|No.1 June 2006|
|Global Market Analysis|
During the early months of the 2005/06 marketing season, coarse grain prices remained generally weak, responding to large supplies of feed wheat, slow demand for the animal feed sector and a stable supply. Since October 2005, however, maize prices started to react to slow down of sales from the hurricane-affected United States Gulf ports and somewhat tighter supplies from other export origins. Other than maize, export feed barley prices remained below the previous year’s levels and mostly flat throughout the season due to large supplies from the Black Sea and a slow down in feed demand in Europe.
While rising energy prices continued to provide more sustained support, maize values remained largely within US$100-110. Stronger price gains were registered since April mainly in reaction to a fairly precarious supply outlook for the new season. In May, the United States maize export price (US No.2 Yellow) averaged US$111 per tonne, up US$17 from last year. Tight exportable supplies pushed up Argentine prices as well, to US$110, up US$23 from the previous year. In the futures market, the Chicago September 2006 maize values showed more solid gains in May, surging at one point to a ten-month high on a weaker dollar, higher exports, and a stronger likelihood of a low ending stocks position in the United States as a result of more robust growth in maize intake by the ethanol industry than anticipated earlier. In recent months, spill over speculative buying also fuelled maize futures. The impact was most pronounced for the July contracts than September or December as investors turned to hard assets due to inflationary concerns.
FAO forecasts world production of coarse grains in 2006 at about 976 million tonnes, down 1.5 percent from 2005 but still above the average of the past five years. Maize accounts for about 70 percent of the total, and a sharp reduction in the United States’ maize production accounts for a large part of this year’s decrease. The maize crop is forecast to fall by 5 percent to 268 million tonnes in the United States, as producers are expected to shift land to less input-intensive crops (such as soybeans) due to high fertilizer and fuel costs. In Argentina, where harvesting is currently underway, although somewhat hampered by wet weather, the planted area also decreased by 10 percent in response to low prices, higher production costs and higher export taxes, while prolonged dry weather reduced yields.
A sharp drop in maize output is also forecast for South Africa, mainly reflecting a decrease in the area due to low prices during the planting period and a high level of carryover stocks. In contrast, a larger maize crop is expected this year in Brazil, where the area planted to the main season crop increased 11 percent in response to more attractive prices for maize compared with soybeans as well as technical need for crop rotation. Although planting is just underway in Central America, production is tentatively forecast to increase in Mexico after a below-average output last year. Also in Asia, where the crop has recently been planted, an overall larger maize harvest is expected. An upward trend in China’s production could continue and an above-average crop is expected again in India.
Regarding barley, the second most important coarse grain, output is forecast to increase in 2006 by about 5 percent to nearly 146 million tonnes. A recovery in production in parts of the EU and in North Africa, after drought last year, accounts for most of the increase, and would more than offset slightly smaller crops expected in a few other producers, such as Australia, Canada, the Russian Federation and the United States.
The world sorghum output in 2006 is forecast at about 55 million tonnes, slightly down from last year and marginally below the five-year average. About 40 percent of the total is normally produced in Africa, where output is forecast to decline this year in the main producing eastern subregion after a bumper crop in 2005.
World trade in coarse grains in 2005/06 (July/June) is forecast at 105 million tonnes, nearly the same as in the previous season. Small anticipated import declines in Asia and North America are expected to be offset by higher imports in Africa, Europe and Latin America. World trade in nearly all major coarse grains is also expected to remain unchanged from the previous season. Total maize imports in 2005/06 are forecast at around 77 million tonnes, barley at 17 tonnes and sorghum at over 5 million tonnes.
In Asia, while avian influenza (AI) dampened demand in a number of countries, the rapid economic growth and strong demand for livestock products continued to provide support for large imports of feed grains, especially maize. Asia’s intake of maize accounts for over 50 percent of the world total with Japan and the Republic of Korea as the leading markets. Asia also accounts for almost 80 percent of world markets for feed barley with Saudi Arabia alone importing approximately 6.5 million tonnes, or 40 percent of the world total. In Africa, smaller maize purchases are forecast for Egypt where in February the Government decided to halt imports of maize for producing subsidized bread. This meant scrapping the policy in place for several years whereby maize was mixed with wheat at a ratio of 20 to 80 percent. In contrast, sharp increases in maize imports are forecast for Malawi and Zimbabwe, reflecting shortages caused by production declines.
Among the Latin America and Caribbean countries, import demand continues to remain strong in Brazil and Mexico mostly as a result of a cut in domestic production of maize and sorghum and strong feed demand. The drop in domestic maize production in 2005 and low stocks in Brazil are forecast to turn the country into a net maize importer for the first time in six years.
In Europe, the EU is expected to increase its maize imports this season following a sharp decline in production. However, the forecast increase, only 700 000 tonnes, is relatively small when compared with a drop in maize production of almost 5 million tonnes. This is because of reduced poultry consumption driven by AI concerns and large supplies of low quality wheat.
Table 2. World coarse grains market at a glance
*low-income food-deficit countries
On the export side, coarse grain sales from Canada (barley), the EU (barley), South Africa (maize), and the United States (maize) are forecast to exceed the previous season’s levels. These increases are expected to largely compensate for reduced exports from Bulgaria (maize and barley) Brazil (maize), Romania (maize) and Ukraine (barley). Maize exports from China are seen to exceed slightly the previous season’s as a result of large exportable supplies.
Based on the new season preliminary production and utilization indications, it is likely that world trade in coarse grains remains static for the third consecutive season, at around 105 million tonnes. This reflects also little trade variations in terms of individual types of coarse grains.
In Asia, most countries are likely to maintain their imports at the same level as in 2005/06. In the Philippines, strong demand by private feedmillers is expected to result in slightly higher yellow maize imports in spite of the forecast increase in domestic production. China (mainland) is also likely to have more maize imports in 2006/07. While domestic production is forecast to increase slightly, strong feed demand coupled with expansions in maize-based ethanol production are likely to encourage imports, although China is expected to maintain its position as a net maize exporter also in 2006/07. In Africa, while the anticipated recovery in barley production in Algeria and Morocco as well as increases in maize output in Zambia and Zimbabwe may lead to lower coarse grain imports, larger yellow maize purchases are anticipated by South Africa given this year’s unfavourable crop prospects and much tighter domestic feed supplies.
In Central America, maize imports by Mexico are forecast to remain at the previous season’s record level of some 7 million tonnes due to fast growing domestic demand. In South America, maize imports by Brazil are likely to decrease due to higher domestic production and low prices although the prevailing domestic problems facing the sector, including high farmer debt and a stronger currency makes this forecast very tentative. Total EU imports are forecast to remain stable with the anticipated increase in this year’s production sufficient to meet the projected growth in feed use. In contrast, in Canada, imports are forecast to increase as maize production is expected to decline while feed wheat supplies are also tighter this season. In April the Government of Canada cancelled the antidumping and countervailing duties on maize imports (in place since December 2005) from the United States, Canada’s principal maize supplier.
Considering the early export prospects, supplies in the United States are likely to play a more critical role in assuring a stable world market in 2006/07. While production is forecast to decline and domestic demand remains strong, large carryovers from the current season are expected to make it possible for the United States to raise exports significantly in 2006/07. This will be a welcome development given the anticipated supply constraints in Argentina and South Africa as well as lower expected sales from Canada, China, the Russian Federation and Ukraine.
World coarse grain utilization in 2005/06 is forecast at 987 million tonnes, up marginally from 2004/05. A contraction in feed use is mostly responsible for this season’s expected sluggish growth in total coarse grain utilization. Feed use accounts for nearly 60 percent of total use of coarse grains. Global feed utilization is not expected to exceed 617 million tonnes in 2005/06, down 16 million tonnes, or 2.5 percent, from the 2004/05 estimated level. The largest decreases are forecast for the United States (down 7 million tonnes), the EU (down 3 million tonnes) and in the CIS (down 6 million tonnes on aggregate). Declines in production, large supplies of feed wheat and relatively strong maize prices are in part responsible for the lower feed use of coarse grains this season while AI and the contraction in poultry consumption are also seen to have lowered demand for feed. Early prospects for the 2006/07 season point to a modest recovery in feed use, to 624 million tonnes (up 1 percent); this is mostly on assumption of a rebound in poultry consumption and reduced supplies of feed wheat.
In contrast, food consumption of coarse grains in 2005/06, which plunged sharply in 2004/05, is expected to rebound to a record 175 million tonnes, up almost 5 percent. This would give rise to around 1 kg increase in world per caput consumption of coarse grains, estimated at around 27 kg per annum. Most of the increase however is expected to occur in Africa where a recovery in production is seen to have boosted consumption in several countries, most notably Burkina Faso, Ethiopia, Kenya, Niger and Nigeria. On per caput basis, Central America leads the way with a stable annual consumption level of about 98 kg (mostly maize). Africa comes second, at approximately 77 kg (mostly maize but also millet and sorghum). In 2004/05, food consumption of coarse grains in Africa dropped to 72 kg, due mostly to a severe drought which reduced supplies in West Africa. With relatively improved supply prospects, world food consumption of coarse grains in 2006/07 is expected to keep up with the expected population growth and increase to 177 million tonnes.
Industrial use of coarse grains continued to expand rapidly in 2005/06. Apart from a strong demand for starches and sweeteners, the main driving factor has become the exponential growth in maize-based ethanol production, fuelled by rapid increases in world energy and petrol prices. In fact, much of the impact of accelerated investments in ethanol plants across several countries around the world is yet to be felt. In the United States, the world’s leading maize-based ethanol producer, the amount of maize used as the main feedstock for ethanol production is estimated to have touched a new record of over 40 million tonnes in 2005/06. This buoyant demand is driven by near quadruple expansion in ethanol production since the start of the decade. Put into perspective, the current usage of maize by the United States for ethanol comes close to its annual average exports or equals total maize used for animal feed in the EU 25. Based on official forecasts, ethanol manufacturing in the United States is projected to consume 20 percent of the 2006 crop. This would imply an additional 10 million tonnes of maize going to ethanol production in 2006/07. China is the second largest producer of maize-based ethanol and although accurate statistics on its use are not available, according to industry sources, China has four major manufacturers of bioethanol which may consume between 3-5 million tonnes of maize and this is presumed to be expanding at a fast rate of 10-15 percent a year.
World stocks of coarse grains for crop years ending in 2006 are forecast at 189 million tonnes, about 4 million tonnes below their opening level. At this level, the world stocks-to-use ratio is expected to remain steady at around 19 percent also in the 2005/06 season. Most of the anticipated decline in world stocks this season is driven by lower carryovers in Brazil, Canada, China, EU, Mexico, Morocco, and Romania. In contrast higher ending stocks are anticipated for Argentina, Australia, the United States, as well as Nigeria, South Africa and the Sudan.
For the most part, variations in national stock levels mainly stem from year-to-year changes in domestic production levels. In addition, feed usage levels and supplies of alternative feed grains bear strongly on the size of coarse grains end-season stocks. Therefore, in spite of lower world production in 2005, large supplies of low grade wheat in major markets coupled with lower feed demand, helped to prevent global coarse grain inventories from descending even more. This is particularly noteworthy in the case of the United States, the world’s largest producer, consumer and exporter of coarse grains. In spite of the fall in last year’s production, larger export sales and significantly higher use for ethanol production, its ending stocks are still forecast to rise slightly above their opening levels. This is a result of a decline in domestic feed use and also very high stocks at the beginning of the season, a situation which is highly unlikely to be repeated in the new season.
Taking into account current production and consumption forecasts for 2006, world coarse grain stocks by the end of national crop seasons in 2007 are forecast at 151 million tonnes, down by as much as 38 million tonnes, or 20 percent. The bulk of this anticipated sharp fall is expected again in the United States where stocks could contract by 28 million tonnes, resulting from falling domestic production and rising demand, including a projected exports increase. Significant declines are also possible in China and South Africa. Overall, therefore, total coarse grains stocks held by major exporters as a percentage of their total disappearance (defined as domestic utilization and exports), are heading for a significant drop, from a relatively comfortable level of around 19 percent to only 12 percent in 2006/07. Similarly, the world stocks-to-use ratio is expected to plunge to a near-record low of 15 percent, adding to concerns about global supply prospects and international price developments in 2006/07.
|GIEWS||global information and early warning system on food and agriculture|