Global cereal supply and demand brief
World cereal balance tightening up even more
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FAO’s forecast for cereal production in 2006 has been lowered further
since the previous report, by almost 19 million tonnes to 1 994 million
tonnes (including rice in milled terms), which would be 2.7 percent less
than the 2005 output.
The decline in cereal production this year coincides with an anticipated
growth in total cereal utilization; at current forecast levels the utilization
would exceed production by 3.3 percent.
The last time total cereal utilization exceeded world production by a
similar magnitude was in 2003/04 but at that time the level of world stocks
was some 15 million tonnes larger than this season’s opening level. The
tightening up of the world cereal balance has resulted in strong price
responses for all cereals; driving up the cost of cereal imports.
The total cereal import bill of the Low-Income Food-Deficit Countries
(LIFDCs), as a group, is forecast to surge by 15 percent in 2006/07 despite
the fact that their aggregate imports are not increasing compared to the
previous season. But high prices are also encouraging larger plantings
for 2007. For wheat, early indications already suggest increases in winter
plantings in the northern hemisphere, while prospects for most other cereals
to be planted next year, maize in particular, are also favourable. In
spite of this positive outlook for crops in 2007, the near-term supply
conditions are expected to remain tight with prices still high and volatile.
Favourable prospects for 2007 grain crops, especially wheat
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Early prospects for the 2007 winter grain (mostly wheat and barley) crops that
have already been planted in the northern hemisphere are generally favourable.
In the United States, the winter wheat planting was virtually complete
by mid-November under favourable conditions and tentative estimates point
to a 5 percent expansion in area.
In Europe, conditions for planting and crop establishment in the EU have
been generally favourable in most parts and tentative estimates point
to a 1 percent expansion in the aggregate wheat area. Further to the east
of the region, planting conditions (moisture availability and temperature)
in the CIS countries have been much more favourable this year. The planted
area in the Russian Federation is estimated similar or slightly up from
the previous year while a sharp increase is estimated in the Ukraine after
last year’s reduced level.
In Asia, the winter wheat area in China is estimated similar to last
year.
Dry conditions in northern and eastern parts of the country have hampered
germination and establishment, but soil moisture in southern areas is
reported to be adequate.
Wheat planting in India is progressing well and the area is expected to
rise in response to government incentives to encourage wheat production.
In North Africa, mostly beneficial weather is favouring wheat planting.
The first 2007 coarse grain crops are already being sown in some countries
in the southern hemisphere.
In South America, recent beneficial rains allowed progress of the coarse
grain planting, previously delayed by lack of soil moisture, and early
indications point to a slight increase in the aggregate sown area in the
region.
In Argentina, tentative official estimates put the maize area up sharply
from last year.
In Southern Africa, the planting season is well underway in many parts
in the south and centre of the region where good rainfall has already
arrived, but delayed in some areas that remain dry, particularly in the
north. The maize area in South Africa is expected to recover sharply from
the previous year’s reduced level.
Prospects for the first 2007 rice crops being planted in the southern hemisphere are rather mixed. The outlook is poor in Australia, Indonesia, the Philippines, where drought or severely dry conditions persist, but improved somewhat in South America with the arrival of beneficial rains.
|
2005 estimate |
2006 forecast |
Change: 2006 over 2005 (%) | Asia |
891.1 |
901.3 |
1.2 | Far East | 790.4 | 799.4 | 1.1 | Near East in Asia | 72.5 | 71.7 | -1.0 | CIS in Asia | 28.0 | 30.1 | 7.4 | Africa |
132.3 |
137.0 |
3.6 | North Africa | 31.3 | 35.7 | 14.1 | Western Africa | 45.6 | 47.7 | 4.6 | Central Africa | 3.3 | 3.4 | 1.3 | Eastern Africa | 29.1 | 29.5 | 1.6 | Southern Africa | 23.0 | 20.8 | -9.9 | Central America & Caribbean |
34.8 |
37.6 |
8.1 | South America |
109.4 |
107.1 |
-2.1 | North America |
416.5 |
390.7 |
-6.2 | Europe |
423.9 |
401.2 |
-5.4 | EU 25 | 259.8 | 249.7 | -3.9 | CIS in Europe | 122.3 | 115.3 | -5.7 | Oceania |
40.7 |
18.9 |
-53.5 | World |
2 048.7 |
1 993.9 |
-2.7 | Developing countries |
1 116.0 |
1 135.1 |
1.7 | Developed countries |
932.7 |
858.7 |
-7.9 | - wheat | 624.5 | 591.8 | -5.2 | - coarse grains | 1 002.3 | 981.2 | -2.1 | - rice (milled) | 421.9 | 420.9 | -0.2 |
1 Includes rice in milled terms.
Note: Totals computed from unrounded data.
Further downward revision to the 2006 wheat, coarse
grains
and rice production forecasts
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The further reduction in the 2006 world cereal forecast since the last
report in October results from downward revision of the wheat, coarse
grains and rice forecasts.
As of mid-November, with the main wheat harvests in the northern
hemisphere already complete, and those in the south soon to be concluded,
FAO’s latest forecast of world output in 2006 stands at 591.8 million
tonnes, almost 33 million tonnes, or 5.2 percent, down from 2005 and below
the average of the past five years.
The latest revision results mostly from smaller forecasts for the southern
hemisphere crops that are still being harvested. Prospects in Australia
have deteriorated further due to severe drought and the final output is
now forecast at just 44 percent of the average of the past five years.
In South America, a period of drought in Argentina reduced the yield
potential of wheat crops, and although the harvest is still expected to
be better than last year’s low level the improvement will not be as much
as projected.
FAO’s forecast for world production of coarse grains in 2006 has been
revised downward since the previous report to 981.2 million tonnes, which
would be 2.1 percent down from last year but is above the average of the
past five years. The latest revision is mostly accounted for by a smaller
maize output forecast in the United States, where the latter stages of
the harvest have revealed lower than expected yields in parts.
Other significant downward revisions have been made for some European
countries where maize harvesting has still been ongoing and for Australia,
where the winter coarse grain crops have been devastated by severe drought.
Prospects for global rice production in 2006 have also deteriorated
further since the last report, reflecting a less bright outlook than anticipated
in some countries in Asia, mainly the largest producers China and India,
where crops have been affected by localized drought problems. Based on
the latest information, FAO forecasts 2006 global rice production at 420.9
million tonnes (milled terms), 3.2 million tonnes less than previously
expected, and slightly below the 2005 harvest.
The latest revision for rice means that, contrary to earlier expectations
of a slight increase, the global output in 2006 will fall below the previous
year’s level. The worsening of the outlook was particularly severe in
the case of India, although this is still subject to much uncertainty.
Food and Ethanol drive up cereal utilization in 2006/07
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World cereal utilization in 2006/07 is currently forecast at 2 060 million
tonnes, down marginally since October and up 1 percent from the previous
season’s record.
Most of the increase in total cereal utilization is in food consumption
and industrial uses while cereal feed utilization is likely to stagnate.
At the global level, the increase in cereal food consumption is expected
to remain largely in line with anticipated population growth; as a result,
the world per caput intake of cereals is expected to remain roughly unchanged
at around 153kg.
In Africa, where the cereal supply situation seems to show signs of improvement
compared to the previous season, per caput cereal consumption is forecast
to rise by nearly 2kg to 155kg. However, this increase is expected to
be most pronounced in North Africa where several countries have harvested
bumper cereal crops this year.
Cereal used for industrial processing is expected to expand further this
season. The main growth engine for higher industrial use is the fast expanding
maize-based ethanol production in the United States. At the start of the
decade, the amount of maize used for ethanol in the United States barely
reached 6 percent of its domestic production but that amount is now heading
towards 20 percent (roughly 55 million tonnes), almost the same as the
expected exports from the United States in 2006/07.
On the other hand, global cereal feed utilization is forecast at 743 million
tonnes, representing a decline of 4 million tonnes from the previous season’s
estimate.
Most of the slowing down in cereal feed usage is forecast for the developed
countries, especially in the United States where in spite of a decline
in its domestic grain production, exports are forecast to increase further
tightening supplies.
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2004/05 |
2005/06 |
2006/07 |
Change: 2006/07 over 2005/06 (%) |
PRODUCTION 1 |
2 074.1 |
2 048.7 |
1 993.9 |
-2.7 | wheat | 632.0 | 624.5 | 591.8 | -5.2 | coarse grains | 1 035.2 | 1 002.3 | 981.2 | -2.1 | rice (milled) | 406.9 | 421.9 | 420.9 | -0.2 |
SUPPLY 2 |
2 489.8 |
2 516.4 |
2 462.9 |
-2.1 | wheat | 792.7 | 800.0 | 766.5 | -4.2 | coarse grains | 1 184.8 | 1 195.3 | 1 170.2 | -2.1 | rice | 512.4 | 521.1 | 526.2 | 1.0 |
UTILIZATION |
2 023.8 |
2 038.3 |
2 060.0 |
1.1 | wheat | 618.8 | 623.2 | 621.7 | -0.2 | coarse grains | 991.2 | 998.7 | 1 017.4 | 1.9 | rice | 413.8 | 416.4 | 420.8 | 1.1 | Per caput cereal food use (kg per year) |
152.9 |
153.2 |
153.3 |
0.1 |
TRADE 3 |
245.3 |
245.0 |
243.8 |
-0.5 | wheat | 110.8 | 110.1 | 110.0 | -0.1 | coarse grains | 104.8 | 106.4 | 105.0 | -1.3 | rice | 29.8 | 28.6 | 28.9 | 1.1 |
END OF SEASON STOCKS 4 |
467.7 |
469.0 |
402.9 |
-14.1 | wheat | 175.5 | 174.7 | 147.0 | -15.8 | - main exporters5 | 55.0 | 58.0 | 34.5 | -40.6 | coarse grains | 193.0 | 189.0 | 151.2 | -20.0 | - main exporters5 | 93.8 | 90.2 | 53.5 | -40.7 | rice | 99.2 | 105.3 | 104.7 | -0.6 | - main exporters5 | 18.9 | 22.7 | 22.1 | -2.5 |
Low-Income Food-Deficit Countries (LIFDCs) 5 |
Cereal production 1 |
818.9 |
857.5 |
875.4 |
2.1 |
excluding China and India | 273.9 | 290.6 | 300.8 | 3.5 |
Utilization |
907.4 |
1 084.6 |
1 106.6 |
2.0 | Food use | 645.3 | 655.3 | 664.6 | 1.4 |
excluding China and India | 265.5 | 271.5 | 278.1 | 2.4 | Per caput cereal food use (kg per year) | 158.1 | 158.3 | 158.2 | 0.0 |
excluding China and India | 158.0 | 158.5 | 159.3 | 0.5 | Feed | 161.9 | 163.1 | 165.8 | 1.7 |
excluding China and India | 42.5 | 45.0 | 45.3 | 0.8 |
End of season stocks 4 |
227.1 |
231.2 |
236.3 |
2.2 |
excluding China and India | 48.4 | 52.8 | 52.4 | -0.8 |
1 Data refer to calendar year of the first year shown.
2 Production plus opening stocks.
3For wheat and coarse grains, trade refers to exports based on July/June marketing season. For rice, trade refers to exports based on the calendar year of the second year shown.
4 May not equal the difference between supply and utilization because of differences in individual country marketing years.
5 For definition see notes on back cover.
World wheat stocks lowest since 1981
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The decline in world cereal production and rising utilization would bring about
a further erosion of the world cereal stock level. Based on the latest
estimates, FAO forecasts world cereal stocks by the close of seasons ending
in 2007 at 403 million tonnes; down 19 million tonnes from the previous
forecast and 66 million tonnes, or 14 percent, below their opening level.
At the current forecast level, the world stocks-to-use ratio is likely
to hit a historical low of just over 19 percent.
This year’s production short-falls in many parts of the world are expected
to result in a large draw down of world wheat inventories to their lowest
level since the early 1980s.
Global wheat stocks for crop years ending in 2007 are currently forecast
to fall to around 147 million tonnes, nearly 28 million tonnes, or 16
percent, below their opening levels.
At this level and in spite of an expected slowdown in utilization growth,
the world stocks-to-use ratio for wheat is forecast at around 23 percent.
This represents a 5 percentage point drop from the previous season and
the lowest ratio for at least 30 years.
World carryovers of coarse grains are forecast to reach 151 million tonnes,
down 38 million tonnes, or 20 percent, from their opening levels. This
forecast is 11 million tonnes less than previously reported and reflects
this month’s downward adjustment to the world production estimate, by
roughly the same amount.
The sharp decline in world coarse grains stocks compared to the previous
season results from lower carryovers of all major coarse grains, lead
by maize, down 27 million tonnes, and barley, down 7 million tonnes.
World rice inventories at the close of the 2006/07 marketing seasons are now set to be cut to less than 105 million tonnes, slightly below their opening level, reversing previous expectations of a stock rebuilding. The change in the outlook follows mainly from the deterioration of crop prospects in several major producing countries, which will constrain many of them to use their reserves to meet domestic consumption and, in the case of exporters, export demand.
Global cereal trade declines in 2006/07
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Unchanged from the previous forecast, world cereal trade in 2006/07 is expected
to reach 244 million tonnes, 1 million tonne below the record in 2005/06.
This decrease mostly reflects smaller imports by a number of developing
countries, largely due to their own good harvests.
World trade in wheat in 2006/07 is forecast at 110 million tonnes, unchanged
from the previous season and slightly below the last forecast in October.
The decline in this month’s forecast is mostly a reflection of further
cuts in commercial imports by several countries. Generally good harvests
in some of the leading net-wheat importing countries have lowered their
import requirements this season, but, for several countries, rising prices
of wheat seem to have also slowed down their purchases from international
markets.
In spite of lower imports by many countries, world trade in 2006/07 can
still be considered as the second largest in size, just 1 million tonnes
below the record in 2004/05.
The reason for this is a sudden increase in wheat imports by only a
few countries, most notably Brazil and India, without which world trade
would have taken a sharp dive instead. The large anticipated imports by
India and Brazil are one of the emerging features of this season’s trade.
The other is the supply tightness triggered by smaller harvests in several
wheat exporting countries.
Among the top 5 major exporters, individual shipments from all but Australia
are likely to remain close to, or even increase from, the previous season
but this would be mainly at the expense of some heavy draw downs of their
inventories. Most other exporters suffered from reduced harvests this
season and this should weigh heavily on their export potential. In Ukraine,
the Government has recently introduced wheat export licensing and export
quotas (400 000 tonnes of wheat) for the rest of the year.
International trade in total coarse grains in 2006/07 (July/June) is
forecast at 105 million tonnes, down nearly 1 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.
Total imports by countries in Asia are forecast at 57 million tonnes, down
slightly from the previous season. Smaller imports of barley by Saudi
Arabia are responsible for most of the anticipated reduction. In Africa,
total imports are forecast to decline by 1 million tonnes to 14.8 million
tonnes. The single largest decline is forecast for Zimbabwe where maize
imports are forecast to fall by almost 1 million tonnes, reflecting the
estimated doubling of production in 2006. In Central America, total imports
by Mexico are forecast down slightly mostly due to reduced purchases of
sorghum; while its maize imports are likely to increase despite an improved
harvest this year.
In South America, 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. Regarding coarse grains
exports, maize shipments are forecast to increase to a record volume of
some 80 million tonnes as a result of strong world demand. The increase
reflects a sharp rise in sales from the United States, which would compensate
anticipated declines in exports by Argentina, China, the Republic of South
Africa, and Ukraine, due to these countries’ tighter exportable supplies.
FAO’s forecast for world trade in rice in 2007 has been revised upward to roughly
28.9 million tonnes, up 800 000 tonnes from the previous report and 300 000
tonnes above the estimate for 2006. The anticipated small increase in
2007 mainly reflects larger imports by a number of countries in Africa
and Latin America and the Caribbean. By contrast, in Asia, rice imports
are currently foreseen to fall somewhat, owing to expectations of smaller
purchases by several countries; including, Bangladesh, the Islamic Republic
of Iran and the Philippines, which are expected to harvest larger crops
in 2006.
Regarding exports, relatively large carry-over stocks in Thailand and
good crops in Cambodia, Egypt and Myanmar could help sustain a modest
expansion of 300 000 tonnes in total sales. On the other hand, reduced
export availabilities are likely to depress shipments from Australia,
India, Japan, the United States and Viet Nam. In the case of the United
States, the retrenchment from the market would also reflect the imposition
of stringent testing requirements by several importing countries, following
recent findings of the unauthorized, genetically modified LLRice 601 in
US long grain rice shipments.
Cereal prices rise in the wake of further cuts in world supply
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The tightening of the global cereal supply and demand balance continues
to rally prices of all cereals. In the wheat market, recent concerns about
the prospects for wheat crops in major producing countries in the southern
hemisphere, especially drought-devastated Australia, have put more upward
pressure on prices while the announcement from Ukraine to limit exports
through quotas also provided support.
In November, the US hard wheat export prices were quoted at around US$219,
up over US$52, or 31 percent, from the previous year and highest since
1996. The increase in US export prices was also supported by the sudden
sharp weakening of the US dollar. After a brief decline in early November,
the Chicago Board of Trade (CBOT) March contracts for soft red winter
wheat resumed their upward trend in late November to US$185 per tonne,
more than US$72 per tonne, or 61 percent, above the corresponding period
last year.
Price developments in wheat futures have been supported not only by the
wheat market’s own fundamentals but also a continuing rally in maize prices
and heavy purchases by hedge funds.
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. The
sharp cut in this year’s maize production in the United States just
as its own demand 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 most other exporting countries. Argentina recently suspended
export permits due to the concerns about domestic supply situation in
the light of large export sales up until now.
In November, the US maize export price (US No.2 Yellow) averaged US$166
per tonne, up US$69 per tonne, or 70 percent, from last year. 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 around late October
would have put downward pressure on prices, has not appeared to be taking
place this season.
Instead, in early November, the nearby maize futures at the Chicago Board
of Trade (CBOT) surged to a 10-year high on the expectation of even more
significant tightening in the United States than markets had anticipated
earlier. By late November, the March 2007 maize contracts stood at around
US$151 per tonne, up US$72 per tonne, or 90 percent, from the corresponding
period last year. The weaker US dollar and delays in maize shipments from
China and India continue to lend support to maize futures.
International rice prices, which had been on the rise between June and September, did not decline in October and gained further momentum in November, despite the arrival on the market of freshly harvested supplies. This was reflected in the FAO All Rice Price Index, which averaged 111 in October, the same level as in September, before rising to 113 in the first three weeks of November, the highest level since October 1998. Part of the renewed strength reflected evident tightness in exporting countries, in particular Viet Nam, which announced the suspension of exports in November, but also high domestic prices in India, fuelled by large government purchases, and the United States.
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2006 |
2005 | |
Nov. |
Oct. |
Sept. |
Aug. |
July |
Nov. |
United States | | | | | | | Wheat 1 | 219 | 218 | 208 | 201 | 213 | 167 | Maize 2 |
166 |
141 | 119 | 113 | 114 | 97 | Sorghum 2 | 169 | 154 | 128 | 121 | 129 | 94 |
Argentina 3 | | | | | | | Wheat |
185 |
191 | 167 | 160 | 159 | 134 | Maize |
171 |
135 | 114 | 111 | 114 | 91 |
Thailand 4 | | | | | | | Rice white 5 | 305 | 306 | 314 | 318 | 321 | 283 | Rice, broken 6 |
218 |
221 | 222 | 220 | 216 | 211 |
*Prices refer to the monthly average.
1No.2 Hard Red Winter (Ordinary Protein) f.o.b. Gulf.
2No.2 Yellow Gulf.
3Up river, f.o.b.
4Indicative traded prices.
5100% second grade, f.o.b. Bangkok.
6A1 super, f.o.b. Bangkok.
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