FAO/GIEWS - Food Outlook No. 3, June 1998 Page 6

 

	REVIEW OF THE 1997/98 SEASON
	TRADE PROSPECTS FOR 1998/99

 

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1/ World trade in wheat and coarse grains is based on and expressed in estimated imports delivered through June 30th of the July/June trade year. Some late-season purchases may be included in the next season if deliveries occur after June 30th. In general, exports and imports are calculated based on estimated shipments and deliveries during the July/June trade season and thus they may not be equal for any given year due to time lags between shipments and deliveries.

REVIEW OF THE 1997/98 SEASON

The latest estimate for world wheat and wheat flour (in wheat equivalent) imports in 1997/98 (July/June) is 95 million tonnes, some 1.5 million tonnes lower than in 1996/97 but 2.5 million tonnes higher than was reported in April. This month's upward revisions mainly reflect higher imports for Algeria, Israel, Tunisia and the Republic of South Africa, which would more than offset downward revisions for China, Bulgaria and Poland. At the currently estimated level, world trade in wheat in 1997/98 is about 2 million tonnes higher than was first forecast at the beginning of the season. The continuing weakening of international wheat prices, particularly during the second half of the season, has stimulated larger wheat purchases by several countries.

The estimate of 1997/98 wheat imports for Africa has been raised in recent months as the impact of the drought on 1997 harvests in Algeria and Morocco proved more severe than expected earlier. Imports by Ethiopia are also estimated to increase mainly because of a decline in 1997 production. By contrast, wheat imports by most countries in Central and South America are expected to remain below or at best equal the previous year's levels. Wheat purchases by Mexico are estimated to decline due to a slightly higher domestic output. Imports by Brazil are also seen to decline, despite smaller production. Larger carryover stocks and the continued of the ban on imports from the United States of wheat containing the fungus Tilletia Controversa Kuhn (TCK), which was finally lifted in April 1998, are among the main reasons for lower imports by Brazil.

In Asia, China's wheat purchases in 1997/98 are likely to fall to 3 million tonnes, some 2 million tonnes less than in the previous year mainly because of a record domestic output. Wheat imports by the Islamic Republic of Iran in 1997/98 are also estimated to decline sharply, by more than 30 percent, due both to a larger harvest and higher carryovers. By contrast, imports by India are now expected to remain close to the previous year's volume reflecting a continuing fast growth in domestic consumption and the recent decision by the Government to purchase an additional large volume of wheat from Australia, mainly to contain the rise in domestic wheat prices.

In Europe, a strong recovery in wheat production in Bulgaria enabled the country to return to self-sufficiency after substantial imports in the previous year. In Poland, imports are expected to drop by almost 80 percent mainly due to large purchases in 1996/97 which resulted in an unprecedented increase in the level of stocks. In the EC, the estimate of wheat imports has been raised to 2.6 million tonnes, almost 1 million tonnes above the previous year's level mainly due to lower production as well as poorer quality of the 1997 crop.

Turning to exports in 1997/98, several major wheat exporting countries expanded their export credit guarantees in order to boost sales, particularly to Asian countries affected by the financial crisis. Nevertheless, as shown in Table A.3, sales from Argentina and Australia are expected to remain below their previous year's levels, in part because of their reduced production, while lower exports are also anticipated from the EC, reflecting the Commission's continued cautious approach to exports during the season. On the other hand, Canada and the United States have expanded their sales while shipments from smaller exporters, such as Hungary, are also estimated to increase because of larger exportable supplies.

SOURCE: FAO
1/ Highly tentative.

The outbreak of the financial crisis in Asia has reduced consumer spending on value added commodities, such as meat, in the affected countries and, as was expected, lowered their import demand for feed grains, especially for maize during the second half of the season. Thus, the current estimate for imports by the Republic of Korea, Philippines and Malaysia are lower than anticipated at the beginning of the year. In addition, much smaller imports are expected in Europe where purchases by Bulgaria and Poland are down from the previous year, reflecting larger domestic production. Import estimates for the EC have been further adjusted downwards mainly because of problems associated with the acceptance of imports of genetically modified maize from the United States which greatly slowed the pace of the EC's maize purchases during the first half of the season. By contrast, weaker international prices and strong domestic demand, particularly for maize, are among the principal reasons for larger imports by Algeria, Brazil, Peru and Uruguay. In addition, imports by several countries in Sub-Saharan Africa are expected to rise substantially in order to cover domestic maize shortfalls. Significantly higher imports are also estimated for the Democratic Republic of Korea, mainly in the form of food aid.

As one the main features of the 1997/98 season, larger exports are estimated only from the less traditional exporters, such as China, some countries in eastern Europe and the CIS, rather than from the world's five major exporters. In fact, as shown in Table A. 3, coarse grain shipments from the major exporting countries are estimated to be down from the previous year. Aggregate exports from the United States are estimated to be lower than in 1997/98 mainly due to lower maize exports while shipments of barley are anticipated to increase to their highest volume in 5 years. Total coarse grain exports from the EC are also declining significantly, despite large export availabilties of barley. The lack of strong import demand in the second half of the season is expected to curb export sales from the EC despite restitution payments of up to US$48 per tonne. By contrast, among the less traditional exporters, China is likely to triple its exports in 1997/98 despite lower domestic production. Large stocks combined with more competitive prices due to the proximity of China to major maize markets in Asia are among the main reasons for the boost in sales from China.

The forecast for global rice trade in 1998 has been raised from the last report by 500 000 tonnes to a new high of about 22.1 million tonnes, up by 3.1 million tonnes from the revised 1997 trade and more than 1 million tonnes above the 1995 record. The upward revision is largely attributed to the continued unfavourable growing conditions in several of the major importing countries which are boosting their import requirements. The import estimate for the Philippines has been raised by 250,000 tonnes to 1.2 million tonnes against 900 000 tonnes in 1997. Import forecasts for other countries, including Malaysia, the EC, Algeria, Madagascar and the Gambia were also raised by an aggregate of 250 000 tonnes from previous expectations.

Indonesia's import requirements are forecast to rise by 2.5 million tonnes to a record 3.5 million tonnes in 1998 from the 1 million tonnes estimated for 1997. Some of its import needs will be supplied under preferential terms. The Government of Japan, in particular, has announced its intention to lend 500 000 tonnes of rice to Indonesia which the country is to pay back at a future date, in kind or to reimburse in cash. In addition, Japan will provide Indonesia with a financial grant that would enable it to purchase an additional 100 000 tonnes of rice from the international market. Elsewhere, Latin American countries are confirmed to remain large importers in 1998, given the prospects for lower paddy output due to weather-related damages. Brazil is expected to purchase 1.2 million tonnes, 10 percent more than last year. A greater share of its imports is likely to originate from sources other than Argentina and Uruguay, its traditional suppliers, since adverse weather conditions in those countries have limited their ability to export. Other notable importers in the region include Colombia and Peru, which are anticipated to buy 250 000 tonnes each in 1998.

On the export side, shipments by several countries are now expected to be larger than originally anticipated. Sales by the United states were raised by 300 000 tonnes from the previous report to 3 million tonnes, the highest in three years. Although India's rice is generally less price competitive than that from Viet Nam and Pakistan, its export forecast for 1998 has been raised by 200 000 tonnes from the previous report to 2.2 million tonnes, up 12 percent from 1997. The upward adjustment is attributed to the good 1997 paddy season and favourable world prices. Shipments by Japan are projected to reach 600 000 tonnes, or 100 000 tonnes more than earlier anticipated, largely reflecting the preferential sale to Indonesia. This would be up significantly from the 114 000 tonnes that Japan shipped in 1997. The export forecast for Egypt has also been raised by over 100 000 tonnes from the previous report to a record 480 000 tonnes. Bumper harvests over the last few years have enabled Egypt to almost treble export shipments between 1995 to 1997. By contrast, the projected export volume by Viet Nam was lowered by 200 00 tonnes to 3.8 million tonnes, which would still be an all-time high for that country. The reduction was triggered by the uncertainty surrounding the availability of exportable supplies for the rest of the season following shipments of about 2 million tonnes during the first four months of the year, more than double the amount that was exported during the first four months of 1997. The temporary freeze on new export sales that was imposed by the Government of Viet Nam in April to ensure domestic price stability and food security in the midst of drought conditions in different parts of the country is still in place. Shipments from Thailand, the leading rice exporter, are forecast at 5.6 million tonnes, unchanged from that previously anticipated and above to the 1997 level of 5.3 million tonnes. In the first four months of the year Thailand's exports were 2.4 million tonnes, compared to 1.5 million tonnes in the same period in 1997.

TRADE PROSPECTS FOR 1998/99

Global wheat trade in 1998/99 is likely to contract sharply and fall to 90 million tonnes, 5 million tonnes below the estimated imports in 1997/98 and the lowest level since the mid-1980s. Prospects for larger domestic crops in Asia and northern Africa suggest a smaller import demand for wheat. The largest decline is expected in Asia, where total wheat imports could fall by 3 million tonnes, or 7 percent. Imports by China are likely to decline for the third consecutive year while purchases by the Islamic Republic of Iran and Pakistan are also likely to be sharply reduced. In Africa, given the prospects of larger crops and in particular a recovery in northern Africa, imports are forecast to fall by more than 2 million tonnes, or 10 percent. In Europe, the expected increase in production combined with relatively large carryover stocks, especially in the EC, are also likely to result in smaller imports. By contrast, total imports into South America could rise slightly, mainly in anticipation of larger purchases by Brazil and Chile due to reduced domestic supplies. Wheat imports into other regions are forecast to remain unchanged from the estimated 1997/98 levels.

Regarding exports in 1998/99, given the projected decline in import demand, wheat sales from all of the five major exporters except the EC are also likely to decline or remain the same as in 1997/98, although competition for market share could prove even more intense than in the current season. The EC is seen to increase its wheat sales slightly, after a decline in 1997/98. Elsewhere, larger exports are anticipated from Hungary and Turkey due to bigger exportable supplies.

International trade in coarse grains in 1998/99 points to an expansion of over 3 million tonnes, or 4 percent, which would bring the world total to 91 million tonnes. This increase would be on account of both larger shipments of maize mainly to several countries in southern Africa and to a lesser extent of barley. At this early stage, maize imports are seen to rise by about 3 million, to 67 million tonnes, while imports of barley are anticipated to approach 15 million tonnes, up 500 000 tonnes from the estimated levels for 1997/98. Trade in other coarse grains is likely to remain at levels similar to the previous year.

In Africa, maize imports are seen to rise sharply in 1998/99. While in Egypt strong demand from the livestock and poultry sectors are likely to encourage larger maize purchases, most of the expected increase in imports would be in southern Africa, where crop reductions associated with El Niño in some countries are expected to lift import requirements, particularly in Zambia. In addition, Zimbabwe is expected to return to the import market mainly to replenish stocks while substantially larger imports are also anticipated in Lesotho and Namibia. Only a few African countries including Morocco and Tanzania, are expected to import less following an anticipated recovery in domestic production.
In Asia, the financial crisis, which curbed imports of several countries during the 1997/98 season, could prevent imports from rising significantly in the coming season as domestic feed consumption is expected to remain below trend. In addition, smaller purchases are forecast for Thailand given the prospects of a larger domestic maize production, while imports by Indonesia could also decline should there be a further worsening of the economic situation. By contrast, Saudi Arabia could increase its barley imports in 1998/99, after a decline in the 1997/98, while slightly higher imports are also anticipated for Israel and Turkey.

Elsewhere, imports of maize and sorghum by Mexico could increase next season, to some degree due to strong growth in the poultry sector. Similarly, larger maize import may be required by Brazil to meet the feed demand of its fast growing poultry sector in view also of a likely reduction in the availability low-quality domestic wheat used for feed. Imports of maize in the EC are likely to increase slightly following the recent approval of imports of certain varieties of genetically modified maize produced in the United States.

Export availabilties are expected to be sufficient to meet the anticipated increase in import demand. The relatively large increase in world coarse grain trade projected for 1998/99 could benefit nearly all major exporters, with the exception of Australia. As the bulk of the increase would involve maize, exports from Argentina and the United States are projected to expand most. Exports of barley from Canada and the EC could also rise after reduced sales in 1997/98. However, shipments from Australia could decline, due to the anticipated reduction in domestic barley production. Likewise, other smaller exporters, such as the Republic of South Africa, Zimbabwe and China, are expected to ship less due to lower export availabilities.