Export Prices

Cereal prices firmed but prospects remain mixed

Cereal Export Prices *

International wheat prices rose sharply through April, mostly supported by stronger buying activities and indications of lower surpluses in Ukraine and the Russian Federation. However, prices began to slide in May, reacting to seasonal harvest pressure and the expectation of above-average crops in a number of traditional exporting countries. In May, the US wheat No. 2 (HRW, fob) averaged US$147 per tonne, up 20 percent from the corresponding period in the previous year and nearly unchanged from March. Generally, stronger US prices provided underlying support to export prices from most other origins, although the continuing slide of the US dollar against the Euro gave rise to much higher export refunds by the European Commission for wheat sales to non-EU countries.

Weather concerns, tighter US stocks and the war in Iraq played dominant roles in the US futures in recent months, with wheat prices displaying a volatile, but rising, trend. Technical and speculative buying coupled with strong spill-over pressure from fund-related price surges in other commodities resulted in occasional rallies in wheat futures. However, good crop conditions combined with the start of harvesting of the hard winter wheat in some parts of the United States, as well as slow export activities, also put downward pressure on prices. By late May, the September wheat futures at the Chicago Board of Trade (CBOT) were quoted at US$122 per tonne, still up US$20 per tonne from the previous year.

Looking further ahead, international wheat prices during the new 2003/04 marketing season are more likely to decline. While exportable availabilities among non-traditional exporters are forecast to drop drastically, the expectation of favourable crops among major exporters, in particular the anticipated strong recovery in Canada and Australia, coupled with the forecast contraction in world trade in 2003/04, could put downward pressure on international prices in coming months.

International maize prices strengthened considerably in recent months, and by late May, US maize export prices were quoted at US$108 per tonne, up US$3 per tonne from March and US$17 per tonne, or 19 percent, more than in the previous year. Reduced exportable supplies among major exporters and robust world import demand have been supportive to maize prices throughout the current season, although continuing sales from China and abundant feed wheat supplies from the CIS prevented prices from rising faster.

In the futures market, changing weather and planting conditions, especially in the United States and China, and reports of harvesting progress in the southern hemisphere sparked occasional price swings. In more recent weeks, uncertainties surrounding the overall impact of SARS on feed demand in China and the discovery of one case of mad cow disease in Canada, raising fear of a decline in feed demand in that country, directed the futures to lower values. This, according to news reports, raised the use of “put options” with market participants increasingly locking in a selling price as a protection against more declines in prices. Nevertheless, by late May, September maize futures contracts quoted at the CBOT stood at US$94 per tonne, US$10 per tonne more than quotes for the corresponding period last year.

In the coming months, the price direction could be negatively influenced by larger supplies in the United States and Argentina, bumper harvests in Brazil and generally more favourable situations in southern African countries. Amid the anticipated sharp decline in maize exports and stocks in China and much smaller feed wheat supplies in world markets, the 2003/04 global supply and demand for feed grains, maize in particular, seems fairly balanced, resulting in international prices remaining within a close range to this year’s levels.

International prices of rice of different origins and varieties have continued strengthening since the last report. This tendency was reflected in the FAO Total Price Index (1998-2000=100), which climbed to a two-year high, averaging 80 for the first four weeks in May, 3 points above April and 7 points above March.

A combination of short export availabilities in several major exporting countries and strong international demand has fuelled the rise in international rice prices over the period. For example, export quotations in the United States, Pakistan and Viet Nam were up sharply, lifted by the launching of food aid tenders for Iraq, during a time when export supplies were limited, but also because of surging demand for commercial imports. On the other hand, quotations from Thailand firmed, especially for fragrant rice, while export prices in India were raised by the FCI.

Among the different types of rice traded, international quotations for medium-grain rice experienced the largest increases, with the FAO Japonica index rising to 77 points, 11 points higher than the March average. This was mostly on account of strong demand to fill the tenders that were opened by Japan and by the Chinese Province of Taiwan and reduced availabilities in the United States and Australia, which consequently pushed up prices, especially that of the US No.2, 4 percent medium grain rice by US$77 per tonne since March.

As for high-quality Indica, quotations from all origins have risen, but in varying degrees. For instance, since March, Thai 100 percent B prices were up by an average of only US$4 dollars per tonne, while quotations for US No.2, 4 percent long-grain surged by US$74 per tonne, in the wake of large purchases by Brazil and strong demand to cover food aid commitments. These price developments have re-established the large differential that the United States quotations, in the past, had tended to hold over the Thai high quality rice. More moderate increases were registered for Viet Nam 5 percent and Pakistan Irri 10 percent quotations. Overall, such price movements resulted in the FAO High Quality Indica Price Index climbing by 6 points between March and May.

The upward price momentum was not as strong for the lower quality rice, as illustrated by the FAO Low Quality Indica Price Index, which increased just 3 points between March and May. With supply in abundance, quotations from Thailand for 100% broken rice fell, but the decline was more then compensated for by a strengthening of prices of 25% broken rice in Viet Nam, Pakistan and India.

Turning to the aromatic market, fragrant rice quotations rose to levels not seen since 2000, reflecting a tightening of supplies together with the government procurement policy in Thailand. By contrast, international basmati prices remained subdued, falling by 9 percent in Pakistan and rising only slightly in India. The net effect of these developments was to lift the FAO Aromatic Price Index by 1 point to 92 points.

Tentatively, prospects for international rice prices over the coming months remain positive, since supplies available for export have come under pressure in the face of resurgence in international demand, particularly by Brazil and some countries in Africa. However, beyond this period, the price outlook will be influenced by the status of paddy crops in northern hemisphere countries. Given the limited supply available in stocks world-wide, the impact of any news reporting adverse paddy growing conditions would have a particularly strong boosting effect on international rice quotations.