Cereal Supply/Demand Roundup

Bumper 2004 cereal crop will avert another sharp stock drawdown

With many of the 2004 cereal crops already gathered or nearing maturity, latest information on 2004 production is firmer and confirms much larger harvests than earlier expected. FAO’s forecast for world output has been raised to 1 985 million tonnes, about 29 million tonnes up from the previous forecast in June and 101 million tonnes, or 5.3 percent, more than in 2003. This level of output would be marginally above the expected utilization in 2004/05, and thus avert the need for a further major drawdown in global cereal stocks after sharp declines in the past four years. The bulk of the improvement compared to the June situation is accounted for by the major exporting countries, whose share of total cereal stocks is now forecast to increase significantly from the previous year. Consequently, the buffer which these stocks represent against unexpected shocks in cereal supply or demand, has also improved. Reflecting these latest developments, international cereal prices, especially for wheat and coarse grains, have weakened over the past three months and the risk of any sharp upward movement in the next year has been considerably reduced.

Bigger wheat and coarse grain crops emerging in 2004

The upward revision to the world cereal production forecast since the previous report results from significant increases to the forecasts for wheat and coarse grains, which more than offset a reduction for rice. Larger than expected wheat harvests in Europe have added more than 10 million tonnes to the global wheat production forecast since June, which now stands almost 9.5 percent up from last year’s level. For coarse grains, the bulk of the increase comes from the new record maize crop forecast for the United States, contributing to a likely annual increase in the world output of over 3 percent. By contrast, FAO’s forecast of global rice production in 2004 has been reduced over the past three months as crop prospects have deteriorated in several major producing countries. However, the current crop could still turn out to be some 4 percent up from 2003 and the largest since 1999.

GLOBAL OUTLOOK ^1/

Wheat	2003/04	2004/05
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Coarse Grains
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Rice
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Growth in world utilization of cereals remains stable

The forecast for world cereal utilization in 2004/05 has been reduced slightly since the previous report to about 1 985 million tonnes. This would be 1.4 percent above the estimated utilization in 2003/04 and marginally above the 10-year average. Food, feed and industrial uses are all expected to increase in 2004/05 and this year’s anticipated record cereal production would imply also higher post-harvest losses, another component in total utilization. Among the various uses of cereals, feed and industrial usage of coarse grains are likely to grow fastest. As a result, total utilization of coarse grains is forecast at 963 million tonnes, which would be above the long-term trend for the second consecutive season. By contrast, food consumption of cereals is likely to grow at a much slower pace with food use of wheat and rice staying below their long-term trends. A continuing decline in per caput cereal consumption in China is one of the main reasons for this.

World Cereal Production, Supplies, Trade and Stocks

World cereal stocks to decline only slightly in 2004/05

The FAO forecast for world cereal stocks for crop seasons ending in 2005 has been raised significantly since the previous report as a result of bigger crops harvested or forecast in several countries. Based on the latest production and utilization forecasts for 2004/05, global cereal inventories could be expected to reachl 402 million tonnes, 40 million tonnes more than was anticipated in June. At this level, world cereal stocks would be only 5 million tonnes below their low opening level, representing the smallest decline in five years. While another fall in cereal stocks in China, the main factor behind consecutive declines in world cereal stock levels in recent years, is likely to be repeated this season, the size of this reduction is expected to be around 15 million tonnes, the smallest decrease since 2000.

Cereal prices under downward pressure

International prices of most cereals dropped since the previous report as crop prospects generally improved. In the wheat market, aside from the normal seasonal harvest pressure, much improved supply prospects, coinciding with a likely contraction in world import demand and relatively high freight rates continue to bear on prices. Similar fundamentals continue to weigh on coarse grain prices, with the additional factor that large feed wheat supplies are now also competing for a share of the feed market. The prospect of impending large new-crop rice supplies from the main 2004 harvests has also brought downward pressure to international rice markets over the past three months, as shown by a decline in the FAO All-Rice Price Index. However, rice supplies are expected to remain very tight in a number of locations, which should limit downward movements.

FAO expects a decline in world cereal trade

World cereal trade is forecast at 228 million tonnes in 2004/05, down from the previous season. While reduced flows of wheat and coarse grains are forecast as a consequence of low demand from several importing countries with big domestic crops this year, for rice, tight supplies among major exporters is the primary cause of the anticipated decline in trade.

Cereal Export Prices *