International grain prices weakened over the past few weeks as non-traditional exporters continued to sell more of their domestic surpluses. For wheat, a surge in prices, which dominated the first few months of the current marketing season, appears to have abated. In spite of continuing concern over reduced crops in leading exporting countries, the 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. 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$52 per tonne, or more than 40 percent, from the corresponding month last year.
|(. . . . . . US$/tonne . . . . . .)|
* Prices refer to the monthly average. For sources see Appendix Tables A.6 and A.7.
Wheat price movements in the US futures market also exhibited a strong upward trend during the earlier months of the season, mainly reacting to the tight domestic supply situation driven by a sharp decline in production. However, in recent weeks, US wheat futures began to drift lower as supply on the international market started to appear less tight than previously anticipated. While the latest official report from the United States indicated the lowest stock levels since 1974, by late November, the March futures for the soft red winter wheat contracts at the Chicago Board of Trade (CBOT) were quoted at around US$138 per tonne, representing a drop of around 12 percent from their peak in early September.
A further decline in wheat prices is likely in the coming months, barring a significant increase in demand. The market for low-quality wheat could become more vulnerable to downside pressure, mainly in view of the recent proposal by the European Commission to introduce an import quota system on wheat, starting in January 2003. While the proposed quota system could succeed in limiting the flow of lower quality wheat imports from Black Sea origins into the EU, it could also result in the dispersion of those supplies to other destinations, such as to large importing countries of North Africa and Asia. This would result in cutting into market shares of the major exporters and that could bring down export prices of higher quality wheat from those origins.
In the past few weeks, international coarse grain prices also weakened somewhat. Maize prices were dragged lower by developments in the global wheat market, in particular by large supplies of feed wheat and continuing maize sales by China. 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.
By late November, the March maize futures contracts at the CBOT were quoted at US$97 per tonne, indicating a 15 percent gain over the previous year. Much of this season's sharp rise in maize prices was driven by the decline in production in the United States, the world's largest maize producer, exporter and also the largest feed user. This year's surge in the US maize export prices was mainly the result of much tighter domestic feed grain supplies. However, in the global context, large maize sales by mainland China, especially to some leading US export markets, including Taiwan Province, which recently lifted its maize import ban from the mainland, coupled with abundant supplies of feed wheat from non-traditional wheat exporters, could restrain coarse grain prices from rising further.
Despite large quantities of new rice arriving on to the market, which normally tends to depress quotations, the FAO Total Export Price Index for Rice (1998-00 =100) averaged 73 points in November, virtually unchanged since July. Such a lack of momentum reflects divergent trends in prices from different origins and qualities, which have tended to offset each other.
FAO's High Quality Indica Price Index declined by one point from September to 73 points, reflecting falls of varying degree in quotations. For example, prices of the Thai 100%B have been largely sustained by the Government paddy procurement schemes. Since September, prices of Viet Nam 5 percent and Pakistan-Irri 10 percent have dropped slightly, reflecting to some extent the arrival of the new crops onto the market. By contrast, notwithstanding a bumper harvest in the United States, quotations for US No.2, 4% long grain have been static at US$215, but for US No.2, 4% parboiled, they have climbed moderately.
FAO's Low Quality Indica Price Index has exhibited little overall movement since September, as prices for broken rice in major exporting countries have converged, illustrated by quotations for India 25 percent rice, where steadfast demand has led to a narrowing of its price differential with broken rice of other origin.
Import demand for Japonica rice by Japan, the Chinese Taiwan Province and Turkey, boosted the quotations of the US medium grain No.2, 4%, as reflected in FAO's Japonica Price Index, which has staged a slight recovery, climbing by 2 points in October before falling back one point in November to a level of 67 points.
By contrast, FAO's Aromatic Price Index has tumbled since September, falling by 7 points to 76 points in November. Prices of Thai fragrant rice have declined by almost 10 percent over this period, nearing the floor set by Thailand's support scheme. Much of the decline reflected the discounted sale of fragrant rice from the 2001 crop, as newly harvested supplies were becoming available. Similar falls have also been registered in Basmati quotations.
The price outlook could turn positive as of next year. Sustained intervention by Government procurement agencies in India and Thailand should dampen price falls associated with the arrival of new rice supplies onto the market in the coming months. A general tightening of the global supply and demand situation could subsequently be felt, which could precipitate a marked increase in international prices as of the second quarter of 2003.