FAO/GIEWS - Food Outlook No.4 - September 1999 p. 6

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Cereal prices mostly below the corresponding period in the previous year

The fear of reduced maize crop prospects in the United States gave way to sharp increases in prices, but overall the upside remained limited. In the maize market, the dry and hot spell during the late July through early August raised concerns over the crop conditions in the United States and resulted in a sudden rise in prices. However, with the subsequent release of an official report in August denoting a much larger than expected US crop forecast, maize prices fell to lower levels, and by the end of month, the U.S. maize export price were quoted at US$70 per tonne, down US$21 per tonne from May and US$14 per tonne below the corresponding period last year. Similarly, in the CBOT futures market, maize prices rallied in early August, but by the end of the month the December futures stood at US$85 per tonne, down US$6 per tonne from May, though US$3 per tonne more than the corresponding period last year. Given this season's likely resumption of large maize exports from China and with crop prospects for both soybean and maize remaining favourable, any further strengthening of prices would largely depend on import demand, which based on the current forecast, is unlikely to expand significantly.


(. . . US$/tonne . . .)
United States
Wheat 1/
Argentina 2/
Thailand 2/
Rice white 3/
Rice, broken 4/

Export Prices (weekly quotations)

After declining to seasonally low levels during June and early July, the global wheat market has witnessed an exceptionally volatile period since May 1999, as prices were affected by weather-induced rallies in maize and soybean markets. Other factors, which lent support to wheat prices, included increased buying interest during this period, announcement of new food aid initiatives by the United States and the resumption of wheat shipments as food aid from the EC and the United States to the Russian Federation. By the end of August, the U.S. wheat No. 2 (HRW, fob) was quoted at US$115 per tonne, slightly above the corresponding period in the previous year. By late August, prices in the wheat futures market also strengthened. The December wheat futures contracts for soft red winter at the Chicago Board of Trade (CBOT) were quoted at US$104 per tonne, representing a recovery of about US$8 per tonne since May and pointing to an increase of about the same amount over the corresponding period last year.

In the EC, strong pace of wheat sales to the Islamic Republic of Iran, which unconfirmed reports put at 1 million tonnes, has also provided support to prices. The latest (August 26) French soft wheat export prices for September shipments stood at around US$90 per tonne, net of the US$31.50 per tonne refund. While in recent months a weak euro (against the US dollar) has helped to close the gap between EC and the world prices, the continued use of export refunds (subsidies) would still be necessary to make European wheat more competitive this year. While ample availabities in the other major exporting countries are likely to add to competition for market shares, this year may also see increased export efforts from the EC. Indeed, 1999/2000 being the last season before the start of the implementation of Agenda 2000 and also the last year before the end of the six-year transition period agreed under the WTO negotiations, permitting the quotas of subsidized grain exports not used in previous years to be "rolled over" to the following year, i.e. 2000/2001. Against this background and in view of only a modest rise in world import demand as forecast by FAO, any large gains in wheat prices in coming months seem unlikely.

International rice prices from most origins eased somewhat during the months of August and July from their strong levels in May and June. The FAO Export Price Index for Rice (1982-84=100) averaged 114 points during July and August down by 1 point from June. By comparison, the index was 112 points in April, the lowest average since December 1994. The recent weakening of rice prices is partially the result of the arrival of new crop supplies on the market in some countries amidst weaker international import demand, compared to last year.

The price for Thai 100B averaged US$249 per tonne in August, down from US$257 per tonne in July but still above the US$238 per tonne reached in April. Prices of the lower quality grades from various origins were also lower in August. For instance, the price of Thai 35 percent brokens averaged about US$215 per tonne in August compared to US$220 per tonne in July, while over the same period, the price of fully broken rice (Thai A1 Super) fell from US$209 to US$204 per tonne.

In the United States, monthly average export prices have continued to slide due to a combination of limited new import demand and expectations of a record crop in 1999 that will contribute to higher carryover stocks. The price of the United States No. 2/4 percent broken rice averaged US$319 per tonne in August, down by US$4 per tonne from July. As a result the price differential between the high quality Thai 100B and the comparable United States No. 2/4 percent broken rice has narrowed considerably to US$67 per tonne in August from a high of US$118 in April. However, the price 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.

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