of cereal reserve stocks. International cereal export prices, which by the end of 1995 had already reached their highest levels in several years, reflecting the tight situation in the current season, are increasingly being influenced by prospects for the 1996 crops. By the end of January, for example, deteriorating conditions for the United States winter wheat crop caused wheat prices to rise to new season-highs. Wide fluctuations in prices reflecting changes in the outlook for 1996 crops will be the norm in the next few months.

WORLD CEREAL PRODUCTION,
SUPPLIES, TRADE AND STOCKS

SOURCE: FAO 1/ Data refer to calendar year of the first year shown.
2/ Production (including milled rice), plus opening stocks.
3/ Includes milled rice.
4/ July/June basis.

Food security prospects of several developing countries remain precarious. The situation is being aggravated by the exceptionally high cereal import costs and by the reduction in food aid supplies, which are currently forecast to fall in 1995/96 to their lowest level for twenty years. As a result, many low-income food-deficit countries will face serious difficulties in meeting their minimum import needs.

In Africa, food problems persist in the Horn despite some good crops. Although Ethiopia has harvested an above-average crop, the sub-region continues to be afflicted by localized droughts. Poorly distributed rains have hit crops in Eritrea where food aid needs for 1996 have increased and Somalia’s food supplies have been jeopardised by continuing civil strife and poor rains last season. Food availability will be tight in Sudan as a result of a fall in production and a renewal of hostilities in the south. The crisis in the Great Lakes region is far from over. Insecurity in parts of Burundi is disrupting food production and marketing activities and the country remains on the verge of a food crisis. The repatriation of Rwandan refugees from Tanzania and Zaire continues to be slow. In southern Africa, where 1995 crops were sharply reduced by drought, the latest information on commercial import deliveries and food aid pledges to the sub-region suggests that there could be exceptional price hikes in the lean period before the new harvest unless more imports start arriving in the next few weeks. By contrast, in most western African countries, bumper crops for the second consecutive year mean that markets are well supplied for 1996 except in some localized areas where shortages are expected. In Asia, the food situation remains particularly difficult in Afghanistan, Iraq, Laos, the Democratic People’s Republic of Korea and Mongolia. In Sri Lanka, a large number of people displaced by civil conflict are urgently in need of food assistance. In the CIS, the cereal supply situation remains precarious in several vulnerable food deficit states, notably Tajikistan but also in Georgia and Azerbaijan.

FAO’s latest estimate puts world cereal production in 1995 at 1 889 million tons, 8 million tons above the December figure, mainly reflecting upward revisions for wheat output in Asia. At the forecast level, world cereal production in 1995 would be 58 million tons or 3 percent less than in 1994 and well below trend. Virtually all of the decline is due to the sharp reduction in coarse grains production in the United States and the CIS. Global output of wheat is now put at 546 million tons, some 5 million tons above the forecast in December, mostly due to upward revision in the estimates of production in China, Canada and Australia. FAO’s forecast for global coarse grains production in 1995 remains unchanged from the previous month at 797 million tons, 85 million tons or 10 percent down from the 1994 crop and well below trend. Assuming normal production from the second crop, global output of paddy for the 1995 season is now expected to reach about 548 million tons, which would be about 1.6 percent up from the previous year, and a record.

Early prospects for 1996 crops point to a recovery in output. Increased winter wheat plantings are reported in several major producing areas, and there are strong indications that spring sowings will also expand. In the United States, winter wheat plantings are estimated to have expanded by 7 percent. However, the condition of many crops is below-average due to lack of moisture in the autumn, and adverse weather in January. In Europe, winter wheat plantings are also reported to have increased in most of the EC countries, and in some eastern parts of the region. Weather conditions have been favourable so far and snowcover in northern parts is generally sufficient to protect crops from frost. In the CIS, the early outlook for the 1996 harvest is somewhat better than last year with expanded winter grain seedings and an increase in ploughed area for spring planting reported. In Asia, the outlook for winter wheat is uncertain due to dry conditions in several parts.

Regarding 1996 coarse grains, crops are in the ground in some of the major southern hemisphere producing countries. In southern Africa, the outlook is good following generally plentiful rains and output is set to increase considerably from last year's drought-reduced volume. By contrast, in South America, exceptionally dry weather is adversely affecting development of the main crop in Argentina. However, lower anticipated yields could be offset by expanded plantings and an average crop is still expected. In Brazil, although down from last year's record, coarse grain production is expected to remain above average. In the northern hemisphere, some winter coarse grains are already in the ground but the bulk of the crops will be sown in April/May. In the United States, the Area Reduction Programme (ARP) for maize has been cut from 7.5 to zero percent, pointing to a significant expansion of plantings. Coarse grain seedings are also projected to rise somewhat in Europe and the CIS.

The bulk of the 1996 paddy crop has still to be planted. However, in the southern hemisphere and around the equatorial belt, where the 1996 main season is well advanced, the outlook is uncertain. Harvesting of this crop generally starts around March, and in a normal year, this crop accounts for about 12 to 15 percent of the world’s annual production.

FAO's forecast of world trade in cereals in 1995/96 is now put at 201 million tons, slightly up from the previous report and close to the estimated volume in 1994/95. While wheat imports are forecast to increase somewhat in 1995/96, those of coarse grains are expected to remain unchanged. A record volume of rice was traded in 1995. The forecast for world imports of wheat and wheat flour (in wheat equivalent) remains at 95 million tons, 2 million tons up from 1994/95. Of the total, developing countries' imports would account for about 75 million tons, 1.4 million tons above the previous year. The forecast for world trade in coarse grains in 1995/96 is 88 million tons, close to the revised estimate for 1994/95. A significant increase in shipments to the developing countries, in particular in Africa and Asia, would be offset by smaller imports by developed countries, especially the CIS. FAO's latest estimate of world rice trade in 1995 has been revised upward slightly to 19.1 million tons, 2.6 million tons up from 1994, and a record. Rice trade in 1996 is now tentatively forecast at 18.1 million tons, significantly more than earlier projections but still down from 1995, following an improvement in domestic supplies in 1995 in some major importing countries, in China in particular.

International cereal prices have risen further over the last two months and with new crop harvests still months away and supplies tight, continuing volatile market and price conditions are likely in the next few months. Wheat prices gained strength due to active buying on the market, the imposition of a wheat export tax by the EC, and concerns for the United States hard red winter wheat crop. By late January, the price of United States hard winter wheat (fob, Gulf) had risen to U.S.$ 215 per ton, above prices in late November, and nearly 38 percent higher than a year earlier. Maize export prices also continued their steady rise in recent weeks following very active trading and a persistently tight market. By late January, the price of United States No 2 yellow maize (delivered Gulf ports) rose to over U.S.$ 163 per ton, U.S.$ 19 per ton up from the price in November, and U.S.$ 57 per ton or 54 percent up from a year ago. International prices of good quality Thai rice rose in January because of a tightening of export supplies. At U.S.$ 380 per ton the price of Thai 100% fob Bangkok was U.S.$ 30 per ton above the November quotations and 29 percent above a year earlier. By contrast, the price of broken rice fell substantially but remained well above last year's quotations.

FAO’s latest forecast of aggregate world cereal stocks at the end of the 1995/96 seasons has been slightly revised upward to 267 million tons. Nevertheless, global cereal stocks would still be 49 million tons or 15 percent lower than their opening volume. World wheat stocks at the end of the 1995/96 seasons are now put at 107 million tons, somewhat more than reported in December, but still the smallest volume since 1980/81. The forecast of end-of-season coarse grain stocks has been revised further downward, since December, and now stands at 104 million tons, 43 million tons or 29 percent below their opening level. World rice stocks are also forecast to decline, to 56.6 million tons by the end of the marketing seasons in 1996, about 2 million tons below their opening level.

As indicated earlier, to meet currently expected utilization in 1995/96, global cereal stocks will have to be drawn down by over 15 percent from their already low opening level to well below minimum safe levels. Just to meet currently expected below trend utilization in 1996/97 and to prevent a further erosion of world cereal stocks, a minimum increase in 1996 cereal output of about 4 percent will be required. A larger increase would be needed to reconstitute depleted reserve stocks. At this stage of the season, with most winter cereals in the northern hemisphere still dormant, and the bulk of the major coarse grain and paddy crops in the northern hemisphere yet to be sown, it is still too early for a forecast of aggregate global cereal output in 1996. However, initial indications for crops already in the ground and those to be sown later this year suggest that a positive response to the tight supply situation and higher prices is underway and increased production could be achieved. The outlook for the 1996 winter wheat crops already in the ground is mostly satisfactory to favourable, with increased plantings reported in several major producing areas, and indications that spring sowings will also expand. Thus, prospects are good so far for an increase in global wheat output in 1996, notwithstanding the recent cold weather in the United States. For coarse grains, early prospects also point to an overall increase in production. Conditions are good for crops in southern Africa, and satisfactory in South America. Significantly expanded sowings are expected in the United States this spring, but much will depend on the weather at planting time. Although an expansion in total cereal production in 1996 is in the offing, it is not at all certain at this stage that the increase will be large enough to ease the current tight supply-demand situation. Failure to do so could have a further marked effect on international cereal prices, and on food security prospects, particularly of low-income food-deficit countries. The situation is volatile and calls for close monitoring in the months ahead.