FAO/GIEWS - Food Outlook No.3 - June 1999 p. 4

TRADE ^1/

Early prospects for cereal trade in 1999/2000 points to a modest recovery

At 212 million tonnes, the first forecast of the global trade in cereals for 1999/2000 points to some 5 million tonnes increase over the reduced imports estimated for this season. The bulk of this increase would result from larger wheat imports, whereas, trade in coarse grains is expected to increase by only a little. With regard to rice, although it is too early to make a forecast for the calendar year 2000, FAO tentatively assumes trade will decline further from the 1999 level because of improved production prospects for 1999/2000, particularly among those importing countries which were instrumental in pushing the volume of international rice trade to above-average levels in the past two years.

Based on current indications, international wheat trade in 1999/2000 (July/June) could rise to 99.5 million tonnes, up 5 million tonnes from this season's reduced imports and close to the volume imported in 1997/98. In part, some of the next season's anticipated recovery in wheat trade would result from this year's delays in food aid shipments which are expected to be carried forward into the next season. This would be the main factor in Europe, where a twofold increase in wheat imports into the Russian Federation is anticipated, from 1.5 million tonnes in 1998/99 to 3 million tonnes in 1999/2000. In other areas, wheat imports are forecast to rise because of expected lower production. This is mainly the case in Asia where several countries, namely China, the Islamic Republic of Iran and Pakistan would be affected. In Africa, aggregate imports are expected to remain close to this season, but Morocco is expected to increase its foreign wheat purchases because of a poor crop anticipated this year, while a more favourable wheat crop in Algeria is expected to lead to smaller imports by that country. Imports into South America are seen to decline, mainly reflecting a likely decrease in purchases by Brazil, in anticipation of larger domestic output.

The anticipated rise in wheat import demand next season would mean higher export opportunities for the five major wheat exporters, but given the small size of the increase, the possibility for any single exporter to expand its market share would be limited. In addition, large export supplies in other countries could also intensify competition. Latest indications already point to ample supplies in India, part of which could eventually be exported abroad while Turkey, Kazakhstan, Hungary and the Ukraine are also likely to remain large exporters next season.

Preliminary indications suggest that global trade in coarse grains in 1999/2000 (July/June) would remain generally stagnant for the fourth consecutive year at around 92.5 million tonnes. At this level, world imports of coarse grains would only be some 1.7 million tonnes more than the estimated imports in 1998/99. Factors which have already contributed to slow demand in the past two years are likely to prevent any significant recovery in world trade in the next season. While the prospects for faster economic recovery in countries affected by the financial crisis, particularly in Asia, have improved in recent months, a return to a continuing rapid increase in feed demand, as was witnessed in the early 1990s, may be difficult to envisage for at least another year. In addition, large availability of low quality wheat, which in many countries could substitute for coarse grains in animal feeds, will also continue to constrain world import demand for major coarse grains, such as maize and barley.

Imports into Asia, the largest importing region, are currently put at 54 million tonnes, slightly above this year. This forecast assumes higher maize imports by the Republic of Korea due to a likely upturn in domestic feed demand; larger barley and maize imports in the Islamic Republic of Iran because of drought, and slightly higher maize imports by Indonesia and Malaysia, due mostly to some recovery in their poultry sectors. By contrast, imports by almost all other regions would remain close to this season's levels. The only exception may be Europe, where imports may increase somewhat, mostly because of a possible increase in rye and barley purchases by Poland.

With total world trade expected to rise only slightly, prospects for any significant increase in coarse grain exports by major exporters will be even more limited than in the case for wheat. In addition, it is likely that China will remain an important exporter of maize next season, while large sales of mostly maize and barley from several other countries, such as the Russian Federation, Hungary, Romania and the Ukraine are also anticipated. However, barley exports from Turkey could decrease, mostly because of smaller domestic production, while maize sales from the Republic of South Africa will also be substantially reduced following two consecutive years of reduced production.

OVERVIEW OF WORLD CEREAL IMPORTS - FORECAST FOR 1999/2000

Review of world cereal trade in 1998/99

The latest estimate of world cereal imports in the current 1998/99 season is around 207 million tonnes, down 9 million tonnes, or 4 percent, from the previous year, the smallest since 1994/95 and about 1 million tonnes lower than was anticipated in April. Smaller wheat and rice imports account for almost all the estimated contraction in global cereal trade in 1998/99 while imports of coarse grains, especially maize, have changed little compared to the previous year. The increase in cereal donations as food aid has prevented world trade from declining even more drastically this year, though this increase is likely to be lower than earlier anticipated, mostly because of delays in shipments from the United States and the EC to the Russian Federation.

As the 1998/99 (July/June) trade season for wheat draws to a close, the estimates for imports are getting firmer. World trade in wheat and wheat flour (in wheat equivalent) is now estimated to reach around 95 million tonnes, down over 4 million tonnes from already reduced imports in 1997/98 and 1 million tonnes lower than was reported April. The main feature this season has been the rise in food aid component in total trade volume. Out of the estimated import volume of 95 million tonnes in 1998/99, some 6 million tonnes (or 6 percent of the total) would be in the form of food aid. This compares to around 3.8 million tonnes (4 percent) in the previous season, when total imports stood at 99 million tonnes. Thus, the drop in commercial wheat trade in 1998/99 would be around 7 million tonnes, which, by far, represents the most significant contraction since 1992/93.

The underlying factors contributing to smaller trade in 1998/99 are found mostly in Asia, where total imports are estimated at 45 million tonnes, down 3.5 million tonnes from the previous year. Mostly because of higher domestic production, several countries, such as China, the Islamic Republic of Iran, India and Pakistan, have cut their imports sharply in 1998/99. In Indonesia, a combination of financial constraints, large stocks of wheat flour and higher imports of rice have resulted in a significant decline in wheat imports this season. By contrast, the gradual economic recovery in the Republic of Korea and the low international wheat prices have led to a small increase in wheat purchases by this country. However, the largest rebound in imports is expected in Bangladesh, and that mainly in the form of food aid in response to food shortages caused by floods. At around 23 million tonnes, total imports into Africa in 1998/99 would be slightly less than in the previous year, due essentially to reductions in imports by Morocco and Tunisia where larger 1998 production has resulted in higher domestic availabilties. Imports by most other countries are estimated to remain unchanged from the previous year.
Reduced wheat imports by the Russian Federation combined with smaller purchases by the EC, following a record production, have resulted in a decline in total imports into Europe to an estimated 7 million tonnes, compared to 8.8 million tonnes in 1997/98. The most significant development in Europe this season concerns the Russian Federation where, following this month's downward revisions, imports could be as low as 1.5 million tonnes, almost 50 percent below the previous year despite the poor harvest. While the bulk of this year's imports would be in the form of food aid, the slow pace of deliveries so far from the major donors to the Russian Federation will result in a postponement of a large portion of shipments until the next season. Elsewhere, imports into Latin America and the Caribbean could reach 16.7 million tonnes, up 1.5 million tonnes from the previous year, mostly because of larger purchases by Brazil, owing mainly to lower domestic production.

Global trade in coarse grains in 1998/99 (July/June) is estimated at around 91 million tonnes, up slightly from last year and unchanged from the previous report. The coarse grain market in 1998/99 has proved rather eventless, the main feature being the continuing negative impact of poor economic growth performance in Asia weighing on feed utilization and, consequently, constraining import demand in several countries. Among the major coarse grains, only imports of barley and rye are seen to increase. Global barley trade is estimated to approach 16 million tonnes, up 1.5 million tonnes from the previous year, mostly because of larger purchases by several countries in Asia and North Africa. Imports of rye may reach 1.2 million tonnes, up 300 000 tonnes from last year, but smaller than was anticipated earlier because of delays in the EC food aid shipments to the Russian Federation. However, imports of sorghum would decline by about 300 000 tonnes to 7 million tonnes, mostly because of reduced purchases by Mexico, which had a good crop in 1998. Trade in maize, by far the largest traded coarse grain, is likely to remain unchanged at about 65 million tonnes.

This rather stagnant trade prospect facing the coarse grain markets at the global level is also highly representative of the situation at the regional levels. In Asia, imports in 1998/99 are currently estimated at around 53 million tonnes, down 1 million tonnes from last year's reduced volume, mostly because of smaller maize purchases by the Republic of Korea and Indonesia due to weaker feed demand. In Africa, imports are put at 11 million tonnes; an increase of 1 million tonnes over the previous year, mostly because of larger barley imports by several countries in North Africa due to drought-damaged domestic production. In Europe, imports by the EC and the Czech Republic are seen to rise marginally, mostly due lower output. Imports into Latin America and the Caribbean are put at slightly over 17 million tonnes, up around 1.5 million tonnes from the previous year. The bulk of the increase from last year would be due to larger maize purchases by Brazil and Mexico, while in the aftermath of the hurricane Mitch, imports of several affected countries in Central America have also risen.

The current forecast for rice trade in 1999 continues to point to a weakening of import demand compared with last year, when international rice trade surged to an all-time high. Although FAO's forecast for global rice trade in 1999 has been increased by 200 000 tonnes from the previous report to 21.8 million tonnes, this level would still be some 5.7 million tonnes below the revised 1998 record. The anticipated contraction stems from an improved production performance in 1998 and/or the expectation of stepped-up production in 1999 in many of the major importing countries whose output in 1997 and/or 1998 was reduced by El Niño-related weather problems.

Most of the upward revision in 1999 rice trade forecast, since the last report, reflects a 400 000 tonnes increase in Bangladesh's anticipated imports to 1.7 million tonnes. Although output from the Boro crop could be a lot higher than originally thought, the country would still need to import a substantial amount to meet domestic requirements and prevent a drastic fall in stocks. In addition, import shipments by Indonesia were adjusted upwards by 200 000 tonnes to 2.7 million tonnes. The expected increase in the 1999 paddy output would need to be supplemented with imports to meet the local demand and maintain a reasonable level of stocks. On the other hand, purchases by China (Mainland), mostly high quality rice, were lowered by 200 000 tonnes from the last report to 400 000 tonnes, based on imports to date. Anticipated import volumes for Sri Lanka and Malaysia were reduced by a total of 200 000 tonnes following better production prospects. The 1999 expected import levels for the Philippines and Brazil in 1999, both of which were large rice importers last year, were left unchanged from the previous report at 1.2 million tonnes and 1 million tonnes, respectively.

On the export side, the expected shipments by India were augmented by 200 000 tonnes from the previous report to 2.5 million tonnes in line with the upward adjustment to its 1998-99 production and anticipated larger rice deliveries to Bangladesh. Projected sales by China (Mainland), which consist mainly of lower grade rice, were also raised by 300 000 tonnes to about 1.4 million tonnes based on exports to date. During the first four months of the year, China exported a total of about 660 000 tonnes, most of which were destined to Indonesia and the Philippines. By contrast, Viet Nam 's export forecast has been revised downward by 300 000 tonnes based on its exports so far in the year, in the light of weak demand and falling international prices. In the United States, the market continues to be generally quiet and, the US Rice Producers Association and the US Rice Federation are urging the Government to increase its use of rice as food aid. Likewise, rice growers in Argentina are, reportedly, searching for alternative markets to absorb some of its exportable supplies, since Brazil, its traditional customer and Mercosur partner, is expected to import less following prospects for increased production. Expectations regarding export shipments from the other major exporters were unchanged from previously reported volumes. Thailand exported a total of 1.8 million tonnes of rice during the period January to April 1999, down by about 25 percent from the level for same period in 1998. During the first four months, Nigeria emerged as the biggest recipient of Thailand rice.

CARRYOVER STOCKS

• After rising for three consecutive years, world cereal stocks expected to fall in 1999/2000
• Review of the 1998/99 season
  

After rising for three consecutive years, world cereal stocks expected to fall in 1999/2000

Assuming current indications of a reduction in the world cereal crop in 1999 materialize, early indications for global cereal carryovers suggest a significant decline for the first time since 1996, despite the expected slow growth in utilization next season. Consequently, world cereal stocks at the end of countries' marketing seasons in 2000 are tentatively put at 315 million tonnes, as much as 23 million tonnes, or 7 percent, below their opening levels. Based on this, the stock-to-use ratio could

fall slightly below the 17 to 18 percent range which the FAO Secretariat considers as the minimum necessary to safeguard world food security and points to a tighter world supply/demand balance. With regard to individual cereals, wheat stocks are likely to fall the most, to 122 million tonnes, down 16 million tonnes from the opening level. Global coarse grains stocks are projected to reach about 140 million tonnes, down 6 million tonnes from their opening levels while the decline in rice stocks is expected to be limited to about 1 million tonnes. The decline is forecast to be mostly concentrated in the stocks held by importing countries. The fall in total cereal stocks held by major exporters is expected to be small, considering the relatively good production outlook and the likelihood of continuing slow growth in their domestic utilization and export prospects. In fact, despite the anticipated draw down of stocks held by major exporters in view of the sharp decline in carryovers in importing countries, the overall global share of stocks held by the major exporters is expected to increase for the fourth consecutive year.

Review of the 1998/99 season

World cereal stocks at the close of the individual countries' current 1998/99 marketing seasons are estimated at about 337 million tonnes, up 2 million tonnes from their relatively high opening level and some 7 million tonnes more than was reported in April. The estimate for ending stocks has been raised this month mostly due to upward revisions to production estimates for 1998 and slower growth in utilization. Compared to their opening levels, wheat and coarse grains stocks are currently estimated to increase further, while rice inventories are likely to decline. The bulk of this year's accumulation of cereal stocks is estimated for the major exporting countries where large production combined with generally lower export opportunities have resulted in a third straight year of stock build-up. At around 153 million tonnes, total cereal stocks in major exporting countries would represent 45 percent of the global share, which is similar to the levels during the late 1980s and points to a continuous recovery since the sharp draw down in 1996.

World stocks of wheat for national crop years ending in 1999 are estimated to reach 138 million tonnes, slightly above their opening level despite a significant decline in the size of carryovers in several importing countries. Wheat stocks in China and in the Russian Federation are expected to be drawn down most drastically, by some 11 million tonnes in total, mainly because of smaller production. By contrast, combined stocks in the five major exporters, as a group, is estimated to increase for the third consecutive year to reach 56 million tonnes, up 16 million tonnes or 40 percent from their opening level. This is mostly attributed to a substantial rise in production, especially in the EC and the United States, while subdued world demand has also prevented any significant expansion in exports. In Canada, the main reason for the anticipated increase in stocks was a delay in export shipments caused by striking dockworkers in Vancouver. In the EC, despite a sizeable growth in domestic use and even a modest rise in exports, last year's record crop has triggered a further increase in intervention stocks, stretching storage capacity to its limits and causing space shortages in some countries.

WORLD CARRYOVER STOCKS OF CEREALS

SOURCE: FAO

Following near record levels of output in 1998, world carryover stocks of coarse grains for crop years ending in 1999 are estimated to increase to 146 million tonnes. This month's forecast is 3 million tonnes more than was reported in April, reflecting the latest official estimates for end-of-season stocks in the United States which point to higher carryovers than were anticipated earlier. Overall, this year's anticipated build-up in major exporting countries would more than offset the large draw-down of stocks expected in importing countries, especially the Russian Federation.

Total carryover stocks among the major coarse grains exporting countries is estimated to increase for the third consecutive year, mostly because of large production and weak export demand. The biggest increase (12 million tonnes, or 32 percent) is anticipated in the United States, where the 1998 maize crop was second largest on record. This increase in maize production is not expected to be absorbed by larger domestic use and increased exports during the 1998/99 marketing season. In the EC, ending stocks are estimated to remain close to the previous year's high level, while barley and rye intervention stocks may rise further despite a decline in their production and higher exports. This is mostly due to lower domestic utilization, as ample supplies of low quality wheat have substituted for coarse grains in animal feed. Elsewhere, coarse grains stocks in China are estimated to replenish by around 4 million tonnes as a result of a bumper 1998 crop, reduced exports and slow growth in domestic feed utilization.

FAO's forecast of world rice stocks at the close of the marketing seasons ending in 1999 has been increased from the previous report by 2.9 million tonnes to 53.2 million tonnes. The increase is largely attributed to a rise in anticipated stock levels in India following the Government's upward revision of the 1998-99 output level. However, global stocks would still be about 2 million tonnes below the closing stocks for the marketing seasons that ended in 1998. Most of the year-to-year stock decline is accounted for by China, Japan, and Egypt. The anticipated decline in China's stocks is attributed to domestic supply problems associated with the floods that affected the country in 1998-99. In Japan it reflects the policy of limiting domestic production with the aims of reducing the country's rice stocks over time. In Egypt, the expected stock reduction reflects the Government's policy of reducing production by limiting rice area.

EXPORT PRICES

Large supplies and weak demand leads to lower cereal prices

In the wheat market, the dominant feature since the previous report has been the slow pace of exports, which continued to put pressure on international prices despite occasional price swings, mostly in response to weather news. By late May, the US wheat No. 2 (HRW, fob) was quoted at US$111 per tonne, considerably below the corresponding period in the previous year. In Europe, despite some increase in trade activity in recent weeks, primarily due to increased sales to North Africa, persistent weak international prices have continued to weigh on export prices from the EC and resulted in higher export refunds. In the Cereal Management Committee meeting on 20 May 1999, the European Commission granted a maximum refund of around US$41 for exports of free-market wheat to non-EC countries, up over US$8 per tonne since January; it also raised the maximum refund for the ACP countries (i.e. African, Caribbean and Pacific countries) to around US$49 per tonne, up over US$7 per tonne since January.

LATEST CEREAL EXPORT PRICES *

Weather news played dominant role in the US futures markets in recent months while stocks and good crop prospects this year also continued to put downward pressure on prices. By late May, the nearby July wheat futures contracts at the Chicago Board of Trade (CBOT) were quoted at US$92 per tonne, almost US$12 per tonne lower than in April and down US$17 per tonne from to the corresponding period last year. The underlying supply and demand fundamentals provide little hope for any immediate recovery in wheat prices. Wheat futures for September and December deliveries have also been on a sliding path in recent months, which is in sharp contrast to the situation during the corresponding period last year when wheat futures were not only higher but also steady.

Regarding coarse grains, weak demand and generally favourable 1999 crop planting prospects have continued to put downward pressure on prices. By late May, the US maize export prices were quoted at US$91 per tonne, about US$10 per tonne less than in March, and US$12 per tonne lower than in the previous year. With initial production estimates in the United States pointing to another above-average crop in 1999 and a further increase in stocks, prices are likely to remain under downward pressure in the coming months. By late May, the nearby July maize futures contracts quoted at the CBOT remained steady at around US$85 per tonne, down almost US$10 per tonne from the corresponding period last year. Similarly, over the past few weeks the December futures have remained stable, at about US$91 per tonne. The main reason for somewhat steady prices in the futures markets is uncertainty associated with weather in the next few months. Given the likelihood of a record soybean crop, maize prices could be under more pressure if normal weather prevails during the crucial growing season this summer in the northern hemisphere countries.

The downward pressure on international rice prices continued through April and the FAO Export Price Index for Rice (1982-84=100), which has been sliding since the beginning of the year, declined by 4 points from March to an average of 112 points in April, the lowest level since December 1994. However, rice prices from most origins have been a bit resilient in May, sustained by the strengthening of the Thai baht against the United States' dollar and the recent presence of the Islamic Republic of Iran, traditionally the leading rice importer in the world, in the market for a purchase of about 300 000 tonnes of high quality rice. The expectation that Indonesia could soon resume its imports of rice, has also been supportive of prices, especially of lower grades. During May, the index averaged 113 points, up slightly from the previous month. For the first time this year, the average monthly international rice prices from several origins registered a month-to-month increase in May. The price for Thai 100B reached US$252 per tonne, up by US$14 per tonne from a five-year low April average. However, export prices in the United States have continued to slide due to a combination of limited new import demand and expectations of a record crop in 1999. The price of the United States No. 2/4 percent broken rice averaged US$334 per tonne in May, down by US$19 per tonne from April. Although the price differential between the high quality Thai 100B and the comparable United States No. 2/4 percent broken rice has narrowed in comparison with earlier months, the gap would need to contract further in order for the US rice to be competitive in the high quality markets outside Latin America and the Caribbean.

Prices of the lower quality rice grades from various origins also averaged higher in May. The price of Thai 35 percent was US$203 per tonne in May, up by US$9 per tonne from April. The price of fully broken rice (Thai A1 Super) was up by US$1 per tonne from its April average to US$185 per tonne in May. A similar rise in prices was observed in most of the other major exporting countries in Asia during the month of May. In Pakistan, the increase is partly attributable to reports that the available exportable supplies might not be as much as anticipated as exports to Afghanistan are reported to be much more than originally thought.

For the rest of the year, international rice prices are expected to remain subdued, relative to the levels observed last year, assuming normal growing conditions for the rest of 1999. However, given the thinness of the international rice market, any factor pointing towards reduced output in one of the major importing or exporting countries could reverse the whole picture.