|No. 4||Rome, December 2004|
Cereal Supply/Demand Roundup
The past two months have seen continued and substantial upward revisions to the 2004 world cereal production estimate, reflecting the arrival of firmer, and mostly favourable, information on the harvests still underway or just recently completed around the globe. FAO’s forecast for world cereal output in 2004 now stands at a record 2 042 million tonnes, 8.4 percent up from the previous year. With this level of production, even after allowing for an expected increase in global cereal utilization in 2004/05, a significant surplus is expected, for the first time since 1999/2000. This means that global cereal reserves should increase by the end of the 2004/05 seasons, a positive development for world food security after sharp drawdowns in the past four years. The replenishment is expected mostly among the major grain exporters in the developed countries, whose share of global wheat and coarse grains stocks is seen to rise well above the average of recent years. Another, positive development for the global grain situation would be the expected slowdown in the rate of depletion of China’s reserves, mainly due to a strong rebound in production. Major stock reduction in China has accounted for the bulk of the depletion of global inventories in the past few years.
Against the background of larger export supplies and improved global stock levels, international prices of wheat and coarse grains are likely to remain under downward pressure during the 2004/05 season. For rice, firmer prices could be expected mostly as a result of reduced production in several major exporting countries.
The bulk of the latest upward revision to the world cereal production forecast results from a substantial increase for coarse grains, particularly in the United States, where an exceptional maize crop has been gathered. This, and several other upward adjustments for the 2004 coarse grains crops still being gathered around the globe, including for China, has added almost 48 million tonnes to the forecast since September, taking the annual increase at the world level to 8.5 percent. Another upward revision has also taken place for wheat, after satisfactory conclusion of the last northern hemisphere harvests, especially in Europe where average yields turned out much better than anticipated. The increase in the world wheat crop this year is now estimated at a very substantial 10.8 percent. Progress with the main 2004 rice harvests has also evidenced larger-than-expected crops in several countries, especially in China, and despite recent deterioration of prospects in some other countries, the forecast for global paddy output in 2004 now points to a 27 million tonnes, or 4.7 percent, increase from the 2003 level.
Early prospects for the newly-planted 2005 winter wheat crop are generally favourable. Conditions for planting and crop establishment have been good in most parts and tentative estimates point to larger areas sown in several major producing countries.
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.
FAO’s forecast for world cereal utilization in 2004/05 has been raised to 2 004 million tonnes, 20 million tonnes more than forecast in September, reflecting the indications of much higher supplies than anticipated earlier and generally more attractive feed grain prices. At the current forecast level, world cereal utilization would be 2.4 percent higher than in 2003/04 and also 1.3 percent above the 10-year average. Food consumption of cereals is expected to reach 974 million tonnes, up by about 1 percent from 2003/04, which would imply little change on per caput basis. By contrast, feed and industrial usage of cereals is expected to rise strongly. Total cereal feed use in 2004/05 is expected to reach 744 million tonnes, up 4 percent from 2003/04. Most of the increase is a result of sharp growth in feed use of coarse grains, to a record level of 621 million tonnes, up 3.6 percent from 2003/04. Increased availability of feed wheat at competitive prices has also contributed to the growth in cereal feed usage.
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.
FAO’s forecast for world cereal stocks at the close of crop seasons ending in 2005 has been raised, to 441 million tonnes, 39 million tonnes up from the forecast in September, and 8 percent above their reduced opening level. The latest revision reflects the more promising outlook for the outcome of the 2004/05 season, with production now expected to be well in excess of consumption. Among the individual cereals, global maize inventories are forecast to increase most, followed by some rise in wheat carryovers. However, rice stocks are seen to decline again.
This season’s anticipated build-up in world cereal reserves is noteworthy in that it represents the first such expansion in five years. The bulk of the accumulation is likely to occur where production prospects have been most favourable, especially in the EU and the United States. Even in China, the country responsible for the bulk of the reduction in stocks in the past few years, only a relatively marginal decline is expected this year following the good 2004 harvest.
The good outcome of many 2004 harvests, particularly among the major exporters, has boosted the export availabilities of wheat and coarse grains in the current 2004/05 season substantially and prices have generally remained below the previous year levels. For wheat, however, recent downward movement has been limited by tighter supplies of US-origin wheat, following reduced production in the United States this year. In November, US wheat No.2 (HRW, fob) averaged US$162 per tonne, slightly below the corresponding period last year but US$16 per tonne above the price in August. The decline in international maize prices has been more marked, reflecting much higher exportable supplies of maize and also competition from feed wheat, which is in large supply this year. In November, US maize (No.2 Yellow, fob) averaged US$94 per tonne, down US$10 from August and US$13 down from last year. By contrast, despite some downward pressure in the past two months, rice quotations remain well above their levels a year ago, reflecting reduced export availabilities this year. Although recent price movements have varied greatly according to origin and quality, overall, the FAO All-Rice Price Index fell 2 points from September to 100 points in November.
FAO expects a decline in world cereal trade
World trade in cereals in 2004/05 is currently forecast at about 228 million tonnes, which is significantly below the previous season but slightly higher than was reported in September. The upward revision is mostly due to the prospect of larger wheat shipments now that large supplies of competitively priced feed wheat are all the more evident. Nonetheless, total world wheat trade for the year is still expected to be down from the previous year, as is that of coarse grains and rice. This reflects lower imports by the developed countries, mainly the EU which more than offset higher imports by the developing countries as a group, mainly reflecting strong wheat demand in China.
Cereal Export Prices *
* Prices refer to the monthly average. For sources see Appendix Tables A.6 and A.7.