No.2  December 2006  
 Food Outlook
  Global Market Analysis

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Special features

Statistical appendix

Market indicators and food import bills





A sharp drop in world wheat production in 2006, driven by lower outputs in nearly all major exporting countries, has resulted in one of the tightest periods for world supply and demand of wheat in more than two decades. The decline in 2006 production has turned out to be the largest since 1994. International wheat prices have responded to smaller exportable supplies and shrinking inventories by surging to levels not seen since the mid-1990s. In spite of reduced supplies and higher prices, world trade in 2006/07 is likely to remain at the previous season’s high level mainly due to much larger imports by Brazil and India. Given reported increases in winter wheat plantings and favourable growing conditions to date, world wheat production in 2007 is likely to recover, which would improve supply and contribute to lowering price levels later this season and into the next.

Coarse grains


World markets for coarse grains are experiencing an exceptionally volatile period as a result of a sharp decline in world production and a tightening of supplies in the United States, the world’s largest producer and exporter. This season’s decline in production coincides with a more rapid expansion in demand for industrial use, ethanol in particular. Against this background, global stocks by the end of the 2007 seasons are likely to be drawn down significantly, fuelling price volatility and increases across the board. Looking ahead, the current strong prices are likely to encourage higher plantings and result in larger production in 2007compared with 2006. However, if industrial use continues to grow at the current pace, it may take more than one good crop season for prices to retreat significantly from their current highs.



A series of set backs, in the form of typhoons, drought, flooding, diseases and insect attacks, have marred prospects for rice crops in 2006, so virtually no growth in global production is anticipated in 2006. Early indications on 2007 crops in the southern hemisphere countries are also negative. As a result, a greater reliance on rice reserves might be needed to meet domestic consumption. Rice trade is foreseen to increase somewhat in 2007, sustained by increasing imports by countries in Africa and Latin America and the Caribbean and, on the export side, by large inventories in Thailand. Although the arrival of supplies from newly harvested crops could bring some respite to high world prices, this is likely to be only temporary, and an expected tightening of the global supply and demand portends a continuation of relatively firm rice prices into 2007.



Growth in global oilseed production is forecast to slow down considerably in 2006/07 due to declines in rapeseed, groundnut and sunflower production in key producing countries as well as lower increases of soybean output in Latin America. Global supplies of both oils/fats and meals/cakes should, however, continue to expand thanks to ample carry-in stocks from 2005/06. World oils/fats consumption for food and non-food applications, notably in the biofuel sector, is anticipated to expand further. To satisfy demand, a draw down in global oils/fats stocks appears necessary, which should sustain prices. Also, global demand for meals/cakes should continue rising, with soybean meal satisfying most of the increase. As consumption is expected to fall short of production, global meal/cake inventories should rise further, putting an end to the upward trend in international meal/cake prices. Regarding trade, sustained growth of global exports and imports is expected for both oils/fats and meals/cakes. During 2006/07, the oilseed complex is expected to be increasingly affected by expectations for oilseed and cereal crops in the subsequent 2007/08 season. The tightness currently observed in feed grain markets could lead to lower plantings and firming prices in the oilseed sector.



World sugar prices have largely retreated from the 25-year highs reached in February 2006 and had approached their longer-term trend value by end October 2006. World sugar production is forecast to increase to 155.5 million tonnes in 2006/07, as producers responded to two years of high prices by expanding planted areas to sugar crops, with record production forecast in Brazil and India. More favourable weather patterns also resulted in a recovery to normal output levels, particularly in Thailand and the United States. A forecast 23 percent decline in European Union sugar production due to sugar policy reform has been partially offset by increases elsewhere in Europe. As a result of slower growth, world sugar consumption is foreseen to reach 152.1 million tonnes. Prospects for continued strong prices in 2006/2007 may be dampened by the forecast 3.4 million tonnes surplus after three consecutive years of deficit.

Meat and meat products


Global meat markets in 2007 are expected to gradually recover in the aftermath of animal disease outbreaks that have plagued the sector for the past four years. Low poultry prices and renewed consumer confidence in the context of strong economic growth and reduced disease outbreaks are forecast to induce a gradual recovery in global meat demand. While meat output is expected to respond positively to it, considerable uncertainty hinges on the impact of rising feed prices on industry profitability. On the trade side, meat shipments, after witnessing an animal disease-induced cyclical pattern of losses and recoveries over the past four years, are forecast to rise by 7 percent.



World milk production may increase by over 2 percent in 2006, mainly as a result of relatively higher prices in the past two years. Growth in the output of developing countries is robust at over 4 percent, due mainly to large gains in some countries of Asia and South America. Output in developed countries is largely stagnant. A major feature of the current trade situation is declining exports by the European Union, whose intervention stocks have been drawn down, and whose export refunds have been reduced. The drought in Australia is also affecting its exportable supplies. As a result, international dairy product prices, which fell from a historical peak in 2005, have recently turned around at above trend levels. The outlook for 2007 is for a continued global expansion in milk supplies, but with little change in global trade of milk products. Prices are expected to remain firm.

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