COARSE GRAINS

PRICES

Coarse grain prices have come down but remain above last year

Driven by strong demand and tight export supplies, international prices of coarse grains remain high compared with the previous season, despite record production growth. In the maize market, prices started to rise sharply from the middle of the previous season and peaked to a ten-year high in February 2007 because of significant supply shortage in the face of very strong demand for the production of ethanol in the United States. However, high maize prices last season gave way to a substantial increase in plantings and this, together, with favourable weather conditions, boosted world output this year. The most significant increase occurred in the United States, the world’s largest maize producer, where production is forecast to reach a record; therefore giving rise to higher stocks and larger exports. A bumper crop in Brazil also helped in making more supplies available for trade this season. The United States’ yellow maize (US No. 2 delivered US Gulf) averaged US$163 per tonne in October, down 12 percent from July but still US$22 per tonne, or 16 percent, above the average price in October 2006.

Strong maize prices, combined with rising wheat prices, have pushed up the values of most other feed grains this season. Feed Barley prices have increased the most, trading between 60 to 80 percent above last year levels, depending on origin, reflecting a very tight world balance following production shortfalls in a number of countries and restricted supplies from Ukraine, a leading barley exporter. Also sorghum has benefited from higher prices this season. Strong import demand from the European Union has been the main factor behind a roughly 20 percent year-on-year increase in sorghum export values.

In the futures market, feed shortages continue to sustain prices of most coarse grains at their current high levels. Occasional spill over effects from the buoyant wheat market also provide support. By late October, the CBOT March maize 2008 futures stood at US$151 per tonne, some US$20 above the corresponding period in 2007.

Table 3. World coarse grain market at a glance

PRODUCTION

Record coarse grain production in 2007

FAO’s forecast for world production of coarse grains in 2007 remains almost unchanged since the previous report in June at 1 077 million tonnes, up 9 percent from last year and a record high. The bulk of the increase is expected in maize, which accounts for some 70 percent of total coarse grain production, with output set to reach a record 781 million tonnes in 2007. A record crop is being harvested in the United States, following the sharp expansion in plantings last year in response to high prices and strong demand from the biofuel industry. Bumper crops have also been harvested in South America, reflecting increased plantings and favourable growing conditions that led to exceptional high yields. The secondary crop just gathered in Brazil was estimated at 25 percent above last year’s already good level. A record crop is also expected in Central America, where plantings expanded in Mexico, the major producer. Elsewhere, the 2007 maize crops are seen to remain relatively unchanged in Asia and Africa, while unfavourable dry and hot conditions have compromised the crops in Europe and Australia, where declines in production are expected. With regard to the first of the major 2008 maize crops, planting of the important summer crop is already underway in South America. Early indications point to a continued expansion in area because of the incentive of attractive returns relative to other crops. However, with soil moisture levels reported to be limited in mid-September, additional precipitation will be needed for farmers to fulfil their planting intentions.

Regarding barley, the second most important coarse grain, latest information now points to a marginal decline in the global production in 2007, to about 138 million tonnes, contrary to earlier expectations of a significant increase. Although the expected good crop in North America is reported to have materialized, especially in Canada after a significant increase in plantings, in the other regions, drought in some major producing countries resulted in earlier favourable forecasts being downgraded sharply, namely in Australia, Morocco and Ukraine.

The forecast of world sorghum output in 2007 has been revised upward slightly since June, to some 63 million tonnes, almost 8 percent up from last year. The increase in production in 2007 is largely accounted for by Argentina and the United States, where plantings increased sharply in response to strong feed grain demand, linked to the diversion of more maize to the biofuel industry. In Africa and Asia, which account for about 40 and 20 percent of the world sorghum output respectively, production is forecast to change little in 2007.

TRADE

Coarse grain exports to expand, driven by larger sales of maize and sorghum

World trade in coarse grains is forecast to reach an all-time high of 113.5 million tonnes in 2007/08, up almost 1.7 million tonnes from the previous season’s record export volume. The increase mainly reflects larger maize and sorghum exports. Global maize trade is likely to approach 88 million tonnes, up 1.2 percent from its previous high in 2006/07. More abundant export supplies are also expected to boost sorghum trade this season, to a four-year high of roughly 7 million tonnes, up 33 percent from 2006/07. Trade in oats is also anticipated to increase, albeit slightly. In contrast, another season of weak trade is forecast for barley as a result of much reduced export supplies. Total trade in barley is forecast at 15 million tonnes, down 5 percent from the previous season’s low and the smallest in ten years.

Higher imports by the European Union account for most of this season’s increase in the overall world trade of coarse grains. The tight supply of feed grains, including feed wheat and barley, is forcing the European Union to purchase more sorghum and maize: sorghum imports by the European Union are forecast to triple from the previous season to 1.7 million tonnes, while maize imports are also forecast to increase sharply, to 7 million tonnes. Due to continuing high prices and strong demand, the European Union Commission has recently proposed the suspension of import duties on all grains for this season. However, for coarse grains such as maize, the duty is already very low, less than €2 per tonne. In Africa, due to a severe drought in Morocco which cut its total coarse grain production this year by 74 percent, imports of barley are likely to increase twofold, to 1 million tonnes. However, a bumper crop in the Sudan, is seen to reduce its imports of sorghum to nil, from 300 000 tonnes in the previous season.

In Central America, maize imports by Mexico are forecast to rise sharply this season despite the expected increase in its domestic output, partly sustained by increased purchases of cracked maize from the United States. Cracked maize is mainly used as fodder and is not subject to the import quota which Mexico applies on regular maize. In South America, a record maize crop in Brazil, up 21 percent from 2006, is expected to sharply lower that country’s need for imports and instead boost its exports. Lower imports are also expected in Chile due to a record crop this season. In Asia, maize imports by Indonesia are likely to decline to 700 000 tonnes, a 66 percent reduction from the previous season, in view of the anticipated strong increase in domestic production. However, Japan and Saudi Arabia are expected to import as much barley and maize as in the previous year and maintain their world position as the largest barley and maize importers. A slight decrease is expected for imports of maize by the Republic of Korea and of barley by Israel, depressed by high world prices and freight rates. Imports by another major importer, the Chinese Province of Taiwan, are expected to remain stable. In October, Taiwan announced a temporary suspension of its ban on maize imports from China until March 2008.

Turning to coarse grain exports, the largest maize supplier , United States, is expecting a record crop this season. As a result, maize exports from the United States are forecast to increase and, to some extent, compensate the anticipated reductions in sales by a number of other countries; most notably, China, where exports of maize shipments this season are forecast to decline to only 2 million tonnes, the lowest since the mid-1990s. Argentina is also expected to export more maize this season given an expected rebound in production while larger maize crops in South Africa could also result in a doubling of exports from that country. A boost in maize sales by Brazil, which is also benefiting from a record crop and ample supplies, could lift its maize shipments to an all time high of 8 million tonnes, up more than 30 percent from the previous season; the main destination being the European Union, where strong demand for feed grains coupled with its zero tolerance policy on non-approved genetically modified maize, have boosted imports from Brazil.

In comparison with maize, world barley supplies are much tighter. Although Canada is expected to double its sales this season, the difficult supply situation since last year could keep Australia’s exports at about half their normal levels. Also Ukraine is suffering from a major shortfall this season and its exports are therefore forecast to be halved. In late September, the Government announced new export quotas, effective from October 2007 to March 2008, which include 600 000 tonnes of maize, 400 000 tonnes of barley, 200 000 tonnes of feed wheat and 3 000 tonnes of rye. In the Russian Federation, because of the tight domestic situation, the introduction of a prohibitive 30 percent ad valorem tariff on barley exports was announced in October, to be imposed for implementation from November. By contrast, good crops should enable the European Union to raise its barley exports with Saudi Arabia as its leading destination.

UTILIZATION

Total utilization of coarse grain increases on higher industrial use as well as feed and food

Global utilization of coarse grains in 2007/08 is forecast to reach 1 057 million tonnes, up 4 percent from the previous season. This relatively strong year-on-year expansion is mainly driven by fast growth in its industrial use, most notably for the production of ethanol. Maize is the main feedstock for production of grain-based ethanol and its use for this purpose increased sharply already in the previous season and is expected to continue to expand significantly also this season. The largest market for maize-based ethanol is the United States, which used almost 54 million tonnes of maize for that purpose in 2006/07 and is forecast to use 81.3 million tonnes in 2007/08. While Brazil is the world’s largest exporter of ethanol and the second largest producer, after the United States, Brazil primarily uses sugar cane for its production of ethanol rather than maize. Exports of much cheaper-produced Brazilian ethanol to the United States, the largest nearby market, remain limited because of a high import tariff (54 cents a gallon).

Total feed use of coarse grains is forecast to increase by 1.4 percent in 2007/08, to 624 million tonnes. However, on an individual grain basis, stronger increases are expected only for maize (1.5 percent) and sorghum (8 percent) because of this season’s tighter supplies of other feed grains. Total use of barley for feed is forecast to fall by 3 percent, to around 97 million tonnes, mainly due to reduced production and high prices. The largest declines are forecast for Australia, Canada, Iraq, Morocco, Turkey and the Russian Federation. Global food consumption of coarse grains is forecast to reach 182 million tonnes, up 1.4 percent from the previous season. This increase is expected mainly in several developing countries, most notably in Ethiopia, India, Malawi, Mexico and Nigeria, because of higher maize consumption.

STOCKS

Coarse grain stocks rise following a sharp increase in production

World coarse grain stocks by the close of seasons in 2008 are forecast to approach 177 million tonnes, up nearly 15 million tonnes, or 9 percent, from their reduced opening levels. The expected strong recovery is mostly a reflection of this year’s anticipated record maize production in the United States, the world’s largest producer and exporter of maize. Total world maize stocks are currently forecast at 133 million tonnes, up 14 percent from the previous season.

At the current forecast level, the world stocks-to-use ratio for total coarse grains stands at 17 percent. This signals a relatively more comfortable situation compared with the previous season when the ratio stood at just over 15 percent. Also in terms of the ratio of major exporter’s stocks-to-disappearance (i.e. domestic consumption plus exports), the indications are encouraging. The ratio exceeds 14 percent, up from nearly 13 percent in the previous season and from the 8 percent low registered in the mid-1990s.

Ending stocks in the United States are now forecast at almost 54 million tonnes, of which maize accounts for 95 percent, or roughly 51 million tonnes. The forecast recovery in total coarse grain inventories in the United States, from only 36 million tonnes in the previous season, already takes into account the anticipated strong growth in domestic utilization as well as the forecast for higher exports. Among the other major exporters, a small increase in maize stocks is anticipated in Canada while for barley, which is normally Canada’s largest coarse grain crop, inventories may decline slightly in spite of a recovery in domestic production, reflecting a jump in exports driven by strong world demand. Australia is expected to end the season again with critically low barley stocks, as a result of drought. In the European Union, reduced maize production is expected to keep the overall feed grain supplies and therefore stocks at low levels. Elsewhere, sharp stock drawdowns are forecast for barley in Morocco and Ukraine as well as maize in South Africa. By contrast, in Brazil, the record maize crop is expected to result in a significant stock buildup, while stocks in China are also anticipated to increase slightly on higher production.