Food Outlook No.5 - December 2002 p.3

Cereals

GLOBAL OUTLOOK Wheat 2001/02 1 / 2002/03 1 / 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 Cereal production down significantly in 2002 Prospects for world cereal trade mixed in 2002/03 Minimal growth in cereal utilization in 2002/03 Massive contraction expected in world cereal stocks International cereal prices weaken

As more of the 2002 cereal harvests draw to a close, latest information confirms earlier expectations for a sharp drop in global production, to 1 833 million tonnes (including rice in milled equivalent), 61 million tonnes less than the previous year's crop. As a result of this, and a marginal rise expected in total cereal utilization in 2002/03, world cereal stocks for crop years ending in 2003 are forecast to plunge again. While tighter supplies have led to generally higher prices for most cereals, the upwards pressure on international prices has recently abated, as several non-traditional exporting countries, with significant domestic surpluses this year, have stepped into the market.

Cereal production down significantly in 2002

FAO's latest forecast for world wheat output in 2002 remains virtually unchanged since the previous report in October at some 562 million tonnes, which is 3.4 percent down from last year and the smallest crop since 1995. As better information became available in recent weeks on the outcome of several crops in Asia and Europe, particularly the main CIS producers, the estimates for both these regions have been revised upward. However, offsetting this, downward revisions have been made for other regions, most notably for Oceania, where the outlook for Australia's harvest continued to deteriorate due to drought.

Looking towards next year, preliminary indications point to a possible increase in wheat production, although much will still depend on weather developments in the coming months. The bulk of the winter wheat crops for harvest in 2003 have already been planted in the northern hemisphere. In Asia, a smaller winter wheat area is reported in China where dry conditions affected planting in one of the main producing provinces. Generally favourable conditions were reported for planting in India and Pakistan. In North America, early indications in the United States point to a significant increase in plantings after the very low level in autumn 2001, and the average condition of crops is considerably better than it was a year ago. In Europe, autumn weather conditions throughout the EU have been generally favourable for the winter wheat planting. Early indications suggest that the aggregate plantings of the member countries will be similar to the previous year's level. In central and eastern Europe, the overall winter grain area is likely to be down compared to the previous year. Although summer and autumn rainfall was beneficial in improving soil moisture in many dry areas, it hampered planting. Heavy rains are also reported to have hit the European CIS countries for a period in the autumn but the winter wheat crop was planted under generally favourable conditions and the area sown is expected to be close to last year's level.

FAO's forecast for the 2002 global coarse grain output has been revised upward marginally since the previous report, to 880 million tonnes. This, nevertheless, would still be 3.5 percent down from the previous year and below the average of the past five years. The bulk of the latest revision derives from Europe, where, latest information from the European CIS countries has shown the output of coarse grains to be larger than earlier anticipated. The official estimate of coarse grains output in the United Sates has also been adjusted upward, after results from the latter part of the harvest showed average yields to be somewhat higher than earlier expected. In Africa, some slight upward revisions have been made to the estimates for the northern and western subregions in particular, where most harvests have recently been completed. In Asia, the estimate of India's coarse grains output has been reduced significantly but, nevertheless, Asia remains the only region where aggregate coarse grains output is seen to increase in 2002 compared to the previous year. In the southern hemisphere, a slight downward revision has been made for South America and the forecast for Australia has been further reduced because of the effect of drought.

Harvesting of the 2002 main paddy crops in the northern hemisphere is at an advanced stage and many countries are releasing firmer estimates of this season's production. In the southern hemisphere and around the equatorial belt, the 2002 crops were harvested during the first half of the year and, in many countries, planting of the 2003 crop has already begun. FAO's forecast for world paddy production in 2002 has been lowered by almost 5 million tonnes since the October report to 584 million tonnes (390 million tonnes milled equivalent), mainly on account of adverse weather conditions for the crops in India, China and Thailand. At the current forecast level, global production in 2002 would be about 13 million tonnes, or 2 percent, down from 2001.

Prospects for world cereal trade mixed in 2002/03

The latest forecast for world trade in cereals in 2002/03 is 236 million tonnes, unchanged from the previous report in October and 5 million tonnes below the previous year's record level. The anticipated contraction in global cereal trade this season results almost exclusively from a sharp decline in total wheat trade, as trade in coarse grains is expected to rise a bit and the early prospects for international rice trade in 2003 are seen as somewhat similar to those in 2002.

Global trade in wheat (including wheat flour in grain equivalent) in 2002/03 is now forecast at 102.5 million tonnes, down 5 million tonnes from the previous season. Most of this season's anticipated decline would be on account of a sharp contraction in imports by the developed countries, and in particular the EU after an exceptionally high volume reached in the previous year. However, smaller imports are also anticipated by the developing countries, mostly in Asia following good crops this year in several countries. By contrast, world trade in coarse grains in 2002/03 is forecast to reach 107 million tonnes, up slightly from the previous season's reduced level. Coarse grains imports are forecast to rise in Africa, North America, Latin America and Oceania, but the aggregate increase in these regions would be partially offset by declines expected in Asia and Europe. FAO's forecast for world rice trade in 2003 has been lowered marginally since the last report, to just over 26 million tonnes and close to the latest estimate of the volume traded in 2002. The forecast is still highly tentative, since many of the countries that could influence the level of global rice trade in 2003 have yet to complete the harvest of their main paddy crops. The forecast for rice trade in 2002 has been raised since the previous report to 26.4 million tonnes, 2.3 million tonnes higher than in 2001, and the second highest level on record. The latest revision is mostly due to upward adjustments to import forecasts for Indonesia and several countries in Africa, which more than offset a substantial decrease in the forecast for shipments to the Islamic Republic of Iran.

World Cereal Production, Supply, 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.

Minimal growth in cereal utilization in 2002/03

FAO's forecast for world cereal utilization in 2002/03 has been raised slightly since the previous report to 1946 million tonnes, up marginally from the previous season, but still below the 10-year trend. The overall growth in total cereal use for direct human consumption is forecast to keep pace with the rise in world population. However, among the developing countries, per caput food use of coarse grains in India is forecast to decline because of smaller production while, in China, food consumption of wheat is expected to continue on its gradual downward trend. Global animal feed utilization of cereals is forecast to contract despite a small anticipated expansion in the developing countries. The decline is mainly driven by a sharp fall in feed use in North America and Australia in response to this year's drought-reduced crops.

Massive contraction expected in world cereal stocks

FAO continues to forecast a major reduction in cereal inventories during the current season. The latest forecast for world cereal stocks by the close of the seasons ending in 2003 remains virtually unchanged since the previous report at 466 million tonnes, down 110 million tonnes, or 19 percent, from their opening levels. In addition to China, where cereal stocks are set to contract for the fifth consecutive year, the other most notable stock declines are expected in countries where the 2002 cereal production is forecast to drop sharply such as in Australia, Canada, Brazil, India, and the United States. World wheat inventories are now forecast to fall to 167 million tonnes, 50 million tonnes below their opening levels. The aggregate wheat stocks of the major exporters are likely to fall to just 32 million tonnes, implying a significant drop in their stocks to disappearance ratio. The forecast for world coarse grain inventories for crop years ending in 2003 now stands at 174 million tonnes, down 37 million tonnes from the previous year. As with wheat, a significant part of the overall decline is attributed to the major exporters and, thus, the ratio of these countries' total coarse grain stocks to their total disappearance is likely to shrink drastically this season. The forecast for world rice stocks at the close of the marketing seasons in 2003 has been revised downward by more than 5 million tonnes since the last report to about 125 million tonnes, which would be almost 23 million tonnes below their opening level and one of the largest declines on record.

International cereal prices weaken

International grain prices weakened over the past few weeks as non-traditional exporters continued to shift more of their domestic surpluses onto the world market, taking advantage of the sharp reduction in exportable supplies among the traditional exporting countries. After surging in the first few months of the current marketing season, international wheat prices slipped back over the past few weeks. In November, the U.S. wheat No. 2 (HRW, fob) averaged US$180 per tonne, down US$9 from September, although still up sharply, by US$52 per tonne or more than 40 percent, from the corresponding month last year. In spite of continuing concern over reduced crops in leading exporting countries, overall wheat availability on the global market remains abundant in view of large supplies of medium-to-lower quality wheat in Kazakhstan, the Russian Federation, Ukraine and India. International coarse grain prices also weakened somewhat in the past few weeks. Similar to the situation for wheat, earlier upward pressure on international maize prices eased when it became evident that domestic surpluses in non-traditional exporting countries could compensate, to a large extent, for the gap left by the retreat of the traditional exporters. Maize prices came under downward pressure from large supplies of feed wheat. In November the U.S. maize export prices (U.S. No.2 Yellow, fob) averaged US$109 per tonne, down US$6 per tonne since September but still US$19 per tonne, or 21 percent above the previous year. As regards rice, export prices from different origins continued to follow diverse trends over the past two months and, overall, the FAO Total Export Price Index for Rice (1998-00 =100) averaged 73 points in November, virtually unchanged since July. Recently, most significant activity has been witnessed in the aromatic rice sector. FAO's Aromatic Price Index has tumbled since September, falling by 7 points to 76 points in November, as prices of Thai fragrant rice have declined by almost 10 percent over this period, largely reflecting the discounted sale of fragrant rice from the 2001 crop, as newly harvested 2002 supplies came onto the market.