FAO/GIEWS - Food Outlook No.4 - October 2001 p. 4

Supply/Demand Roundup

With the bulk of the 2001 cereal harvests drawing to a close, overall production for the year is likely to be significantly less than reported in the June issue of Food Outlook, confirming the outlook for a tighter cereal supply/demand situation in 2001/02. Since June, the forecast for production in 2001 has been reduced by 36 million tonnes, to 1 842 million tonnes (including rice in milled equivalent), 14 million tonnes or about 1 percent below the estimate for 2000. The latest revision mostly reflects drought in parts of Asia and North America, which have had adverse impact on the yields of some of the later wheat crops, the main coarse grain crops, and some rice crops, many of which have still to be harvested. In view of this, and given the forecast for a 1.2 percent increase in total cereal utilization in 2001/02, stocks would need to be drawn down even more than the decline expected earlier.

FAO's forecast for world wheat production in 2001 has been lowered by a further 13 million tonnes since June to about 565 million tonnes. The latest revision is largely the result of significant reductions in the estimates for China and several EC countries, where harvests are mostly complete and yields have turned out to be poorer than expected earlier, and downward adjustments to the forecasts for the spring crop still being harvested in Canada and the coming winter crop in Australia, due to weather problems earlier in their seasons. These downward revisions more than offset increases in the estimates for Africa and several central and eastern European countries, and improved prospects for the coming harvest in South America. At the current forecast level, world wheat output in 2001
would be 3.4 percent down from last year, well below the average of the past five years and the smallest crop since 1995. At the regional level, output would be up this year in Africa, Europe and South America, but these gains are more than offset by declines in all other regions. Planting of the winter wheat crops for harvest in 2002 is already well underway in the major northern hemisphere producers. Early indications in the United States point to a possible slight recovery in the winter wheat area after last year's exceptionally low plantings. Although international wheat prices continue to provide little incentive to producers, the hardiness of winter wheat and the relatively low production costs associated with it, combined with the disappointing results many farmers have experienced with this summer's maize, beans and sorghum crops, are weighing in favour of wheat in the Plains. In addition, favourable weather conditions are providing the potential for a good start to the crop and by late September about 32 percent of the expected overall area had been sown, somewhat ahead of the average by that time. In Europe, conditions are generally favourable for winter grain planting across the north of the region and down into the western Balkans. However, further to the south in Romania and Bulgaria, where dry weather continues to limit topsoil moisture, more rain would be welcome for the winter crop fieldwork.

FAO's forecast for the 2001 world coarse grain output has been revised downward substantially by almost 20 million tonnes since June, to 885 million tonnes, mostly as a result of weather-related adjustments for Asia and North America. Persisting hot and dry conditions in the major producing areas in China and the United States have had a severe effect on the maize yields in particular. By contrast, the forecasts for South America and Europe have been revised upward somewhat since the last report, reflecting recently improved conditions for the summer crops in these regions. At the forecast level, global output of coarse grains in 2001 would be 1.4 percent above the 2000 crop and similar to the 1999 level, but below the average of the past five years. At the regional level, output is forecast up this year in Africa, South America and Europe, offsetting declines in all other regions.

By mid-September, most paddy crops in the northern hemisphere were at an advanced stage of development or were already being harvested. In the southern hemisphere, the 2001 season has come to an end and farmers are preparing to plant or have already started planting the 2002 crop. FAO's forecast for rice production in 2001 is 392 million tonnes, 4 million tonnes less than earlier anticipated and 6 million below last season's outcome. The reduced forecast reflects mainly a revised outlook for China, stemming from persistent drought problems that have dampened yield prospects.

World cereal trade in 2001/02 is now forecast at 230 million tonnes, slightly more than earlier expectations due to upward adjustments for coarse grains and rice in the past few months. At the current forecast level, the volume of global cereal trade would be virtually unchanged from that in the previous season. World trade in wheat and wheat flour (in wheat equivalent) in 2001/02 (July/June) is currently put at 104 million tonnes, up 1 million tonnes from 2000/01. Global coarse grain imports in 2001/02 are now forecast at 103 million tonnes, up 1 million tonnes from earlier expectations, although almost 2 million tonnes lower than in the previous season. World trade in rice in 2002 (calendar year basis) is tentatively forecast to increase somewhat although at this early stage the outlook remains very uncertain. Global rice trade in 2001 is now forecast at 22.4 million tonnes (in milled equivalent), unchanged from the volume traded in 2000.

The forecast for world cereal utilization in 2001/02 has been raised since June to 1 933 million tonnes. At this level, world cereal utilization would be 22 million tonnes, or 1.2 percent, more than the previous season and close to its 10-year trend for the first time since 1998/99. Among major cereals, wheat and coarse grain utilization could surpass the trend, albeit slightly. The growth is likely to be strongest for wheat, especially for lower quality wheat, prices of which are currently competitive. For coarse grains, higher demand for industrial use combined with larger anticipated feed use especially for maize in view of the weakness of its price, would boost utilization. While growth in rice consumption is likely to keep pace with the increase in population, the contraction in global output could result in an overall reduction in non-food use of rice, especially in China.

The forecast for world cereal stocks by the close of crop years ending in 2002 has been reduced significantly since June to 562 million tonnes, 92 million tonnes, or 14 percent, below their already reduced opening levels. However, the bulk of this decline is accounted for by China, where despite reduced production, the Government continues to pursue downsizing strategies as the country's stocks remain

World Cereal Supply and Demand

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

abundant, representing more than 50 percent of world total inventories. World wheat stocks by the close of the seasons ending in 2002 are forecast to fall to 207 million tonnes, down 14 million tonnes from the June forecast and 43 million tonnes, or 17 percent, below their opening levels. Global coarse grain inventories for crop years ending in 2002 are now put at 218 million tonnes, down 25 million tonnes from the June forecast and 31 million tonnes, or some 12 percent down, from the previous year. For rice, stocks are expected to fall to about 137 million tonnes, almost 18 million tonnes below their opening level and 3 million tonnes less than earlier anticipated.

In view of the tighter world market, international export prices for most cereals showed some recovery since June. Wheat prices have remained above last year's levels so far this season but, in recent weeks, with the evidence of large exportable supplies in a number of non-traditional exporting countries, prices weakened and the gap narrowed considerably. Overall, the sharp decline in this year's wheat production in major exporting countries coupled with initial expectations of an increase in world import demand could have proven more supportive to wheat prices but the economic and the political uncertainty triggered by the tragic events of 11 September in the United States, made this prospect less certain. Any disruptions in shipping channels or a sudden surge in freights could result in some reduction in this year's purchases, especially by the important wheat importing countries of the Near East, and hence lower import demand in world markets. Similar conditions confront the maize market, which in recent weeks also came under downward price pressure. International rice prices have generally strengthened since the last report in June, with the FAO Export Price Index rising to 91 points in July and August, up from 88 points in May and June. However, in September, the index fell back by 1 point to 90, mainly on account of lower prices for Myanmar rice due to competitive marketing policy and in the United States due to lacklustre demand and higher production estimates for this season than earlier expected.