Cereals

Supply/Demand Roundup

Prospects for world cereal output in 2003 have deteriorated since the previous report in June, following a widespread drought and heat-wave in Europe which reduced cereal yields. As a result, the FAO forecast for world cereal production in 2003 has been sharply reduced by some 48 million tonnes to 1 865 million tonnes (including rice in milled equivalent), which represents just 33 million tonnes, or 1.8 percent, more cereal output than in the previous year. Thus, although at the same time there has also been a slight downward revision of the cereal utilization forecast for the current year, the amount of global cereal carryover stocks that could be drawn down in 2003/04 is now forecast to be about 95 million tonnes, much more than expected earlier. Based on the current forecasts for stocks and utilization, the global stocks-to-use ratio in 2003/04 would be about 19 percent, compared to almost 24 percent in the previous year, pointing to much tighter overall global supply-and-demand situation. However, lower import demand, coupled with the expected recovery in production in a number of major exporting countries, is still likely to mitigate the effect of smaller supplies on international prices.

GLOBAL OUTLOOK ¹

Wheat	2002/03	2003/04
Production
Trade
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Coarse Grains
Production
Trade
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Rice
Production
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stable up down - - not available These signs refer only to the direction of change from the previous season.
1/ Production refers to the first year; stocks refer to crop seasons ending in the second year; trade and prices for wheat and coarse grains refer to July/June and for rice refer to the second year.

Sharp drop in 2003 production forecasts for wheat and coarse grains, but paddy outlook remains favourable

Since the previous report in June, the forecast for world wheat production in 2003 has been reduced sharply by 28 million tonnes to 556 million tonnes, mostly on account of a severe drought in Europe. At the current forecast level, global output in 2003 would be some 2 percent below the previous year’s already below-average harvest, and the smallest since 1995. The forecast for Europe alone has been reduced by some 25 million tonnes in the past few weeks as the full extent of this summer’s drought became evident. Excessive dry conditions and exceptionally high temperatures were reported all over the continent, from the Iberian Peninsula in the west through to the major producing plains of the Russian Federation in the east. In Asia, latest information confirms a decline in wheat output by about 2 percent there as well this year; the other region where a decline is expected is Central America, because of a lack of irrigation water in Mexico. Elsewhere, the main wheat crops have all registered a recovery, or are forecast to recover from drought-reduced levels last year. In North America, the United States has already harvested a much larger winter wheat crop, and spring wheat results are favourable so far. The Canadian crop also looks set to recover sharply despite some recent adverse weather. In North Africa, wheat output is estimated well up compared to recent years as a result of very favourable conditions. In the Southern Hemisphere, a larger crop is expected in South America, where plantings have just been completed; the areas sown are estimated to have increased in Argentina and Brazil, the two major producing countries in the subregion. In Oceania, winter wheat plantings have also increased somewhat and, assuming a return to normal weather after last year’s drought, a sharp recovery in output is expected there.

The forecast for the global coarse grains output in 2003 has also been revised down significantly since June, by 21 million tonnes, to 913 million tonnes, which would nevertheless still be almost 4 percent up from the previous year’s reduced crop. Similar to the situation for wheat, the deterioration in the outlook in the past few weeks is mostly a result of the devastating summer drought and heat-wave across Europe, where a 10 percent reduction in aggregate output is now expected. A slight downward revision has also been made to the forecast for North America following less-than-ideal moisture availability for some of the United States’ maize crop and drier conditions for the developing small grain crops on the Canadian plains. Nevertheless, a sharp recovery from last year’s drought-reduced levels is still expected in both countries. Elsewhere, forecasts have remained relatively unchanged since the last report in June. Output in Asia is expected to remain close to last year’s level, while in Africa there are prospects for a slight increase, reflecting better crops in North Africa. In Central America, the coarse grain crop in Mexico is forecast to increase slightly from last year. In South America, output will probably rise sharply this year, largely on account of a bumper maize crop gathered in Brazil. In Oceania, despite a poor outturn of the summer maize and sorghum crop, better prospects for the winter coarse grains should boost the aggregate output for the year.

The 2003 paddy season is virtually over in the Southern Hemisphere, where producers will soon start preparations for the 2004 season. In the Northern Hemisphere, the 2003 main crops are at the maturing stage, with the bulk of the crops due for harvest in September/November. FAO has raised its forecast of global paddy production in 2003 by about 800 000 tonnes to 593 million tonnes, reflecting mainly an improved outlook in China. However, as the season has advanced, prospects have deteriorated in Japan, Pakistan, Viet Nam, Egypt, the United States, Brazil and the EU. At the same time, the estimate of world paddy production in 2002 has been lowered by 4 million tonnes to 575 million tonnes following the release of new official figures, in particular for Bangladesh and India. As a result, current prospects for 2003 point to a 3 percent increase in global paddy production from the poor outcome of last season, much of which on account of an expected recovery in India.

World cereal utilization to remain below trend in 2003/04

World cereal utilization in 2003/04 is forecast to reach 1 964 million tonnes, up 0.4 percent from the previous year, yet still nearly 1 percent below the medium-term trend. The anticipated increase is mostly driven by small rises in coarse grain and rice utilization, while wheat use is expected to contract as a result of this year’s expected fall in world feed-use of wheat and rising international prices. The decline in wheat use is expected to be most pronounced in Europe, especially in the EU and Ukraine. By contrast, global use of cereals for direct human consumption is likely to keep pace with population growth and reach 990 million tonnes. At this level, per caput food-use of cereals would remain steady at around 166 kilograms in the developing countries and 133 kilograms in the developed countries.

Another huge decline in world cereal stocks in 2004

Following the sharp reduction in the forecast for global cereal production since the previous report, the FAO forecast for world cereal carryover stocks in 2004 has also been lowered significantly to 372 million tonnes, down almost 95 million tonnes, or 20 percent, from the previous season. While falling inventories in China have been the main factor behind successive cuts in world cereal stocks since 1999, the forecast sharp decline in 2004 also reflects a notable reduction in grain stocks in Europe. Regarding individual cereals, wheat is expected to account for the largest share of the overall decline during the current season, although inventories of both coarse grains and rice will also decline significantly.

World cereal trade in 2003/04 to hit a five-year low

FAO’s forecast for world cereal trade in 2003/04 has been lowered by 3.5 million tonnes since the previous report in June to 227.5 million tonnes, which would be 11 million tonnes, or 5 percent, below the previous season and the smallest volume since 1998/99. The downward revision since June reflects reduced forecasts for both wheat and coarse grains, which more than offset an increase for rice. Reduced wheat shipments are expected to account for the bulk of the decline in world cereal trade in 2003/04 as compared to the previous year, following good crops in several importing counties.

World Cereal Production, Supplies,Trade and Stocks

Cereal prices mostly higher but prospects are mixed

International wheat prices increased over the past two months as the outlook for crops in Europe deteriorated. However, the upward pressure was limited by generally weak world import demand and the continuing prospect of a sharp recovery in production this year in the United States, Australia and Canada, three major exporters where output was devastated by drought in 2002. In August, US wheat No. 2 HRW averaged US$155 per tonne, up US$8 per tonne from May, but still US$10 per tonne below the price a year earlier. In the maize market, prices have remained under downward pressure over the past two months mostly due to good crop prospects in the United States, a bumper harvest in Brazil and continued large sales by China. However, lower supplies of feed wheat in international markets and the strengthening of world wheat prices have been generally supportive to maize prices. In August, US No.2 Yellow maize averaged US$100 per tonne, down US$8 per tonne since May and US$10 per tonne below the corresponding month last year. By contrast, international rice prices have risen steadily since May, as reflected in the FAO Rice Export Price Index, which passed from 80 points in May to 85 in August. The upwards price pressure resulted mainly from a tightening of supplies in some major exporting countries, in particular, Australia, India, Pakistan and the United States, but also reflected a sustained import demand, especially from countries in Latin America and the Caribbean and in the Near East.