Roundup

CEREALS SUPPLY AND DEMAND

Supply and demand outlook in 2005/06 to tighten further than expected

With many of the main 2005 cereal crops already gathered or nearing maturity, latest information on 2005 production is firmer and indicates a slightly smaller output than was foreseen earlier this year in June. FAO’s forecast for world cereal production in 2005 now stands at 1 984 million tonnes, 12 million tonnes down since the previous report and 3.4 percent less than the 2004 output. With this revision, the shortfall in production compared to the expected utilization in 2005/06 has grown, and a larger drawdown in global cereal stocks than earlier anticipated is now forecast. Based on these latest supply and demand figures, the global cereal stocks-to-utilization ratio, which compares the level of inventories at the close of a season to utilization^1/ in the next, would also lose 1 percentage point since the forecast in June, and now stands at 21 percent, the same level as in 2003/04, after rising to 23 percent in 2004/05. While, contrary to earlier expectations cereal inventories held by the major exporting countries are also forecast to decline, in the case of wheat and coarse grains, their share of the global totals would remain around the high levels of the previous season. This, along with lower import demand, is likely to mitigate the effect of smaller supplies on international prices.

 

Table 1. Basic facts of the world cereal situation

Bigger wheat crop emerges in 2005 but forecasts for coarse grains and rice are reduced slightly

The reduction of the world cereal production forecast since the previous report in June results from downward revisions to the forecasts for coarse grains and rice, which more than offset an increase for wheat. Adverse hot and dry weather for the maize crop in the United States has been responsible for most of the downward adjustment for coarse grains, although drought has also hit crops in parts of the EU. The 2005 global output forecast has been reduced by almost 1 percent since June, and now stands at 958 million tonnes, some 6 percent below last year’s record level. Regarding rice, FAO’s forecast for global paddy output in 2005 has been revised downward by 6 million tonnes since June to 615 million tonnes, mostly reflecting the negative impact of adverse weather in China and India, the world’s largest producing countries. However, this level of output would still be a new record high, 9 million tonnes above the previous year. By contrast, FAO’s forecast for global wheat production has been increased slightly over the past two months mostly reflecting larger than expected crops already gathered in several main northern hemisphere producers, and a sharp turn around in prospects for the developing crop in Australia, where planting was seriously delayed by dry weather at the time of the previous report, but since then good rains allowed a late rush of sowing. The latest forecast for global wheat output in 2005 stands at 614 million tonnes, almost 2 percent down from the previous year’s record crop but still well above the average of the past five years.

For the developing countries as a group, the latest forecasts still point to a marginal increase in aggregate cereal output in 2005, and mostly on account of better crops in several Asian countries. Output in Africa may decline marginally for the second consecutive year largely because of drought in North Africa and some Southern Africa countries, which more than offset increases elsewhere in the region. The forecast output of the group of Low-Income Food-Deficit countries (LIFDCs) remains virtually unchanged at 826 million tonnes, 1.3 percent up from the previous year.

World cereal utilization in 2005/06 to exceed production

World cereal utilization is now forecast to reach 2 015 million tonnes in 2005/06, up 10 million tonnes from the estimated level in 2004/05 and close to the 10-year trend. Total cereal food consumption of cereals is forecast at 983 million tonnes, up 1.3 percent from 2004/05, with most of the increase expected in the developing countries. At the world level, this would equate to an average per caput intake of about 152 kg, virtually unchanged from the previous year, rising marginally in the developing country group. A marginal increase is also forecast for the LIFDCs, as a group, following a slight improvement in the supply situation in several countries, especially in Asia and in the Sub-Saharan Africa.

With regard to individual cereals, increased wheat and rice utilization are expected to contribute mostly to the overall growth in 2005/06. For wheat, the increase would be mostly driven by higher feed usage reflecting large supplies available at competitive prices compared to other feeds in some parts of the world, particularly in Europe. For rice, the bulk of the increase will be destined to food use, but at the forecast level, the total amount consumed as food would still imply a small drop in per caput consumption levels. Total utilization of coarse grains may not change by much compared to 2004/05. While food and industrial usage (especially for producing ethanol) of coarse grains are on the rise, feed use is seen to contract mostly because of large supplies of feed wheat and somewhat weaker demand. Overall, utilization of cereals for animal feed will decline slightly from the record level of last year.

World cereal stocks to decline significantly by close of 2005/06 seasons

The FAO forecast for world cereal inventories for crop years ending in 2006 has been reduced by 14 million tonnes since the previous report, to 431 million tonnes, reflecting the larger shortfall now expected in global cereal production versus utilization in 2005/06, which will have to be compensated for by drawing on reserve stocks. At the forecast level, world cereal stocks would be 33 million tonnes, or 7 percent, down from their relatively high opening levels. Regarding individual cereals, wheat stocks could decline by about 9 million tonnes, or 5 percent, to 163 million tonnes but the wheat carryovers of the major exporters as a group will decline only slightly from their opening level, and in percentage terms, their share is the highest in the past twenty years. For coarse grains, the reduction in stocks is now put at 20 million tonnes, taking the world level down to 172 million tonnes, and contrary to earlier expectations, a significant part of the decline is expected among the major exporters, specifically the EU. Nevertheless, as with wheat, the share of global coarse grain stocks held by the major exporting countries would rise again this year from last year’s already high level. For the sixth consecutive year, global rice inventories are anticipated to close below their opening level, with the drawdown in 2005/06 forecast at 3 million tonnes. Much of the contraction is likely in China, India and Indonesia, the three major rice producing countries.

Prices

International wheat prices have risen sharply since the start of the new marketing season. However, most of the upward movement has regarded hard wheat from the United States, (the most commonly used as an indicator of international price levels), reflecting strong export demand. By contrast, soft wheat prices remained under downward pressure because of greater competition with large supplies of cheaper wheat entering world markets from the Black Sea region. Coarse grains prices have made some gains in the past three months but remain generally at last year’s levels. The US coarse grains prices gained somewhat through July, mostly on weather concerns, before easing in recent months in response to more favourable growing conditions, lower world demand and a surge in supplies of feed grains from the Black Sea region. International rice prices recovered somewhat in August and September after a downward slide in the past few months. The new price support came largely from a pick-up in market activity, with some recent strong sales and the prospect that import demand will remain quite strong in the coming weeks.

Table 2. Cereal export prices (US$ per tonne)¹

Smaller world cereal trade in 2005/062/

FAO’s latest forecast for world cereal trade in 2005/06 stands at nearly 236 million tonnes, 3 percent down from the 2004/05 volume. World trade in wheat is put at 105.5 million tonnes, 4 million tonnes below the previous season’s estimate, largely because smaller sales are expected to several countries in Asia. Global trade in coarse grains is forecast at 104.5 million tonnes, down 2 million tonnes from 2004/05, mainly on account of lower barley exports, although somewhat smaller shipments of maize and sorghum are also anticipated. About 26 million tonnes of rice are now anticipated to be traded in calendar year 2006, which would be 5 percent less than currently foreseen for 2005.

NON-CEREAL BASIC FOODS

While recovering demand and trade support high meat prices so far in 2005, new Avian Influenza outbreaks raise concern over animal and human health again

Although recent new outbreaks of Avian Influenza (AI) extending westwards from Asia into the Russian Federation are raising concerns over potential disruption in the global meat industry sector, international meat markets in the past few months were characterized by a strong recovery from the previous wave of disruption caused by animal disease problems in 2004. Supported by favourable returns in the meat industry sector, meat production is forecast to grow by 2.5 percent in 2005, with nearly 80 percent of the growth expected in the developing countries. As well as strong growth in export-orientated developing countries such as in South America, favoured by a surge in global import demand, the developing countries own consumption continues to expand, with the average per caput consumption forecast to reach 31 kg more than 1 kg up from the previous year.

OTHER RELEVANT AGRICULTURAL COMMODITIES

Banana import prices in the United States were seasonally low during the summer with competition from locally-produced fruit but recovered the first half of September. However, import prices in the EU remained high in the past few months reflecting shortage of import licenses. Although average monthly coffee prices have weakened significantly in July and August compared to the earlier part of the year, this largely reflects a seasonal slow down in roasting activities, and prices remain well above those at the same time in 2004. The market is being supported this year by the prospect of a decline in global production in 2005/06 at the same time as demand is seen to grow and exporting country’s stocks decline, a situation that contrasts with the oversupplied market of the past four years. International cocoa prices averaged about 67 US cents per pound in August, considerably lower than the 22-month high of almost 80 US cents per pound reached earlier in the year in March. The price weakness largely reflects an expected surplus on the market in 2005/06 with consumption forecast to be stagnant in major consumers. The FAO Tea Composite Price averaged US$1.63 per Kg in July 2005, down 0.6 percent over the same period in 2004. The generally weaker international tea prices reflect rising production in major producing countries as well as a contraction in global export demand.

1.  Utilization for 2006/07 is a trend value based on extrapolation from the 1995/96-2004/05 period.

2.  For wheat and coarse grains, trade refers to exports based on July/June marketing season. For rice, trade refers to exports based on the calendar year.