Cereal Supply/Demand Roundup

Latest indications continue to point to a significant increase in global cereal production in 2004, to 1 956 million tonnes, 3.7 percent up from last year. However, this level of output would not meet expected utilization so another drawdown in global cereal stocks is forecast in the new 2004/05 marketing year. While the bulk of the drawdown will be in China, as in the past four years, cereal stocks held by the major exporters are also expected to remain at relatively low levels. Therefore, the buffer against unexpected shocks in cereal supply or demand, has further narrowed and the possibility of more volatile prices in 2004/05 should not be ruled out.

World cereal production to increase in 2004

A large part of the increase in global cereal output comes from wheat production which is forecast to increase by 6.3 percent to 595 million tonnes, well above the average of the past five years. A sharp recovery in Europe’s output, after the 2003 drought, and a small increase in Asia would more than offset reductions expected in North America and in Oceania. Regarding coarse grains, contrary to earlier tentative predictions, latest indications point to a rise in production in 2004, for the third year in succession, to 951 million tonnes. This would be 2.1 percent up from last year and the largest world output on record. The increase since the April report stems mostly from favourable conditions for the new crop in the United States, the world’s largest producer. In Europe, a substantially larger 2004 crop is expected after increased plantings and better weather conditions. Global rice (milled) production in 2004 is also forecast to rise to a record 410 million tonnes, 3.7 percent more than in 2003. Much of the increase is expected in China, where the Government has launched several measures to reverse the falling trend in production. Large increases are also anticipated in other major producing countries in Asia, including Bangladesh, India and Indonesia, as well as in Africa and in Latin America and the Caribbean where several countries have already harvested bumper crops.

FAO projects slower growth in world cereal utilization in 2004/05

FAO expects a modest growth of some 1.2 percent in world cereal utilization in 2004/05, compared to 1.7 percent in the previous year. Increased utilization of coarse grains, particularly for feed and industrial uses, is expected to account for the bulk of the increase. Although a slight increase in cereal food use is also foreseen, global per caput food consumption of cereals is forecast to fall marginally to 152 kg, largely due to declining per caput consumption of wheat and rice in China.

GLOBAL OUTLOOK1/

Wheat	2003/04	2004/05
Production
Trade
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Coarse Grains
Production
Trade
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Rice
Production
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stable up down - - not available

World cereal stocks to decline further in 2005

Despite the large increase in production forecast this year, and a relatively modest growth of utilization, global cereal output in 2004 would not meet the expected utilization in 2004/05, so a further reduction of world cereal stocks is anticipated. Total world cereal inventories by the end of countries' marketing seasons in 2005 are forecast to fall to 363 million tonnes, which would be some 35 million tonnes, or 9 percent, below the already reduced opening level. Coarse grain stocks are expected to fall by about 15 million tonnes, to 124 million tonnes, those of wheat by 16 million tonnes, to 140 million tonnes, and those of rice by 5 million tonnes, to 99 million tonnes. As in the past few years, another sharp drawdown in China will account for the bulk of reduction in global stocks. Based on the FAO’s latest estimates, cereal stocks in China (Mainland only) are likely to be reduced for the fifth consecutive year, this time by around 28 million tonnes, following a decline of almost 48 million tonnes already in 2004.

Carryover Stocks in China

Cereal prices remain firm but under downward pressure

Cereal Export Prices *

After rising for several months, international prices of most cereals eased back somewhat in recent weeks. Wheat prices came under downward pressure due to generally favourable crop prospects for 2004. The overall supply and demand outlook for wheat in the new season could prove less supportive to prices in view of relatively weak demand from major importing countries and higher exportable supplies. At this time of the year, coarse grains prices are highly sensitive to the weather and the size and condition of the new crop, especially in the United States. Prices have been somewhat volatile since mid-April but a downward movement became evident in recent weeks as the bulk of planting in the northern hemisphere was completed and crops began to develop under generally favourable conditions. Another factor was the decline in soybean prices. However, a possible recovery in feed demand in Asia, smaller exportable supplies in China and a decline of freight rates to more normal levels are among the factors which could prove supportive to prices in 2004/05. International rice prices continued to firm in May, but the upward pressure eased somewhat following the release of large supplies from stocks by Thailand and China.

World Cereal Production, Supplies, Trade and Stocks

FAO expects trade in cereals to decline sharply in 2004/05

FAO’s first forecast for global cereal trade in 2004/05 points to a reduction of about 3 million tonnes, or 3.2 percent, in imports compared to the previous year. International trade in wheat and coarse grains is expected to decline, mostly in response to good crop prospects in traditional importing countries as well as a strong production recovery in Europe. The first forecast for world wheat trade in 2004/05 (July/June) stands at 98 million tonnes, down 4 million tonnes from the previous year, despite an expected significant increase in imports by China. Global trade in coarse grains is forecast at 105 million tonnes, down 5 million tonnes from the previous year, mostly reflecting a reduction in imports among the developed countries. This early assessment depends largely on current production forecasts for 2004, which are still tentative. World rice trade in calendar year 2004 is forecast to contract, reflecting both a tightening of supplies in major exporting countries, which in some cases have given rise to export bans, and reduced imports expected by Indonesia and other traditional importers, reflecting bumper crops forecast. Preliminary indications suggest an increase in rice trade in 2005, although, as with coarse grains, this forecast is subject to the outcome of production in 2004.