CEREALS

SUPPLY/DEMAND ROUNDUP

Latest indications for the 1996 cereal crops continue to point to a recovery in world production after the sharply reduced harvest last year, but the global supply/demand situation will remain tight. FAO’s provisional forecast of world 1996 cereal output, based on current conditions of crops in the ground and assuming normal weather in the next few months, is 1 828 million tons (including milled rice), 6.5 percent up from 1995 and close to trend. The largest increase is expected in coarse grains output, mostly in the developed countries, while wheat output is also forecast to increase significantly and rice production could rise marginally. If current FAO forecasts for 1996 materialize, aggregate world cereal production would be large enough to meet expected consumption needs in 1996/97 and a small replenishment of stocks could occur. However, the recovery would be very modest compared to the sharp reduction in the current year and cereal reserves would remain below minimum safe levels in 1996/97. Thus, even assuming normal weather for the rest of the season, current indications are that global food security would remain precarious for at least another year.

WORLD CEREAL PRODUCTION, SUPPLIES, TRADE AND STOCKS

The prospect for a continuing tight cereal supply/demand situation has major implications for many Low-Income Food-Deficit Countries (LIFDCs), particularly in sub-Saharan Africa, where the food supply situation is already difficult due to a significant drop in production coupled with reduced global food aid availabilities and sharply higher cereal import costs. In spite of some good harvests, emergency food assistance will continue to be needed in several countries in Africa throughout 1996. (See Special Feature on the Food Supply Situation in Sub-Saharan Africa on page 24). In Asia, domestic food production remains constrained in Afghanistan, due to a shortage of inputs, damaged infrastructure and persistent insecurity which continues to displace people, who together with destitutes and returnees still require international assistance in the months ahead. In Iraq, the food and nutritional situation has deteriorated further in recent months, but some improvement is in sight following the recent signing of the “oil-for-food” agreement (see page 20 for details). In Korea, D.P.R., following severe flooding in 1995, low stocks and the lack of resources for the Government to import food commercially has resulted in a critical situation and major international assistance is required in the months ahead to avoid possible starvation. Also in Mongolia, input shortages and economic difficulties continue to constrain food production and commercial imports, which is resulting in a tight food supply situation. Recent widespread fires may worsen the situation. In Laos, a sharply reduced rice harvest in 1995 following floods resulted in serious food shortages in several provinces, requiring emergency assistance. In Bosnia-Herzegovina, although the food supply situation has eased since the peace agreement in November 1995, some 1.9 million refugees and war-affected people still require emergency food assistance in 1996. In Armenia, a recovery in the cereal harvest is in prospect in 1996. A section of the population is seriously short of resources to purchase food and these, including refugees and internally-displaced people continue to need assistance. In Azerbaijan and Georgia, although some recovery in food production is anticipated in 1996, the food supply situation remains difficult, due to economic problems and reduced imports. In Tajikistan, the food supply situation is extremely serious, with populations most at risk threatened by starvation in the absence of international assistance.

As indicated above, world cereal production in 1996 is now forecast by FAO to recover to 1 828 million tons (including milled rice), 6.5 percent up from the revised estimate of the reduced output in 1995. Larger global wheat and coarse grains crops are expected this year while little change from 1995 is forecast for rice. The bulk of the increase is anticipated in developed countries with output in the developing countries rising only marginally. However, with planting of some coarse grain crops, spring wheat and rice in the northern hemisphere still not complete, and winter wheat plantings in the southern hemisphere still at an early stage, the production forecast for 1996 could be subject to substantial revisions should unusual weather patterns emerge in the coming months.

The latest FAO forecast for world 1996 wheat production is 571 million tons, compared to the revised estimate of 547 million tons in the previous year. Although prospects have deteriorated considerably for the winter crop in the United States, and also somewhat in Europe, this has been offset by improved prospects in North Africa, Asia and Latin America. In the United States, continuing adverse weather in the major winter wheat states up until late May, severely affected the condition of the winter crops and significantly delayed spring wheat planting. Also in Canada, planting of the major spring wheat crop has been delayed by adverse weather. However, with strong international wheat prices remaining an incentive to producers, if weather conditions are normal in the coming weeks, North American producers are expected to continue planting spring crops even after the normal sowing dates and could realize close to original planting intentions. In Europe, the condition of the winter wheat crop has deteriorated somewhat since early April due to prolonged wintry conditions. Average yields are now expected to be somewhat lower than earlier expected. However, these recent reductions in the forecasts for North America and Europe, have been almost completely offset by larger forecasts in several other parts of the globe, particularly in North Africa, and South America.

FAO’s forecast for coarse grains production in 1996 has been increased since the previous report to 883 million tons. This mainly reflects a higher first official forecast for coarse grains production in the United States, and better than anticipated crops being harvested in southern Africa. In the United States, however, in late-May, maize planting progress was still well behind normal in some major producing parts of the mid-west and this casts some doubts on the production forecast. However, as for wheat, despite the shorter growing time now available for crops still to be planted farmers are expected, because of attractive prices, to continue planting maize well past the normal sowing dates and plantings could still reach intended levels. As regards rice, FAO forecast of production in 1996 is 374 million tons in milled terms (paddy: 557 million tons), marginally higher than last year. This forecast is very tentative and assumes that weather conditions during the course of the season will be normal as in 1995. Although planting of paddy rice for the 1996 paddy crop season is now underway in some countries in the northern hemisphere, the bulk of the 1996 rice crop is still to be planted pending the arrival of the monsoon rains in Asia. So far, meteorological reports indicate that the monsoon is progressing normally towards the Bay of Bengal. In the southern hemisphere and around the equatorial belt, the 1996 main paddy crop season is nearing completion.

FAO’s first forecast of world trade in cereals in 1996/97 is 193 million tons, 8 million tons below the estimated volume of imports in 1995/96, which remains at 201 million tons. Both trade in wheat and coarse grains is anticipated to decline, while at this early stage, global trade in rice in 1997 is assumed to remain unchanged from the current year. Imports of wheat and wheat flour (in grain equivalent) in 1996/97 are forecast to fall to 91 million tons, 3 million tons down from the previous year. The bulk of this reduction is forecast in the developed countries where larger harvests are in prospect in some of the major importers, while developing countries wheat imports are also anticipated to fall slightly. For coarse grains, FAO forecasts 1996/97 global trade at 84 million tons, almost 5 million tons down from the volume traded in the previous year. Similarly to the situation for wheat, the largest drop is expected in the developed countries although shipments to the developing countries are also forecast to fall marginally. As mentioned above, it is too early to make a forecast of global rice trade in the 1997 calendar year, but FAO assumes global rice shipments will remain around the current year’s level, now forecast at 18 million tons, down almost 3 million tons from the record level in 1995.

FAO's initial forecast of global cereal utilization in 1996/97 indicates an increase of 36 million tons to 1 805 million tons, or some 2 percent above 1995/96, but still slightly below the trend by about 1 percent. This increase would be due mostly to an anticipated continued strong demand for food use of cereals among the developing countries and for feed use in North America due to the expectation of relatively lower prices for coarse grains. It needs to be stressed, however, that the utilization forecast is highly tentative. Should the assumptions underlying grain production for 1996 not materialize due to adverse weather or other factors, the utilization forecast would probably have to be revised.

International wheat prices have strengthened further since March. After surging up to a record U.S.$ 297 per ton in late April, due to deteriorating prospects for the winter wheat crop and spring wheat planting delays in the United States and active trade, the market eased in May when weather conditions improved somewhat in the United States and early harvesting got underway in some parts of the nothern hemisphere. By late May the price of U.S. wheat No. 2 (f.o.b.) had dropped back down to around U.S.$ 235 per ton, but was still U.S.$ 16 per ton up from the price in late March and some U.S.$ 66 per ton or 40 percent up from the price a year earlier. Maize prices have remained extremely volatile over the past weeks, largely influenced by weather conditions for the new crop being planted in the United States. Prices have risen and fallen sharply several times since March, but reached a peak on 17 May when the price of U.S. No. 2 maize (delivered Gulf ports) reached U.S.$ 214 per ton. However, by late May, as planting progress improved in the United States, prices dropped to U.S.$ 200 per ton, still U.S.$ 87 per ton above the corresponding price a year ago. International rice prices fell in most of April and through the first half of May but rebounded by late May. The FAO Export Price Index for Rice (1982=100) averaged 136 points in May, little changed from the April value but 5 points down from March. In the United states, prices were supported by indications of reduced production in the coming year, while in India, the raising of purchasing prices for exporters strengthened rice export prices.

FAO’s latest forecast of global cereal stocks at the end of the 1995/96 seasons has been reduced by 5 million tons since the previous report to 260 million tons, which would be 51 million tons or 16 percent less than their opening level. Most of the reduction is due to a sharp draw-down in coarse grain inventories among the major exporters although wheat and rice stocks are also forecast to decline. World wheat stocks are now forecast to fall to 101 million tons by the end of the 1995/96 seasons, 9 million tons or 8 percent below their opening level, while for coarse grains, the forecast for closing stocks has been reduced to 105 million tons, 41 million tons or 28 percent down from their high level in the previous year. World rice stocks are forecast to remain close to their opening level at about 54 million tons. On this basis, aggregate world cereal carryover stocks at the end of the current 1995/96 seasons would represent only 14 percent of trend utilization in 1996/97, well below the 17-18 percent range the FAO Secretariat considers the minimum necessary to safeguard world food security.

As indicated earlier, if current 1996 production forecasts materialize, cereal output would be sufficient to meet expected consumption in 1996/97 and would allow for a modest replenishment of stocks after their sharp reduction in the current season. However, the expected increase of some 11 million tons, would raise the stock to utilization ratio only marginally to between 14 and 15 percent, still well below the minimum safe level. The situation would remain particularly tight for wheat as little increase is envisaged in the aggregate stocks of the major exporters, largely due to a significant reduction in the wheat crop in the United States. Thus, even assuming a normal growing season from now until harvests are completed in late 1996, current indications are that global food security would remain precarious, with cereal reserves below minimum safe levels for at least another year. The “normal” weather assumption is the key to the current assessment and it is the only assumption that can be made at this stage for spring-sown crops. Any major weather-related problem affecting plantings and development of crops in North America, or a failure of the monsoon in Asia would alter drastically the outlook for global food security from that currently forecast by FAO. Thus, the situation calls for close monitoring in the coming months.