FAO/GIEWS - Food Outlook No.3 - June 2001 p. 8

Export Prices

Among the major cereals, only wheat prices are on the rise but even in this case, a vigorous rebound remains unlikely

In the international wheat market, concerns about winter wheat conditions in the United States coupled with stronger pace of its exports were supportive to wheat prices in recent months. In May, the U.S. wheat No. 2 (HRW, fob) averaged US$136 per tonne, some US$3 per tonne higher than in March and US$25 per tonne, or 23 percent, above the corresponding period in the previous year. In fact, U.S. wheat prices have increased progressively since the beginning of the season (July 2000). Stronger demand for U.S. wheat has been the main factor in view of reduced export supplies in most other major exporting countries. Looking into the next season, wheat prices could strengthen further, supported by lower carryover stocks in the United States and the EC. However, the increase is likely to be limited, as world import demand is set to decline in 2000/01. This is also reflected in price movements in the U.S. futures at the Chicago Board of Trade (CBOT). Although weather continues to play a dominant role in the U.S. futures market at this time of the year, the CBOT September wheat futures have been trading below the levels registered in the corresponding period last year.

Cereal Export Prices *

In the maize market, prices remain under pressure. Since last October, when GMO maize (StarLink) was first noted in shipments from the United States, U.S. maize prices have remained under pressure but also volatile, with Japan and the Republic of Korea, at times opting for alternative supply sources. In May, the U.S. maize export prices (U.S. No.2 Yellow, fob) fell to US$84 per tonne, down US$8 per tonne since March and US$11 per tonne lower than in the previous year. Although the initial production estimates in the United States point to a decline in 2001, last year's output was a record and inventories in the United States are very high. Furthermore, China is heading for a strong production recovery this year so that exportable supplies in China are also seen to remain high during the next season. By late May, the September maize futures contracts at the CBOT fell to US$78 per tonne, down by as much as US$20 per tonne from the corresponding period last year. Against the background of abundant supplies and current indications of a likely sharp downturn in world import demand, maize prices are more likely to remain depressed than to recover during the next season.

A slight recovery in international rice quotations in the first three weeks of May does not disguise the longer-term decline in prices, which continues to be fuelled by weak global import demand relative to export supplies. During April, international prices fell to levels rarely witnessed over the past two decades. Accordingly, the FAO Export Price Index for Rice (1982-84=100) declined by three percentage points in that month before recovering by one point to 89 in May. While the recent firming of prices may be a result of efforts by several Governments, especially in exporting countries, to arrest the fall in prices, the possibility of a solid recovery remains slim.

Prices of the Thai 100B, high quality rice, have been supported by large government purchases in Thailand and have remained at the order of US$170 per tonne, relatively unchanged from April's average, but at their lowest level in two decades. Prices of low quality, fully broken rice (Thai A 1 Super), have recovered slightly, up US$4 from the April average to US$126 per tonne in May. A notable exception to the recent firming, has been the 9 percent decline, from the beginning of April to mid May, in the price of U.S. No.2/4 long grain rice. Uncertainties over export prospects are partly to blame, but the price slide also reflects the lower quality of the rice quoted, since high quality rice was reported to be in short supply in the United States.

Tentatively, prospects for prices in the second half of the year may brighten somewhat as many of the larger producing countries have signaled an intention to reduce the area under rice. However, under the continued prospects of weak global import demand, the arrival onto the international market of supplies from India would preclude any sustained price recovery this year.