|No. 5||Rome, November 2003|
Cereals: Supply/Demand Roundup
GLOBAL OUTLOOK 1/
stable up down - - not available
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.
As 2003 draws to a close, conditions have remained favourable for most of the cereal crops still to be harvested over the coming weeks. As a result, FAO’s latest forecast for global cereal production in 2003 has risen marginally since the last Food Outlook report to 1 874 million tonnes (including rice in milled equivalent), which represents 38 million tonnes or 2.1 percent more than the estimate for 2002. Since aggregate global production will remain significantly lower than expected utilization, another large reduction in world cereal stocks is very likely. At the current forecast levels, the total cereal stocks-to-use ratio in 2003/04 is set to drop to 19 percent, the lowest level in the past two decades. While ample cereal supplies among the major exporters and the absence of significant demand from some traditionally large importers could keep most international cereal prices under downward pressure in the short run, early indicators for 2004 cereal production (such as the area of winter grain plantings in the Northern Hemisphere), coupled with apparently tighter grain supply conditions in China, could begin to play an increasingly important role in determining price developments in 2004.
Since the last report in September, the FAO forecast for world wheat production in 2003 has been increased slightly by about 6 million tonnes to a total of 562 million tones. Part of the revision is due to better-than-expected harvest results in North America, particularly in the north of the United States and in Canada, where the crop was still being gathered at the time of the previous report. A significant upward revision has also been made to the estimate for Iraq, following much firmer information on the outcome of the harvest there. The only other significant upward revision has been for Australia, where the 2003 crop is still awaiting harvest; good growing conditions are pointing to a bumper output that will be close to the record 2001 level. On the downward side, the estimate for Europe fell further as it became clear that the impact of drought in the CEECs had been greater than had been anticipated earlier. At the current forecast level, world wheat output in 2003 will finish 1.5 percent below last year’s already below-average harvest. There were significant output recoveries compared to the previous year in North Africa, North and South America and Australia, but they were more than offset by a huge decrease in Europe.
Planting of the winter wheat crops for harvest in 2004 is already well under way in the major producing countries in the Northern Hemisphere, and weather conditions have been generally favourable so far. In the United States, the pace of planting and crop establishment in the main winter wheat plains were reported to be slightly ahead of normal in late October. In Europe, timely rains that will help establish the autumn crop had been received in most areas. Also among the CEECs, autumn weather conditions were reported to have been generally good, but farmers’ reduced financial resources after the poor 2003 harvest may limit the size of the winter wheat area and the extent to which high-quality seed and other inputs will be used.
The forecast for the 2003 world coarse grains output has also been revised slightly upward by 5 million tonnes since the last report to a new total of 918 million tonnes, mostly as a result of positive weather-related adjustments for Australia and for some countries in Africa, North America and South America, where harvesting has been continuing over the past few weeks or is just about to start. At the forecast level, global output of coarse grains in 2003 will probably be just slightly above the 2002 crop.
FAO’s latest forecast for global paddy rice production in 2003 is 591 million tonnes, which is 2 million tonnes less than the September forecast, but still 2.6 percent above the poor 2002 season outcome. Most of the revision in the 2003 outlook reflects a severe worsening of prospects in China from adverse weather, as well as some deterioration in growing conditions for the crops in Japan, the Republic of Korea and Sri Lanka. By contrast, generally favourable growing conditions have bolstered production forecasts in Cambodia, India, the Islamic Republic of Iran, Myanmar and Viet Nam.
World cereal utilization by the close of the marketing seasons in 2004 is forecast at 1 970 million tonnes, up 18 million tonnes or nearly 1 percent from the previous season. This would be closer to the medium-term trend than was anticipated earlier, following this month’s upwards adjustments to feed-use estimates in China, the EU and the United States. At the current forecast levels, world cereal use for human consumption is forecast to rise by 1.5 percent in 2003/04 to 992 million tonnes, driven mostly by modest increases expected from the developing countries. On average, per caput food consumption in both developing and developed regions is likely to remain stable at 165 kg and 131 kg, respectively. World feed utilization of cereals is expected to remain roughly the same as in 2002/03 at about 705 million tonnes. While feed use in the developing countries is forecast to continue on its upward trend and even expand by more than 2 percent in 2003/04, the increase will probably be offset by a contraction in feed use in the developed countries. As regards other use of cereals, a growing demand in several countries for alternative fuels such as ethanol, an alcohol-based fuel produced by fermenting and distilling starch crops, is also expected to continue driving up demand for certain cereals (mostly maize) in 2003/04.
The forecast for global cereal stocks in 2004 has been raised to 382 million tonnes, up 10 million tonnes from the previous report but still down by some 94 million tonnes (20 percent) from the opening levels. This month’s upward adjustment reflects mostly some minor revisions to the forecasts for wheat and coarse grain carryovers in a number of major exporting countries. The anticipated large decline in global cereal stocks in 2004 is being driven mostly by large reductions in China, India and several countries in Europe that have resulted mainly from smaller production levels. The forecast drop of around 53 million tonnes in wheat inventories would account for the bulk of the anticipated contraction in world cereal stocks in 2003/04, followed by an expected reduction of around 21 million tonnes in global coarse grain stocks and 20 million tonnes in rice inventories.
World Cereal Production, Supplies, Trade and Stocks
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.
After adjustments to trade forecasts for several countries since the previous report, the latest forecast for world trade in cereals in 2003/04 stands at 227 million tonnes, down 10 million tonnes or 4 percent from 2002/03 – the lowest in 6 years. Most of this large decline is being driven by wheat and to a lesser extent by rice; trade in coarse grains is expected to increase slightly.
International wheat prices during September and October weakened, and values from most origins were, by and large, below the corresponding levels of last year. The main factor for this decline was apparently the sharp reduction in global import demand, although tighter supplies in Europe and the weakening of the value of the US dollar have provided some support to the US wheat prices. Fundamentals in the futures market were also characterized by weak demand and strong competition among the major exporters (all except the EU). Although in late October expectation of higher demand in China pushed up futures prices, the surge proved short-lived as the hopes for large purchases by the country subsequently faded. Export prices for nearly all types of coarse grains remained generally stable over the same period, although stronger demand for US sorghum and European feed barley as well as tighter exportable supplies of maize in China resulted in some upward movements in prices during late October. International rice prices have continued to rally since August, and the FAO Export Price Index (1998–00=100) rose from 85 in August to 87 in September and 88 in October. This strengthening was apparent in all rice categories except for the lower quality Indica rice, the index of which has remained at 82 since August.