FAO/GIEWS - Food Outlook No.1, February 1999

CEREALS

SUPPLY/DEMAND ROUNDUP

The outlook for global cereal supplies in 1998/99 has improved marginally since the last report in November, following a slight upward revision to the aggregate estimate of cereal production in 1998. The latest revisions mostly concern increased estimates for wheat and coarse grains output in the Russian Federation, which have more than offset a reduction for rice. World cereal output in 1998 is now put at 1 880 million tonnes (including rice in milled terms), just 1.3 percent down from the previous year’s record. At the revised level, cereal output would be just below the anticipated consumption requirements in 1998/99, and as a result stocks would have to be drawn down, albeit only slightly. However, the global stock-to-utilization ratio, at 17.2 percent, would remain within the 17-18 percent range which the FAO Secretariat considers as the minimum necessary to safeguard world food security. Furthermore, apart from rice, stocks held by the major exporters, which usually provide the main buffer against variations in world output, are forecast to rise considerably in 1998/99 as a result of an increase in production in these countries in 1998 and sluggish world import demand. Early indications for 1999 crops point to a smaller global wheat output in 1999, following reduced plantings, especially in the United States and the EC, but in view of the expectation of larger carryover stocks, international markets for wheat remain quiet and prices relatively weak.

WORLD CEREAL PRODUCTION, SUPPLIES, TRADE AND STOCKS

SOURCE: FAO
1/ Data refer to calendar year of the first year shown. Rice in milled equivalent.
2/ Production plus opening stocks.
3/ July/June basis for wheat and coarse grains and calendar year for rice.
4/ May not equal the difference between supply and utilization due to differences in individual country marketing years.

Similarly, coarse grains markets remain sluggish and prices are low. While the early outlook for the 1999 coarse grains crops in the southern hemisphere is mostly favourable, much will depend on spring plantings in the major northern hemisphere producing countries. For rice, however, the depleted stock situation, following reduced 1998 crops in several major producing countries and the possible reduction of the second Thai crop, due to drought, has increased pressure on the rice market and prices have risen.

As mentioned above, FAO's latest estimate puts world cereal production in 1998 at 1 880 million tons (including rice in milled equivalent), 8 million tons above the previous estimate. The latest increase reflects upward revisions for wheat and coarse grains, mostly in the Russian Federation, which more than offset a reduction for rice in Asia. At the revised level, world cereal production in 1998 would be 25 million tonnes, or 1.3 percent, below that in the previous year, but still just above trend. Global output of wheat is now put at 598 million tons, 4 million tons above the previous forecast but still 2.6 percent down from 1997. The sharp drop in the CIS harvest, but also significantly smaller crops in China and Argentina, account for most of the reduction. The latest estimate of coarse grains production is 909 million tons, about 6 million tons up from the previous forecast and now just marginally above the revised estimate for the previous year. Larger crops in Asia and Africa offset the reduced harvests in Europe and the CIS. Harvesting of the 1998 main rice crop is virtually complete in major rice producing countries in the northern hemisphere. In a number of those countries, the second paddy crop is being planted. FAO's current estimate for world paddy rice production in 1998 is 557 million tonnes, down by 4 million tonnes from the previous report and 20 million tonnes from the revised 1997 record output. The recent downward revision comes in response to flood damage in a number of the major northern hemisphere rice producing countries in Asia.

Early prospects for the 1999 wheat crop point to a smaller output, although aggregate global production is likely to remain above the average of the past five years. Winter wheat plantings fell in the United States because of poor price prospects, and Canada’s crop, to be planted in the spring, is likely to be reduced for the same reason. In Europe, a combination of adverse autumn weather and an increase in the area set-aside requirement in the EC led to a reduced winter wheat area. In the CIS the outlook is uncertain. Reduced plantings were reported in the Russian Federation but assuming normal weather conditions this season's production should recover from the drought-reduced levels in 1998. In Asia, drought conditions persist in northern and northwestern parts of China, which could lead to another reduction in their wheat crop. However, conditions are reported to be generally satisfactory in India and Pakistan where outputs should be similar to last year.

Regarding 1999 coarse grains, crops are in the ground in some of the major southern hemisphere producing countries. In southern Africa, the outlook is favourable following good planting rains throughout the region. Likewise, in South America, weather conditions have generally favoured planting. Plantings have decreased in Argentina after the record crop in 1998 but remained above average, while a recovery from last year's reduced area is reported in Brazil. In the northern hemisphere, some winter coarse grains are already in the ground but the bulk of the crops will be sown in April/May. In the United States, farmers' intentions for spring sown coarse grains are still very uncertain. Although land freed up from wheat leaves scope to increase the coarse grains area, much will depend on market developments in the coming weeks, and the relative attractiveness of feed grains versus non-cereals. In Europe, as for wheat, winter coarse grains plantings are also tentatively estimated to have fallen throughout the region, but the bulk of the coarse grains crop will not be planted until spring. In the equatorial belt and the southern hemisphere, prospects for the 1999 rice crop (main season) are mostly favourable, although weather-related problems delayed planting in some South American countries. Harvesting of the crops generally starts around March.

FAO's forecast of world trade in cereals in 1998/99 (July/June) has been revised upward by 2.7 million tonnes, to 204 million tonnes, since the last report. Nevertheless, this would still be about 7 million tonnes, or 3 percent below the revised estimate for the previous year. The latest revision mostly reflects an increased estimate for wheat imports in the CIS and several Asian countries, but also small upward revisions for coarse grains and rice trade. Global wheat imports in 1998/99 are now forecast at 93 million tonnes, 1.8 million tonnes up from the previous forecast but still some 2 million tonnes down compared to the previous year. Global coarse grains imports are still seen to remain virtually unchanged from the previous year at 90 million tonnes, while trade in rice in 1999 is forecast to drop sharply back from last years record to a more normal level of about 21 million tonnes. The sharp reduction in rice trade mostly reflects a recovery in production expected in several countries whose output in 1997 was reduced by El Niño-related weather problems.

International wheat prices remained relatively weak over the past two months, reflecting generally limited trading activity. In late January, U.S. wheat No. 2 (HRW, fob) was quoted at US$125 per tonne, some US$8 per tonne lower than in October 1998 and US$20 per tonne down from a year ago. Lack of demand and strong competition among exporters have also put pressure on new crop prices in Argentina, which weakened in recent weeks, despite the reduced output expected. With regard to coarse grains, a pick-up in export sales in late 1998 did little to alleviate the dull market situation, and prices remain under downward pressure. In late January, United States maize export prices were quoted at US$97 per tonne, slightly below October, and US$19 per tonne lower than a year earlier. International rice prices also began to feel the pressure of shrinking demand towards the end of 1998, but recovered somewhat in early 1999, when increased quotations for Thai rice began to sustain the market. The FAO Export Price Index for rice (1982-84=100) averaged 125 points in January, 1 point up from December, although prices generally remain below those of a year ago.

FAO's forecast of cereal stocks for the crop years ending in 1999 has been raised since the last report by 4.5 million tonnes, to 328 million tonnes, which would be just below their opening levels. The latest increase largely reflects higher wheat and coarse grains stock building expected in the United States, and the possibility of a smaller drawdown in some CIS countries where 1998 production is now estimated to have fallen less than earlier reported. By contrast, latest information confirms the sharp fall in global inventories of rice. Nevertheless, assuming that current forecasts of production and utilization materialize, the global ratio of end-of-season cereals stocks in 1999 to trend utilization in 1999/2000 would still be, at 17.2 percent, within the 17-18 percent range which the FAO Secretariat considers as the minimum necessary to safeguard world food security.