No.2  December 2006  
 Food Outlook
  Global Market Analysis

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Special features

Statistical appendix

Market indicators and food import bills





The recent price surges are supported by strong fundamentals


The recent upward movements in international prices of most coarse grains have been mainly set off by the prevailing supply and demand fundamentals in markets for maize; the world’s largest traded coarse grain. In this regard, it is the domestic market of the United States which plays the most critical role considering the fact that the United States is the world’s largest producer as well as the largest consumer and exporter of maize. The sharp cut in the 2006 maize production in the United States, just as its own demands for feed, industrial use and exports are all increasing, has resulted in a much tighter domestic balance and driven up prices.

In addition, the trade situation this season is marked by much smaller maize exportable supplies in several exporting countries. Argentina recently suspended export permits due to concerns about the domestic supply situation in the light of large shipments already this season. Exports from China are expected to decline; based on the latest news, domestic prices are beginning to rise more rapidly throughout the country, which is a sign of increased tightening that may eventually result in smaller exports than currently expected. In November, the United States maize export price (US No.2 Yellow) averaged US$164 per tonne, up US$67 per tonne, or 70 percent, from 2005. The Argentine export prices have also registered sharp increases in recent months, to almost US$170 per tonne, up US$78 per tonne from 2005. Other coarse grains have also maintained a firm tone this season, partly because of spill over effect from maize and partly reflecting their own supply and demand situation; such as smaller availabilities of sorghum in the United States; sharply lower barley and oats supplies in Australia; and reduced barley production in Canada.

Similarly in the futures market, maize quotations have moved up sharply in recent months. In fact the supply tightness is such that the seasonal harvest pressure which normally would have put downward pressure on prices around late October 2006 has not appeared to have taken place this season. Instead, in early November, the nearby maize futures at the CBOT surged to a ten-year high on the expectation of an even more significant tightening in the United States than markets had anticipated earlier. Large speculative buying by investment funds also pushed up prices; so much so that the November maize trading volumes in the CBOT (futures and options) reached one of the highest in its history. By late November 2006, the March 2007 maize contracts stood at around US$152 per tonne, up US$72 per tonne, or 90 percent, from the corresponding period in 2005. This confirms the view that high prices are not going to fade away any time soon, especially the United States export prices, given the recent fall in the value of the United StatesDollar. However, strong maize prices would increase the likelihood of a substantial increase in maize planted area in the United States for the 2007/08 marketing season and this would most likely to occur at the expense of reduced plantings of soybeans, the second largest crop grown in the United States. Figure 8 shows the trend in nearby soybean/maize price ratio since January 2006. From a historical perspective, whenever the ratio approaches two, the general bias favours maize over soybeans, resulting in a shift of planting area from soybeans to maize. With the recent ratios well under two, a significant increase in maize plantings in spring is most likely. Increases in plantings would be a positive development, which will improve the supply outlook for next season. However, demand for coarse grains, especially for maize, also continues to increase: demand for ethanol is likely to remain as thriving as this season even if crude oil prices were to decline further, and demand for feed is likely to increase faster as the livestock sector returns to its trend growth rate. Against this background, a massive increase in production would be needed in order to prevent stocks from eroding further and to thwart price escalations.

Food Outlook


Food Outlook


Table 2. World coarse grains market at a glance




Change: 2006/07 over






million tonnes














Total utilization















Other uses





Ending stocks








Per caput food consumption:


World     (Kg/year)





LIFDC    (Kg/year)





World stock-to-use ratio   %





Major exporters’ stock-to-disappearance ratio %







Lower production in 2006


FAO’s latest forecast for world production of coarse grains in 2006 stands at 981 million tonnes, down by 2.1 percent from 2005 but above the average of the past five years. At the regional level, the past months have seen upward revisions to the forecasts for Asia, Africa and South America, but these have been mostly offset by reductions for Europe and Oceania.

Food Outlook


The world maize crop in 2006 is now forecast at 694 million tonnes, 2.2 percent down from the previous year. The bulk of the decline reflects smaller crops harvested earlier in the year in Argentina and South Africa and a reduced harvest, now almost completed, in the United States. The main factor for the smaller crops in all cases has been reduced incentive to plant maize because of too-high production costs relative to expected returns, but adverse hot and dry weather also had an impact on yields in some parts. In contrast, aggregate (main and secondary season) maize output increased in Brazil, reflecting a larger area planted to the main season crop harvested earlier in 2006. A larger crop has also been gathered in Central America, with output in Mexico recovering from a below-average level in 2005. Also in Asia, maize output is estimated up in China, the Philippines and Thailand.

The first of the 2007 maize crops are now being sown in the southern hemisphere. In South America, after a slow start to the season due to limited soil moisture in some growing areas, planting is now well underway and early indications point to a slight increase in the aggregate area. In South Africa, conditions are favourable and a survey of farmers’ planting intentions point to a sharp increase in the area sown.

Regarding barley, the second most important coarse grain, global output in 2006 is estimated at around 139 million tonnes, virtually unchanged from 2005 and slightly below the average of the past five years. Earlier expectations for production to recover in the European Unionand North Africa, following drought in 2005, were materialized. However, in several E uropean U nion countries, hot and dry summer conditions again affected yields to some extent. Large crops were also gathered in the Russian Federation and Ukraine. Offsetting these increased outputs, 2006 barley output fell in Canada and the United States, and is forecast to be sharply down in Australia after drought struck developing crops.

World sorghum production in 2006 is forecast at about 57 million tonnes, slightly down from 2005 and marginally below the five-year average. The bulk of the decrease is accounted for by the United States, where plantings and yields dropped, leading to almost a 30 percent drop in output. In Africa, the largest producing region, output could fall in the eastern subregion after a bumper crop in 2005, but this is likely to be offset by larger harvests in Western Africa where the season has been favourable.



World trade down slightly in 2006/07


Unchanged from the earlier reports, international trade in total coarse grains in 2006/07 (July/June) is forecast at 105 million tonnes, down nearly one million tonnes from the previous season. Small declines in several countries in Africa and Asia contribute to most of the anticipated decrease in world trade while higher imports are forecast for a number of countries in North and South America. In terms of the individual coarse grains, maize is expected to benefit from stronger demand with its trade climbing to a record 80 million tonnes, up 2 million tonnes from 2005/06. However, most of the anticipated expansion in maize trade is likely to be offset by a significant reduction in barley trade, now seen to fall by one million tonnes, to 16 million tonnes. Trade in sorghum is also expected to decline, though slightly, to 5.5 million tonnes. For the other coarse grains, trade prospects remain similar to the previous season.

Food Outlook


Total imports by countries in Asia are forecast at 57 million tonnes, down 600 000 tonnes from the previous season. Smaller imports of barley by Saudi Arabia are responsible for most of this anticipated reduction. Saudi Arabia is the world’s leading importer of feed barley with an annual intake usually exceeding 5 million tonnes. This season, however, high barley prices and reduced supplies from Australia and Ukraine are expected to result in smaller purchases by Saudi Arabia. Higher domestic production is expected to drive down barley and maize imports by the Islamic Republic of Iran while, in China, imports of barley are forecast to decline as a result of reduced malting barley supplies in world markets. Slightly smaller maize imports are also forecast for Japan whereas for the Republic of Korea, the world’s third largest importer after Japan and Mexico, coarse grain imports are likely to remain at the previous season’s level despite high international prices; the country is expected to cut its feed wheat imports instead.

In Africa, total imports are forecast to decline by one million tonnes to 14.9 million tonnes. The single largest decline is for Zimbabwe where maize imports are forecast to fall by almost one million tonnes from the previous season to 300 000 tonnes, reflecting the estimated doubling of production in 2006. Another sharp decline in imports is forecast for Morocco’s barley purchases, which are likely to be cut by at least 300 000 tonnes as a result of a strong rebound in production from 2005’s drought reduced levels. By contrast, Egypt is seen to increase its foreign purchases of maize by 600 000 tonnes due to a sharp decline in its maize production, which is down from the previous season’s record and follows a decrease in area planted. Higher maize imports are forecast also for Kenya in spite of the expected rise in the 2006 production. This increase in imports compensates for the anticipated decline in Kenya’s wheat imports this season.

In Central America, total imports by Mexico are forecast at 9.5 million tonnes, a slight decline from the previous season, mostly due to reduced purchases of sorghum; while maize imports are likely to increase. In Latin America and the Caribbean, Brazil is expected to import slightly more barley this season due to its decline in production. In North America, Canada and the United States are forecast to raise their imports. In Canada, the decline in domestic maize production, coupled with strong demand, is expected to result in its largest imports since 2002/03. In the United States, drops in barley and oat output are likely to drive up their imports. While the United States is the world’s largest importer of oats (mostly from Canada), it is the first time that its oat imports are forecast to exceed its own domestic production. In Europe, import changes from the previous season are expected to be small as high international prices and adequate supplies of local feed wheat discourage larger imports in spite of an overall decline in the region’s total coarse grain production in 2006.

Regarding coarse grain exports, maize shipments are forecast to increase as a result of strong world demand. Maize sales from the United States are forecast to increase the most, despite its own strong demand and lower production. Larger maize exports by the United States compensate the anticipated decline in exports by Argentina, China, the Republic of South Africa, and Ukraine due to these countries’ tighter exportable supplies. Higher maize sales are also forecast for Brazil helped by 2006’s above average crops and favourable international prices. Fear of low domestic maize supplies and possible price escalations following this season’s faster pace in exports forced Argentina, the world’s second largest exporter, to suspend maize export permits as of 20 November. Reduced supplies of barley in Australia and Canada are expected to lower their exports and contribute to a tightening up of world markets, although the European Unionis expected to maintain its barley shipments at about the same level as last season, and the Russian Federation and Ukraine both have good crops this season and are expected to export more. The forecast decline in sorghum trade this season is mostly driven by reduced shipments by the United States due to smaller production. At this reduced level, sales from the United States still account for over 80 percent of the sorghum total trade volume. In the oats market, Canada is forecast to increase its exports significantly offsetting the expected sharp decline in Australia from drought.



Utilization expands mostly due to higher industrial demand


World coarse grain utilization in 2006/07 is forecast to reach a new record of roughly 1 017 million tonnes, up almost 2 percent from the previous season. Most of the increase reflects a continuing fast expansion in demand for production of maize-based ethanol; primarily in the United States, although a number of other countries is also in the process of establishing and/or expanding its grain-based ethanol facilities. Between 2000 and 2005, maize-based ethanol production in the United States increased by 150 percent with another 20 percent expansion envisaged for 2006. There are currently over 100 ethanol plants operating in 20 states across the country and 42 additional plants are under construction while another seven are being expanded. This development is starting to have important implications for the overall supply of maize for other uses, including domestic feed, but also for exports considering that the United States is the world’s largest maize exporter. At the start of the decade, the amount of maize used for ethanol in the United States barely amounted to 6 percent of its domestic production whereas by 2005 it reached 14 percent and, according to the United States’ Department of Agriculture (USDA), it is heading towards 20 percentin 2006 which would mean roughly 55 million tonnes, or close to the amount of expected exports in 2006/07.

Coarse grains destined for food consumption are also growing at a relatively strong pace this season, up 2 percent from 2005/06, mostly because of improved local supplies in several countries in Africa, such as in Nigeria (for sorghum and millet) and most countries in the southern subregion (for maize). By contrast, feed utilization, which is the largest usage component of coarse grains, is likely to reach 622 million tonnes, down slightly from the 2005 already reduced level. Most of this anticipated contraction is expected among the developed countries where the 2006 maize supplies have been cut because of smaller production; above all in the United States, the Republic of South Africa, and several countries in Central and Eastern Europe. In the developing countries, prospects for continuing growth in feed use remain strong; partly because of more adequate local supplies but also the growing demand from the livestock sector especially in Asia and Latin America.



Stocks decline as production falls


By the end of national crop seasons in 2007, world carry-overs of coarse grains are forecast to reach 151 million tonnes, down 38 million tonnes, or 20 percent, from their opening levels. This forecast is 12 million tonnes less than previously reported (in the October issue of the Crop Prospects and Food Situation) and reflects downward adjustment to the world production estimate, by roughly the same amount. The sharp decline in world coarse grains stocks compared with the previous season results from lower carry-overs of all major coarse grains, led by maize, down 28 million tonnes, and barley, down 7 million tonnes.

Food Outlook


At the current forecast level, the ratio of global coarse grain stocks to total utilization is estimated at 15 percent, 3 percentage points below the previous season and lowest since 2004. However, this anticipated reduction in global reserves in large part stems from a decline in stocks held by the major exporting countries, particularly the United States, where ending inventories are forecast to register a decline of almost 28 million tonnes. As a result, the ratio of aggregate coarse grain stocks held by all the major exporters to their combined disappearance (defined as domestic utilization plus exports) is expected to approach 11 percent, 7 percentage points below the previous season. In addition to a cut in production, faster growth in domestic use and strong exports are among the other main factors for a large draw down of stocks in major exporting countries by the end of this season.

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