FAO/GIEWS - Food Outlook No.5, November 1998

CEREALS

SUPPLY/DEMAND ROUNDUP

Latest information points to a slight deterioration in the cereal supply outlook for 1998/99 following a further downward revision of this year’s estimated output. Since the last report there is evidence of sharper than expected reductions in the CIS grain harvest, while prospects for rice crops in several of the major producers in Asia have also deteriorated. World cereal output in 1998 is now expected to decline by some 2 percent to 1 872 million tonnes (including rice in milled terms) from last year's record. At the forecast level, cereal output would be just below the anticipated consumption requirements in 1998/99, and as a result stocks would have to be drawn down. Nevertheless, the global stock-to-utilization ratio in 1998/99, forecast at 17 percent, would remain within the 17-18 percent range that the FAO Secretariat considers the minimum necessary to safeguard world food security. While at the global level cereal stocks are expected to decline slightly, those held by the major exporters, which usually provide the main buffer against variations in world output, are forecast to rise considerably in 1998/99 as a result of an increase in their production and sluggish world import demand. International wheat and coarse grain prices remain generally weaker than a year ago, and food aid availabilities from the major donors are forecast to rise sharply for 1998/99. As 1998 draws to a close, the probability of any further deterioration in the outlook for 1998/99 supply is diminishing. However, the final outcome is still dependent on clarification of the size of the CIS grain harvest and that of rice in some of the major producing countries in Asia which continue to be affected by adverse weather. Winter wheat planting of 1999 crops is already underway in the major northern hemisphere producers under generally favourable conditions.

WORLD CEREAL PRODUCTION, SUPPLIES, TRADE AND STOCKS

SOURCE: FAO
1/ Data refer to calendar year of the first year shown. Rice in milled equivalent.
2/ Production plus opening stocks.
3/ July/June basis for wheat and coarse grains and calendar year for rice.
4/ May not equal the difference between supply and utilization due to differences in individual country marketing years.

The area likely to be sown for next year’s crop is uncertain but early indications point to a possible reduction due to less attractive price prospects, apparently the main influence in the United States, but also to changes in policy, such as in the EC where the land set-aside requirement has been doubled from 5 percent to 10 percent for 1999.

As indicated above, FAO’s latest forecast of world cereal production in 1998 has been revised downward since the last report in September, by 20 million tonnes, to 1 872 million tonnes (including rice in milled terms). The latest revision is due mostly to a reduction of the wheat and coarse grain output estimates for the CIS, where yields have been well below normal in several of the major producing areas because of drought during the summer. The forecast of the rice crop in Asia has also been revised downward since the last report, contributing to the overall reduction. At the forecast level, world cereal production in 1998 would be 2 percent below the 1997 record, but still above the average of the past five years and close to trend.

The forecast for world wheat output has been reduced to 594 million tonnes, 3.5 percent down from 1997 and just below trend. Downward revisions, most notably in the CIS, but also in Asia and South America, more than offset slight increases for North America, Europe and Australia. FAO’s forecast for 1998 world coarse grains output has been reduced to 903 million tonnes, which would be marginally less than the estimated level in 1997. Coarse grain production is estimated to rise significantly in Asia, while smaller increases are also foreseen in Africa, North America, and Central America. However, these increases are more than offset by reductions in South America, Europe, the CIS and Oceania. Global paddy output in 1998 is now forecast to fall to 561 million tonnes, 3 percent down from the record crop last year. This forecast is still tentative as the full impact of severe floods in a number of northern hemisphere countries in Asia, is still being assessed. In the southern hemisphere and around the equatorial belt, where harvesting of the 1998 main season paddy crops is complete, output has fallen due to adverse weather.

FAO’s forecast of world trade in cereals in 1998/99 (July/June) has been revised upward by 2 million tonnes since the last report to 201 million tonnes, but is still 3 percent below the previous year’s volume, with smaller wheat and rice imports accounting for most of the decline. Global imports of wheat in 1998/99 are now forecast at 91.5 million tonnes, 1 million tonnes above the previous forecast, mostly reflecting the likelihood of increased imports in the CIS. The decline vis-à-vis the previous year is mostly expected in Asia due to a combination of increased domestic production in some countries and also reduced purchasing power because of the economic difficulties. The forecast of world trade in coarse grains has also been raised somewhat since the previous report to about 89 million tonnes, which would be 1.5 million tonnes above the previous year’s volume. The bulk of the increase compared to the previous year is forecast in barley and rye, the latter being a relatively minor traded coarse grain. The volume of world maize trade would increase only marginally, although at the regional level, significantly larger imports are expected in some Latin American countries, to be largely offset by reductions elsewhere. Global rice trade in the 1999 calendar year is provisionally forecast to decline sharply from the 1998 record volume as production in many of the major importing countries has recovered from reduced levels in 1997 and early 1998.

Global cereal utilization in 1998/99 is forecast to increase slightly from the previous year to 1 878 million tonnes, but would nevertheless fall slightly below the long-term trend for the first time since 1995/96. The slow-down in the growth of utilization would mostly reflect the economic downturn in Asia which dampened feed demand and, more recently, economic difficulties and sharply reduced harvests in several CIS countries, which could similarly affect feed use of cereals in that region. Thus, despite continuing weak grain prices, global feed utilization in 1998/99 is now forecast to fall by 0.3 percent. Global food consumption of cereals is expected to continue to rise in 1998/99, just keeping pace with the rise in population, while other uses, which comprise post-harvest losses, seeds and industrial uses, are forecast to fall back to more normal levels after a peak in 1997/98.

Based on early indications, cereal food aid shipments in 1998/99 (July/June) are forecast to increase to about 9 million tonnes, up from the reduced 1997/98 level, now estimated at 5.3 million tonnes. After four years of decline, this significant turn-around is largely the result of greater availabilities with the major donors, combined with higher food aid needs. At the forecast level, cereal food aid shipments in 1998/99 would cover 12 percent of the LIFDC’s total imports, compared to just 6.5 percent in the previous year.

International wheat and coarse grains prices have rallied somewhat since late August in response to greater trade activity, although they remain well below those of the corresponding period last year. International wheat prices showed the largest recovery, and by late October, the price of U.S. wheat No. 2 (HRW, fob) was quoted at US$133 per tonne, up US$23 per tonne from August but still about US$20 per tonne less than a year earlier. Similarly, the prices of most coarse grains have also risen since August, although gains were limited by favourable crop prospects in the United States combined with high inventories and dampened import demand for feed. By late October, the price of U.S. maize had risen to US$98 per tonne, up US$14 per tonne from August, but still US$25 per tonne below last year’s level. International rice export prices have been under pressure in recent months due to reduced import demand for the high grades, and the arrival of new crop supplies on the market. As a result, the FAO Export Price Index for Rice (1982-84=100) fell to 131 points in October, down from 132 points in September, but still well above the same period last year.

FAO’s latest forecast points to a reduction in global cereal stocks for crop years ending in 1999 after two consecutive years of expansion. Contrary to earlier indications, cereal carryovers are now expected to fall to 323 million tonnes, 7 million tonnes below the forecast in the previous report, and 8 million tonnes below their revised opening level. The latest revision mainly reflects a large drawdown expected in inventories of some CIS countries to compensate for sharply reduced harvests. Assuming that current forecasts of production and utilization materialize, the global stock-to-utilization ratio in 1998/99 is now forecast at 17 percent, i.e. within the 17-18 percent range considered by the FAO Secretariat to be the minimum necessary to safeguard global food security.