|Crop Prospects and Food Situation
Global cereal supply and demand brief
In spite of the increase in world cereal production in 2007, a tight global cereal supply and demand situation prevails in the current 2007/08 marketing season. Cereal supplies are low mainly because of dwindling stock levels carried over from the previous season. With world demand showing little sign of abating, international prices of most cereals remain high, and some are still on the increase, while world reserves are heading for yet another decline from their already low levels. International trade of cereals is expected to peak in 2007/08, driven mainly by a sharp rise in demand for coarse grains. Although a significant expansion in winter wheat plantings in the northern hemisphere is likely to result in much higher wheat production in 2008, assuming normal weather conditions, the current situation is such that it may require significant increases in production of more than one seasonís cereal crop for markets to regain their stability and for prices to decline significantly below the recent highs.
Good prospects for the 2008 wheat crops already in the ground in the northern hemisphere auger well for a significant increase in global wheat output during the year. In Europe, the winter wheat area has expanded in most major producing countries and crops are generally reported to be developing well throughout the region, providing good potential for yields to recover from last yearís below-average levels, especially in some eastern parts that were hit by severe drought in 2007. In North America, the winter wheat area in the United States has expanded again for the 2008 harvest although the increase was not as large as had been earlier expected following dry weather in the southern Plains that interrupted planting. In Asia, prospects for the winter wheat crops are favourable and current indications point to production remaining similar to last yearís record levels in the regionís three major producers, China, India and Pakistan. In North Africa, the wheat crop prospects are satisfactory in Egypt, the subregionís major wheat producer, but less certain in other parts where conditions have been somewhat dry, especially Morocco where soil moisture reserves were greatly depleted by drought last year.
The first of the major 2008 coarse grain crops are already planted in some countries. In South America, early estimates suggest the area planted has remained similar to last yearís record level. In Argentina, scarce precipitation and high temperatures since mid-December could have a significant negative impact on yields should good rains not come soon, but elsewhere among the key producing areas, conditions are reported to be mostly favourable. In southern Africa, despite recent heavy rains and flooding in some parts, the outlook for the season overall is mostly favourable. In South Africa, the major producer and main exporter in the subregion, maize plantings increased in response to high prices. Elsewhere, ample supply of inputs, including good quality seeds, at planting time, sometimes a restraint in these countries, and subsidies to farmers in some countries, ensured good levels of planting and should reflect positively on the outcome at harvest time.
Planting of the 2008 rice crops in the southern hemisphere is well underway or already complete in some parts. Prospects are favourable in South America, where increased areas are expected. In southern Africa, Madagascar is seen to continue a drive to increase its domestic production but in Mozambique more heavy rainfall is threatening to impair plantings.
FAOís estimate of global cereal output in 2007 now stands at some 2†102 million tonnes (rice in milled terms), virtually unchanged since the previous report in December, and representing a 4.6 percent increase from 2006. The bulk of the increase came from a record maize crop in the United States, which helped to raise world coarse grains output by 8.4 percent to 1†069 million tonnes. Wheat production also increased compared to the previous year but not by as much as had been hoped at the outset of the seasons. The 2007 wheat output is now estimated at 603 million tonnes, 1.2 percent up from 2006, with virtually all of the increase among the larger producers in Asia. Although the 2007 secondary rice crops (mostly in Asia) will not be harvested until March-April, the bulk of the 2007 paddy crops have already been gathered and FAOís latest forecast for the aggregate global output is already quite firm at 430 million tonnes (milled terms), representing a marginal increase of just 0.5 percent from the previous year. Virtually all the expansion is seen in Asia, while contractions are anticipated in Africa, Latin America and the Caribbean and Oceania, where crops have been constrained by adverse weather.
World cereal utilization is forecast to reach 2†120 million tonnes in 2007/08, pointing to a growth of 2.6 percent from the previous season. This relatively strong growth (about 1.6 percent above the 10-year average) reflects higher food and feed utilization as well as a significant increase in industrial use. Total food consumption of cereals is forecast to reach 1†006 million tonnes, up around 1 percent from 2006/07. The increase is mainly concentrated in the developing countries and mostly driven by population growth. However, a slight decrease in food consumption on a per caput basis is expected to occur in the developing countries, particularly for wheat consumption in the Low-Income Food-Deficit Countries (LIFDCs). Total world wheat utilization is forecast to reach 620 million tonnes, down marginally from 2006/07. On a per caput basis, wheat consumption is forecast to decline by about 0.5 percent in the developing countries to just below 60 kg. A small decrease is also forecast for rice consumption. On a per caput basis, rice consumption is estimated to remain in the order of 57 kg. However, a small decline is foreseen in the developing countries were rice intake is expected to fall slightly to 68.5 kg.
Total world feed utilization of cereals is forecast to increase by nearly 2 percent in 2007/08, to 754 million tonnes. Most of this increase would reflect a sharp expansion in world utilization of coarse grains (maize and sorghum in particular) which is forecast to reach a record 633 million tonnes, up 2.8 percent from 2006/07. This strong expansion, which in part reflects a gradual recovery in animal production, is expected to occur in both developed and developing countries. However, feed use of wheat is forecast to contract by 2.7 percent in 2007/08, to 109 million tonnes. In spite of a sharp anticipated growth of 7.7 percent in feed use in the developing countries, total feed use of wheat in the developed countries is forecast to decline by as much as 4.4 percent from the previous season due to tight supplies.
In addition to food and feed, the industrial usage of cereals is also growing. While traditionally this usage category was mostly related to production of starch and sweeteners and therefore largely stable, in recent years the rapidly growing biofuel sector is emerging as a leading source of demand. It is estimated that at least 100 million tonnes of cereals are currently used for production of biofuels, of which maize accounts for at least 95 million tonnes, representing 12 percent of its total world utilization. Maize is the main cereal used for the production of ethanol and the United Sates is the world leader of maize-based ethanol sector. In 2007/08, the United States is expected to put at least 81 million tonnes of maize into the production of ethanol. This would be up 32 million tonnes, or 37 percent, from the previous season.
As a result of strong demand and a shortfall in overall cereal production in 2007 compared to utilization needs, world cereal stocks by the close of the seasons ending in 2008 are expected to fall to just 405 million tonnes, down 22 million tonnes, or 5 percent, from their already reduced level at the start of the season and the smallest since 1982. This latest forecast is also about 15 million tonnes less than was reported in December. At the current forecast levels, the ratio of world cereal stocks to utilization also declines by 1 percent from the previous seasonís low to only 19.2 percent.
This anticipated drop in world cereal reserves is likely to be most significant in the case of wheat. World wheat stocks by the close of seasons in 2008 are expected to shrink to 147 million tonnes, down 15 million tonnes from their already reduced opening level. This sharp decline puts world wheat reserves at the lowest level since 1983. Most of the reduction reflects smaller supplies in major exporters this season where a combination of below-average production, strong domestic demand, and exports, would result in a drop of at least 11 million tonnes in their combined carryovers. In the United States, in spite of the rise in its production, wheat stocks are forecast to fall to no more than 8 million tonnes, the smallest in 60 years according to official estimates. A sharp increase in exports from the United States, to cover for the global shortfall caused by reductions in export availabilities in other major exporters, is the main reason for this development. Wheat stocks in the EU-27 are also forecast to drop to 9.5 million tonnes, more than 3 million tonnes below the previous season and well below the levels when EU had just 15 members. This seasonís sharp contraction in EU stocks mostly originates from production shortfalls in 2007 which are expected to curb its exports. Among other countries, a sharp fall in stocks is most notable in Morocco, where severe drought last year cut its domestic production by 75 percent, and inventories are likely to drop by at least 1.7 million tonnes in spite of large imports which are forecast to double from the previous seasonís level.
The latest forecast for coarse grains stocks at the close of seasons in 2008 is 156 million tonnes, down 6 million tonnes from their reduced opening level and nearly 15 million tonnes smaller than was anticipated in December. The decline from the previous season is expected in spite of a record maize harvest in the United States which boosted world coarse grain production by more than 8 percent over 2006. Higher utilization is responsible for the decline in world coarse grains stocks during the current season. Inventories of all major coarse grains are forecast to be reduced. Barley carryovers are expected to decline the most, by 4 million tonnes to 24 million tonnes, and that mainly in the EU, Morocco, Turkey, Ukraine and North America. World maize stocks are forecast to reach 117 million tonnes, down 1.2 million tonnes from the previous season. As the season progressed, the shortage of feed wheat in global markets increased the demand for coarse grains, resulting in higher utilization and consequently smaller stocks than were originally anticipated. Total coarse grains stocks held by major exporters are currently put at 64 million tonnes, slightly above their opening levels despite an increase of about 21 percent in their total production. In fact, stocks could have declined even more but two major producers, China and Brazil, harvested good to record crops and this has helped in improving the supply.
Global rice carryover stocks at the end of seasons in 2008 are estimated at 102.4 million tonnes, which would represent a 1.2 million tonnes drop from their opening levels. The expected decline suggests that production in 2007 would fall short of utilization and that drawing from world reserves would be needed to bridge the gap. The expected year-to-year contraction is anticipated to affect mostly the major importing countries, with the exception of Indonesia. Although as a group, the traditional exporting countries are foreseen to end their seasons in 2008 with larger inventories, much of the increase would be concentrated in China. The situation in the other traditional exporting countries is less buoyant, since Australia, Cambodia, Thailand, the United States and Viet Nam are all anticipated to end the season with smaller inventories.
World cereal trade is expected to approach 258 million tonnes in 2007/08, a new record after last seasonís peak. This latest forecast represents an upward revision of some 6 million tonnes since the previous report in December, largely associated with the recent surge in imports of maize and sorghum by the EU. At the current forecast level, the total volume of cereal imports by the LIFDCs, however, is down by about 2 million tonnes from the previous season.
World trade in wheat is forecast to decline to 107 million tonnes in 2007/08 (July/June), down 6 million tonnes from the estimated imports in 2006/07. The reduction is mainly due to lower purchases by India which, following an increase in production and improved levels of government stocks, is expected to import at least 4 million tonnes less than in the previous season. Other countries importing significantly less wheat this season include Algeria, Brazil, Indonesia, Pakistan, and Nigeria. However, several countries are also expected to increase their purchases from world markets despite the high prices. Hit by a severe drought, Morocco is forecast to double its imports in 2007/08. Imports by the EU are also forecast to increase significantly as a result of a tighter domestic supply situation this season.
The global wheat market continues to suffer from tight export supplies. Among the five major wheat exporters, only the United States is forecast to be able to export more this season than last, reflecting a rebound in its domestic production. A sharp fall in exports is expected in Australia as a result of drought. Lower sales are forecast for Canada and the EU because of below average harvests. Exports from Argentina are also seen to decline due to delays in the reopening of its export registry, which remained closed between March 2007 and January 2008, to guarantee supplies for the domestic market. Most other exporters have also slowed down their shipments this season. Exports from Turkey and the Syrian Arab Republic are forecast down sharply as a result of lower domestic production. Ukraine reduced sales through a strict quota system because of low domestic supplies. By contrast, exports from the Russian Federation surged during the first half of the season but the recent hike in export taxes has slowed or may even halt sales. China recently introduced further export restrictions but the overall wheat sales from China are likely to exceed the previous seasonís level. China has become a major source of wheat flour in Asia and in 2007 its wheat flour exports increased 5 fold compared to 2006, to almost 1 million tonnes.
The forecast for world trade in coarse grains in 2007/08 has been revised sharply upward since the previous report and it is now put at a record 120.5 million tonnes, up 9 million tonnes, or 8 percent, from the previous season and over 6 million tonnes more than was anticipated earlier. This sudden increase in world trade of coarse grains in 2007/08 is primarily driven by unexpected large imports of sorghum (3.5 million tonnes) and maize (10.5 million tonnes) by the EU. Total coarse grains imports by the EU are now put at 14.5 million tonnes, up nearly 8 million tonnes, or 116 percent, from the previous season. High feed demand and tighter supplies of feed wheat have boosted coarse grains purchases by the EU. In December, the EU suspended import duties on major cereals until the end of the season in June 2008. Imports are also forecast to increase by Morocco (mostly barley) and Mexico (mostly maize and sorghum). However, a combination of larger domestic output and/or high world prices are expected to result in smaller imports by several countries, including Colombia, Indonesia and the Republic of Korea.
The surge in this seasonís import demand for coarse grains could be met in part because of a record maize crop in the United States which made it possible for the United States to export more maize. Total coarse grains exports from the United States are forecast to increase by at least 8 million tonnes while sales from most of the five other major exporters are likely to increase slightly. Australia is seen to cut its exports of barley but shipments from both the EU and Canada are forecast to increase. Higher exports of maize are expected from Argentina. Among other exporting countries, Brazil is forecast to emerge as the world third largest maize exporter this season (after the United States and Argentina) following a record harvest, increasing its sales two-fold to over 10 million tonnes. However, maize exports from China are forecast to be more than halved, to 2 million tonnes, due to strong domestic demand, while Ukraine which last season exported 5 million tonnes of barley may not export any this season because of export restrictions due to tight domestic supplies.
Since last September, the FAO estimate of world rice trade in 2007 has been cut to 29.9 million tonnes, which would nevertheless still be 2.4 percent larger than in 2006. The year-to-year increase would be sustained by larger imports by Asian countries, in particular Bangladesh and Indonesia, but also the Democratic Peopleís Republic of Korea, the Philippines and Sri Lanka. South American countries also imported more, but deliveries to African countries dropped for the second consecutive year. Much of the increase in world trade is expected to be met through larger exports from Thailand, but also Cambodia, China, Egypt and Guyana. By contrast, Argentina, Brazil, India, Pakistan, the United States, Uruguay and Viet Nam are estimated to have cut deliveries, a reflection of limited supplies and, in some cases, of the imposition of government restrictions in the form of export quota, export taxes or minimum export prices.
The FAO forecast of global rice trade in 2008 has been also lowered since September to 30.3 million tonnes, which would be 1.5 percent up from the estimated level in 2007. In Asia, imports to Bangladesh, China, Iraq, the Democratic Peopleís Republic of Korea, Nepal and Turkey are forecast to rise, while they may fall in Indonesia, the Islamic Republic of Iran, the Philippines and Sri Lanka. Shipments to African countries are forecast to rebound in 2008, sustained by larger deliveries to CŰte díIvoire and Nigeria, while those to Latin America and the Caribbean may fall somewhat, given expectations of smaller purchases by Brazil and Colombia. As for exports, Argentina, Brazil, China, Guyana, Myanmar, Pakistan, the United States, Uruguay and Viet Nam are expected to be in a position to sell more, as opposed to Egypt and India, where government restrictions may depress sales. Deliveries from Thailand, the leading exporter, may also fall, as supply availability from public inventories dwindled.
International prices for all major cereals remained high, and some strengthened even further since December. Tight export supplies amid strong demand continued to provide support to cereal markets. International grain prices benefited from the weak US dollar, which increases demand for the US origin wheat, and a sharp decline in freight rates which helped accelerating purchasing activities by several countries in recent weeks. Export restrictions by China and the Russian Federation coupled with the closure of the export registry in Argentina also provided support. In January, the United Statesí hard wheat (HRW, No. 2, f.o.b.) averaged US$381 per tonne, unchanged from December 2007 but almost US$50 per tonne more than in November 2007 and as much as US$173 per tonne, or 83 percent, higher than in January 2007. Prices in the futures markets also remained firm although with continuous high volatility. Weaknesses in the financial markets, fund liquidation, and growing fear of a possible economic slow-down put downward pressure on wheat futures at Chicago Board of Trade (CBOT) but brisk international demand sustained high prices for nearby March delivery. Looking further ahead, with reports of significant expansion in plantings, early expectations point to a strong increase in wheat production in 2008 and this outlook has started to put some downward pressure on futures prices for the new wheat crop to be harvested in the summer. By late January, wheat futures prices at CBOT for delivery in September 2008 were quoted at around US$320 per tonne, US$140 per tonne above the corresponding period a year ago whereas futures prices for May delivery stood at US$322 per tonne, US$170 per tonne more than in the corresponding period a year earlier.
International prices of all major coarse grains have strengthened further since December. Strong demand in Europe provided support for maize and sorghum prices while limited supplies of barley combined with this seasonís continuing shortage of feed grains also kept barley prices well above the previous season. Maize prices continued their upward trend for the fifth consecutive month. The United Statesí yellow maize (US No. 2 Gulf, f.o.b.) averaged US$206 per tonne in January, up US$42 per tonne, or 26 percent, from January 2007. Also by late January, the CBOT nearby March contract was quoted at around US$200 per tonne, up 23 percent from the corresponding period last year. However, prices in the futures market are extremely volatile given the uncertainty over this yearís planting intentions for northern hemisphere countries connected to strong demand for soybeans, the general concern over a possible economic slowdown that could lower demand for feed, and the arrival of new supplies from Brazil and Argentina.
Although several major producing countries harvested their main paddy crop over the last quarter of 2007, world rice prices have continued to strengthen since September, as much of the new supplies reaching the market had already been committed for sale. Based on the FAO All Rice Price Index, prices gained 14 percent between September and December 2007. On average, prices were 17 percent higher in 2007 than in 2006. Prospects for the next few months point to further price gains at least until March 2008, when new rice supplies will become available from the 2007 secondary crops in northern hemisphere countries and from the first 2008 paddy crops in southern hemisphere countries. Until then, prices are expected to make further inroads, especially after several countries took action either to restrict exports or to facilitate imports. Moreover, reduced stocks in Thailand and in other major rice trade players could render prices more volatile in 2008. The price strength exhibited by other major agricultural products could lend further steam to international rice prices in the course of the year.
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