Global cereal supply and demand brief

The 2008/09 marketing season brings a significant easing of the world cereal supply and demand balance

The sharp increase in world cereal production in 2008 has paved the way for a recovery in global cereal supply and demand balance in the 2008/09 marketing season. At 2 272 million tonnes, the latest forecast for world cereal production in 2008 is up 6.6 percent from 2007 and a new record. While output of all the main cereals has increased in 2008, the most significant growth has been registered for wheat (Figure 1). World cereal utilization in 2008/09 is forecast to reach 2 200 million tonnes, 3.5 percent more than in 2007/08. Thus, with production outstripping utilization by a comfortable margin (Figure 2), a substantial recovery in world cereal inventories from their critically low levels at the start of the season is foreseen. Confirming the improvement in global cereal supply and demand situation, the ratio of world cereal stocks at the close of the current 2008/09 seasons to total utilization expected in the next year is forecast to increase to 23 percent, up notably from the low of 19.4 percent in 2007/08 and closer to its longer-term average of around 24 percent. With wheat accounting for the bulk of the increase in global cereal stocks, the ratio for wheat will recover particularly strongly, while the situation for coarse grains remains relatively much tighter (Figure 3).

In a sharp contrast to the situation in 2007/08, with much of the increase in cereal production occurring in major exporting countries while growth in feed and industrial utilization is slowing because of the prevailing economic crisis, export supplies are expected to rebound sharply (Figure 4). This development has put significant downward pressure on international cereal prices, particularly during the first half of the 2008/09 season.

PRODUCTION – 2009 prospects

Mixed conditions for 2009 wheat crops

Conditions are generally favourable for the winter wheat throughout Europe and the United States but the planted area in these countries has declined, reflecting the prospect of sharply reduced returns compared to last year, combined with persisting high input costs. The most significant reductions are reported in the United States and European CIS. By contrast, larger winter wheat plantings are estimated in some Asian countries, especially where government support measures have been introduced to maintain/boost production such as in China, India and Pakistan. However, the benefits from these increases look likely to be minimal, if any, as the main wheat growing areas of China are suffering from severe drought and precipitation has also been somewhat scarce in India. Although the final global wheat area for the 2009 harvest will still depend on some major crops still to be planted later this year, such as in Canada, Argentina and Australia, based on the size of the reductions already reported, and assuming a return to average yields after exceptional high levels in some countries in 2008, a reduction in the global wheat harvest is likely in 2009, from the record level last year.

Drought threatens South America’s main 2009 maize crops but conditions improve in Southern Africa

The outlook for the main maize crop in South America has turned unfavourable due to widespread drought in the major producing areas on top of high production costs that had already led farmers to scale down their planting intentions compared to last year. Many plantings were delayed or went uncompleted, while some developing crops have been irreversibly damaged and turned over to forage. In southern Africa, although growing conditions have generally improved with the arrival of good rains, a 2009 harvest below last year’s record is still anticipated. Plantings are reported to be significantly reduced in South Africa, the subregion’s major producer reflecting this year’s less attractive price prospects, while there are concerns that the relatively high cost of inputs will limit their use throughout the subregion causing average yields to drop.

The 2009 rice harvest is approaching in the southern hemisphere

The 2009 paddy season is well advanced in the southern hemisphere rice producing areas, with the harvest due to commence from March-April. Indonesia, by far the largest producer of these countries, is on the brink of achieving self-sufficiency in rice in 2009 if the targeted 63 million tonnes crop materializes. In South America, the outlook of 2009 paddy crop is mixed. In Brazil, harvesting is about to start output is set to rise further from the already above average crop in 2008. Despite the drought affecting other crops, Argentina has expanded plantings by about 10 percent from last year. By contrast, insufficient water for irrigation is likely to constraints plantings and production in Uruguay.

PRODUCTION – 2008 roundup

Record cereal production in 2008

Global cereal production in 2008 is estimated at a record 2 272 million tonnes (including rice in milled terms), 6.6 up from the previous year. By cereal, the bulk of the increase by far is from wheat, although the global coarse grains and rice crops increased significantly (Figure 2). Turning to the regional distribution of the increase, output has risen throughout most parts of the globe, with the exception of the Near East and the neighbouring CIS countries in Asia, where the season was negatively affected by drought, and in North America, where production of maize in the United States retreated from an exceptionally high level in 2007. However, although increasing in most parts, the bulk of the increase is confined to the developed countries, which accounted in particular for the strong recovery in wheat production. While in developed countries the 2008 cereal output is estimated 12.3 percent higher than in the previous year, in developing countries the expansion was just 2.3 percent. This mainly reflects a weak supply response in Asia, accounting for three-quarters of the developing countries’ production, where the aggregate cereal output remained virtually unchanged. Although some moderate growth was recorded in the main producing countries in the Far East, taking production there to new record levels, this was offset by reductions in the Near East.

Total cereal utilization expands and food use rises on per caput terms

World cereal utilization is forecast to reach 2 200 million tonnes in 2008/09, up 3.5 percent from 2007/08. Improved world supplies and projected lower prices are expected to result in a general increase in per caput food consumption of cereals. At the global level, the per caput food use is forecast to reach 153.3 kg, up from 152.6 kg in 2007/08.

Total wheat utilization is forecast to increase by 5 percent in 2008/09, after a contraction in the previous season when supplies were particularly tight. Total feed utilization of wheat is seen to increase sharply in 2008/09, rising by 23 percent from the previous season’s reduced level, largely in the EU where wheat production recovered greatly in 2008. Food utilization of wheat is expected to expand by 1.3 percent overall to reach 452 million tonnes, but the increase in the developing countries group is forecast to be stronger at 1.8 percent.

World utilization of coarse grains is forecast at 1 103 million tonnes, up 3 percent from the previous season. Feed usage of coarse grains is forecast virtually unchanged in 2008/09 at some 639 million tonnes, reflecting weaker demand because of the global economic downturn and substitution with feed wheat, supplies of which are much more abundant this year, especially in the EU. However, food use of coarse grains is forecast to increase by 2 percent from the previous season to reach 191 million tonnes, with most of the growth expected in Africa where production rose in several countries. Other uses of coarse grains are also expected to increase this year, by 9 percent to 273 million tonnes, largely on account of a further expansion in the use of maize for production of ethanol in the United States.

World rice utilization (mainly food consumption) is expected to increase again in the current year, rising by 2.4 percent. On a per caput basis, average rice consumption as food is forecast to rise to 57.3 kg in 2008/09, after an estimated 56.9 kg in the past two years. With the global financial crisis negatively affecting household incomes, consumers are expected to shift away from more expensive animal products back to staples such as rice.

World cereal stocks to recover

Based on the latest estimates of cereal production in 2008 and the anticipated utilization in 2008/09, FAO forecasts world cereal stocks by the close of seasons ending in 2009 to increase to 496 million tonnes, the highest level since 2002. This represents a rise of almost 70 million tonnes, or 16 percent, from their critically low level at the start of the season. Most of the recovery is expected in the major exporters.

Wheat inventories are forecast to expand by 24 percent up from their low opening levels. Most of this growth is expected in the EU, Canada and the United States, where stocks during the previous season were significantly depleted in order to meet the rise in demand and exports. Much larger stocks are also forecast for a number of the CIS countries because of the increase in their production.

Total coarse grains stocks are forecast to grow further in 2008/09, increasing 15 percent from their opening levels. As for wheat, most of the increase in coarse grains’ stocks is expected in major exporting countries, in particular the EU following the recovery in maize and barely production.

Regarding rice, given the good outcome of the 2008 harvests, world rice stocks at the close of countries’ marketing years ending in 2009 are also forecast to rise significantly. While both developing and developed countries are expected to build up rice inventories, the bulk of the accumulation is forecast in leading rice exporting countries, including China, India, Thailand and Viet Nam.

Contraction in world cereal trade in 2008/09

World cereal trade is forecast to fall to 263 million tonnes in 2008/09, down by 3.6 percent from the previous season’s estimated record volume. On current indications, a sharp drop in coarse grains trade would more than offset an increase expected for wheat, while trade in rice is seen to remain largely unchanged.

World trade in coarse grains in 2008/09 (July/June) is currently forecast to fall by almost 13 percent from the previous season, largely reflecting reduced imports by the EU where domestic cereal production increased substantially in 2008. Given the anticipated decline in world imports, export supplies are expected to exceed demand this season. By contrast, world trade in wheat is forecast to increase by 6 percent in 2008/09 (July/June), mostly reflecting stronger import demand in Asia. World rice trade in calendar year 2009, which is heavily influenced by the outcome of the 2008 paddy season, is now forecast to increase marginally to 30.9 million tonnes. While some traditional importing countries in Far East Asia will be cutting purchases following good domestic harvests, imports by the European Union and by some major buyers in the Near East are expected to increase.

PRICES

International cereal prices increased in January

International wheat prices have generally increased in the month of January although they remained quite volatile. Prices rose reflecting a smaller than expected wheat harvest in Argentina, where the Government has suspended new export permits, as well as reports of declines in the area planted to the 2009 wheat in some large producing and exporting countries, including the EU and the United States. However, abundant supplies following the record world wheat harvest in 2008 continue to put downward pressure on prices. However, although the international benchmark price - US wheat (No.2 Hard Red Winter, f.o.b. Gulf) - averaged 7 percent higher in January than in the preceding month, it remained 33 percent down from the January average last year and 50 percent below its peak in February 2008.

As for wheat, international maize prices have also been on the increase in the past month but remained volatile. Prices were supported by prolonged dry conditions for this year’s maize crop in Argentina and Brazil. However, slower than normal sales from the United States, the world's largest maize exporter, together with the USDA report in mid-January showing lower demand estimates for the United States maize and much higher forecasts for end-season stocks (+ 8 million tonnes) put downward pressure on prices. The US maize (No. 2 Yellow, Gulf) January average was 8 percent up from December but 17 percent below the January average last year and almost 40 percent below its peak in June 2008.

International rice prices increased in January, with the price of the benchmark Thai white rice 100% B averaging 5 percent up from the December, and well above (59 percent) the price at the same time last year. The rebound in international rice prices since late December is largely attributed to the pledging programme in the largest world’s exporter Thailand, which has moved some 4 million tonnes of paddy away from the market into public inventories at a price reported to be 20 percent higher than market levels.

Despite the decline in international prices in the second half of 2008, domestic food prices remain very high in several developing countries affecting access to food of low-income population groups.