Food Outlook No.4 - October 2002 p.3

Cereals

GLOBAL OUTLOOK Wheat 2001/021/ 2002/031/ Production Trade Stocks Prices Coarse Grains     Production Trade Stocks Prices Rice     Production Trade Stocks Prices stable up down: 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.

Supply/Demand Roundup Smaller global cereal crops in 2002, especially for wheat and maize Mixed outlook for cereal trade this season Negligible growth in cereal utilization in 2002/03 World cereal stocks to drop sharply Tighter grain supplies boost international prices

The global supply and demand balance for cereals is pointing to an even tighter situation in 2002/03 than was anticipated earlier, in the wake of deteriorating crop prospects in a number of major producing countries. Latest indications for global cereal output in 2002 now point to a total output of 1 830 million tonnes (including rice in milled equivalent), 58 million tonnes less than last year and the smallest crop since 1995. Based on this, and the latest forecast for consumption in 2002/03, world cereal stocks for crop years ending in 2003 are expected to drop sharply again, falling for the fourth year in succession. The growing evidence of tighter exportable grain supplies in traditional exporting countries has fuelled a general price increase for grains on international markets in recent months, pushing prices above last year’s level. The steepest rises have been for North American and Australian origins where the most pronounced production declines are expected this year because of drought. However, upwards price pressure on grain markets has, to some extent, been mitigated by reduced world import demand coupled with large supplies in a number of non-traditional exporting countries. For rice, large supplies in major exporting countries are keeping prices under downward pressure.

Smaller global cereal crops in 2002, especially for wheat and maize

The forecast for global wheat output in 2002 has been revised downward again since the previous report in July, to 563 million tonnes, which would be 19 million tonnes below the previous year’s level. This would be the fifth successive year-on-year decline and the smallest crop since 1995. The latest revision is largely a result of severe crop setbacks in North America and Australia because of drought. The forecast for wheat production this year in South America has also been revised downward slightly in the past two months, reflecting the impact of financial constraints on planting in Argentina. However, with good crops expected elsewhere in the subregion the overall output would remain close to last year’s level. A small downward revision has also been made for North Africa (mostly for Algeria), confirming an overall smaller crop in the African region in 2002. By contrast, the estimate of the aggregate European output has increased overall since July, reflecting a significant upward revision for the Russian Federation, where a larger than expected crop unfolded as the harvest progressed. This increase more than offset downward revisions for several other countries in Europe and the region’s aggregate crop estimate now stands about 2 percent up from last year. Also for Asia, a small upward revision has resulted since the previous report, after adjustments for several countries, and the region’s aggregate crop is now put marginally above that of last year. The outlook remains unchanged for Central America where an above-average crop is expected.

The forecast for global coarse grain output in 2002 has also been revised downward again since the last report, by 29 million tonnes, to 874 million tonnes, putting it 33 million tonnes below last year’s harvest and below the average of the past five years. The bulk of the latest revision is confined to North America, where drought conditions have adversely affected the major maize and sorghum crops in the United States and the small coarse grains harvest in Canada. The aggregate output in the region is now expected to be down about 8 percent from last year and the smallest crop since 1995. A downward revision has also been made for Oceania, reflecting the ongoing drought in Australia, and in this region production will also be well down from 2001. Smaller coarse grain crops this year, compared to last, are also expected in Africa, Central America, Europe and South America, where forecasts remain mostly unchanged from those in the previous report. By contrast, latest information confirms that production is set to rise in Asia, and after a recent upward revision, the forecast of the region’s coarse grain output now stands at some 217 million tonnes.

In the northern hemisphere, the main season paddy crops are nearing maturity in many countries, some of which have already begun harvesting. In the southern hemisphere, the 2002 season has drawn to a conclusion and preparations for the 2003 season are underway. FAO’s forecast for aggregate global paddy production in 2002 now stands at 589 million tonnes (393 million tonnes milled equivalent), 8 million tonnes below last season’s output. The decrease mainly reflects weak and irregular monsoon rains in India, but also reduced yield prospects in China and smaller harvests in some South American countries.

Mixed outlook for cereal trade this season

The forecast for world cereal trade in 2002/03 has been revised upward slightly since the last report in July, to 236 million tonnes, which would be some 4 million tonnes below the previous season’s record volume. The expected decline is exclusively on account of a sharp drop forecast for world wheat trade, as trade in coarse grains and rice is expected to rise. Global trade in wheat in 2002/03 is now forecast at 101.5 million tonnes, 3 million tonnes less than forecast in the previous report and about 6 million tonnes down from the previous season. The major cause of the decline is seen to be reduced import demand among a few countries in Asia and the EU. By contrast, the forecast for world trade in coarse grains in 2002/03 has been raised by 1.5 million tonnes since July, to 108 million tonnes, taking the total volume to about 1.5 million tonnes above the previous year’s reduced level. Although it is very early to predict the outlook for rice trade in calendar year 2003 (which is mostly influenced by production in 2002), according to current estimates of export availabilities and import requirements, global rice trade might expand for the second consecutive year, to just over 26 million tonnes. The latest forecast for rice trade in 2002 now stands at 25.7 million tonnes, 1.7 million tonnes higher than in 2001, and if materialized, only the second time on record that the volume has surpassed 25 million tonnes. Prospects for international rice trade in 2002, and next year, have picked up considerably in the past three months as the likelihood of impending crop shortfalls due to weather adversities, particularly in Asia, have intensified.

Negligible growth in cereal utilization in 2002/03

World cereal utilization by the close of the 2002/03 season is forecast at 1 940 million tonnes, up negligibly (about 2 million tonnes) from the previous year and 20 million tonnes, or nearly 10 percent, below the 10-year trend. The last time total utilization fell so significantly below the trend was in 1995/96. At that time, high prices kept utilization at some 14 percent below the trend. As in 1995/96, the leading factor for a sluggish growth in total cereal utilization this season is the anticipated drop in cereal feed use, while food consumption of cereals is likely to keep pace with population growth at the global level. The decline in feed use this season is mainly driven by drought and soaring feed grain prices, especially in the United States, which is the single largest livestock market.

World Cereal Production, Supplies,
Trade and Stocks

Source: FAO
1/ Data refer to calendar year of the first year shown. Rice in milled equivalent.
2/ Production plus opening stocks.
3/ July/June basis 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.

World cereal stocks to drop sharply

World cereal stocks by the end of crop seasons ending in 2003 are now expected to fall sharply by 108 million tonnes, or 19 percent, from their opening levels, to around 466 million tonnes. A significant downward revision of 31 million tonnes since the previous report is largely accounted for by downward adjustment to the forecasts for wheat and maize stocks in the United States, where prospects for this year’s production continue to deteriorate in the wake of drought conditions. World wheat inventories are now forecast to fall to 168 million tonnes, 22 percent, below their opening levels, while those of coarse grains are put at 167 million tonnes, 20 percent down from the previous year. A sharp contraction for rice is also anticipated, with stocks forecast to fall to a 15-year low of 131 million tonnes, almost 13 percent down from their opening level. However, this season, as in the recent past, significant stock reductions in China would still account for a large proportion of the total anticipated decline at the global level.

Tighter grain supplies boost international prices

Wheat prices have increased steadily since the start of the current season in July, fuelled by growing evidence of severely reduced export supplies in three key exporting countries – Australia, Canada and the United States. So far, the market for medium to high quality milling wheat has reacted the most, with the September average for US wheat No. 2 HRW reaching US$189 per tonne, up US$62 per tonne, or nearly 50 percent, from the corresponding month last year. However, US soft wheat (No. 2 SRW) values are also coming under upward pressure and prices rose to US$156 per tonne in September, up 44 percent from the previous year. Similar to the situation for wheat, the maize market also strengthened since July as a result of deteriorating crop conditions in the United States, the worlds largest producer, consumer and exporter. In September, the export price for US No.2 Yellow maize averaged US$115 per tonne, up US$23 per tonne since June and US$25 per tonne, or 28 percent, above the corresponding month last year. As regards rice, export prices have followed diverse trends over the past few months, depending on origin. Such movements have offset each other in the new FAO Export Total Price Index for Rice (1998-2000 =100), which remained stable at 73 points from July through to September.