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

TRADE ^1/

• CARRYOVER STOCKS
• EXPORT PRICES

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1/ World trade in wheat and coarse grains is based on estimated imports delivered through 30 June of the July/June trade year. Some late-season purchases may be included in the next season if deliveries occur after 30 June. In general, exports and imports are calculated based on estimated shipments and deliveries during the July/June trade season and thus they may not be equal for any given year due to time lags between shipments and deliveries.

FAO's forecast for world trade in cereals in 1998/99 now stands at 204 million tonnes, up 2.7 million tonnes from the previous report in November (table A.2) with the bulk of the revision accounted for by wheat. Nevertheless, at this level, global cereal imports would remain 7 million tonnes, or 3 percent, below last year’s volume. Reduced commercial purchases of wheat and rice are expected to more than offset an anticipated increase in world imports of coarse grains.

World trade in wheat and wheat flour (in wheat equivalent) in 1998/99 (July/June) is forecast at 93.3 million tonnes, down 2 million tonnes from the already reduced volume in 1997/98 but 1.8 million tonnes above the November figures. Most of the increase in this month’s forecast reflects higher import estimates for CIS and a few countries in Asia. Aggregate wheat imports by the developing countries in 1998/99 are put at 73 million tonnes, some 4 million tonnes, or 5 percent, below the previous year and the smallest volume since 1994/95. By contrast, total imports by the developed countries are forecast to rise slightly from the previous year and approach 20 million tonnes, owing mostly to an increase in food aid shipments to the Russian Federation.

Aggregate wheat imports into Africa are forecast at nearly 22 million tonnes, 1.6 million tonnes less than in the previous season. The decline would be mostly on account of reduced imports by several countries in North Africa because of larger domestic production, particularly in Algeria, Morocco and Tunisia. However, imports by Egypt, being driven by sustained demand, are expected to match last year’s high volume of some 7.2 million tonnes. At this level, Egypt would again be the world’s largest wheat importer this season. Current indications point to a small reduction, of around 500 000 tonnes, in imports into Sub-Saharan Africa, mostly on account of reduced imports by Kenya and the likely absence of Ethiopia as an importer because of a record crop. While in the past years wheat imports into Ethiopia were mainly in the form of food aid, this year it is expected that food aid for vulnerable groups would be bought locally.

Total imports into Asia in 1998/99 are currently forecast at 43 million tonnes, down 3 million tonnes from last year but 1 million tonnes more than was anticipated in November. Import estimates for several Asian countries have been revised this month. For Bangladesh, the forecast for wheat imports has been raised to 2.4 million tonnes, up 600 000 tonnes from November and 1.6 million tonnes up from the previous year, to compensate for large crop losses caused by floods.

OVERVIEW OF WORLD CEREAL IMPORTS – FORECAST FOR 1998/99

SOURCE: FAO

In Pakistan, this year’s imports, currently put at 2.2 million tonnes, are likely to fall sharply below last year’s volume due to higher production, but they would be up 400 000 tonnes from the previous report, mostly reflecting the fast pace of purchases in recent months. The forecasts for wheat imports by the Islamic Republic of Iran and Malaysia have also been adjusted slightly upwards. By contrast, the forecast for wheat imports by India has now been reduced by 300 000 tonnes to 900 000 tonnes, some 1.4 million tonnes less than in the previous year, largely because of high stocks and prospects for bumper wheat crops in 1999. Indonesia’s wheat imports are currently put at 2.8 million tonnes, down 400 000 tonnes from November and 1.2 million tonnes less than last year. This reduction would be mostly on account of large stocks of wheat flour currently being held by the cereal parastatal BULOG, which no longer has a monopoly of imports. While so far domestic prices have remained well above international prices, they could eventually fall under the pressure of BULOG stocks, making private sales of imported flour difficult and less profitable.

Wheat imports into Europe are expected to reach 4.6 million tonnes, slightly higher than was reported in November, mostly due to an upward revision for durum imports into the EC. Despite this month’s upward revisions, however, total imports into Europe would still be about 700 000 tonnes lower than in the previous year. The bulk of the decline would be on account of reduced purchases by the EC, which harvested a record crop, whereas imports by most other countries are likely to remain close to last year’s levels.

By contrast, following this year’s poor harvests in the CIS countries, their aggregate wheat imports in 1998/99 are currently forecast at 4.2 million tonnes, 1 million tonnes up from the previous report following upward adjustments in several countries and 1.5 million tonnes up from last year. At this level, total wheat imports into the CIS would be nearly 1 million tonnes higher than was reported in November. The bulk of the increase compared to last year is expected in the Russian Federation, where food aid deliveries alone could exceed 2 million tonnes. Elsewhere, the forecast for imports into Latin America and the Caribbean has been lowered this month, by around 500 000 tonnes, to 16.6 million tonnes. At this level, total imports would still be 1.4 million tonnes above 1997/98. While most of the increase from last year would be on account of larger purchases by Brazil, the forecast for Brazil has been reduced this month by about 400 000 tonnes to 5.8 million tonnes, owing mostly to the recent devaluation of the Real which would make imports more expensive.

As regards exports (table A.3), the latest prospects for the 1998/99 (July/June) season point to a substantial decline in aggregate shipments from the five major exporters. Among them, only the EC and the United States could be expected to expand their wheat exports this season, mostly due to increases in their food aid. For other major exporting countries, this year’s export prospects are less favourable than in the previous season because of weaker international demand and above-average supplies in several smaller exporting countries. Bumper crops and aggressive marketing is expected to help Turkey to boost its exports to at least 2.5 million tonnes, up 1 million tonnes from last year’s already high level. Unconfirmed reports point to large exports from the Russian Federation and Ukraine. While the Russian Federation is expected to be a major recipient of food aid, sizeable wheat exports to other CIS as well as non-CIS countries seem to have continued, owing mostly to relatively low domestic prices following last year’s sharp currency devaluation and the need for foreign exchange.

Global trade in coarse grains in 1998/99 (July/June) is now forecast at 89.5 million tonnes, up slightly from the previous report and some 1 million tonnes more than last year’s reduced volume. Imports by the developing countries are forecast to increase slightly, while imports by the developed countries are likely to remain unchanged from the previous year. Among the individual coarse grains, higher barley and rye imports would account for the bulk of the anticipated increase. Trade in barley could reach 15 million tonnes, up almost 1.5 million tonnes from last year, mostly because of larger purchases by several countries in Asia. Imports of rye may double this season and approach 1.8 million tonnes, mostly on account of large EC food aid to the Russian Federation. Trade in other major coarse grains, is likely to remain unchanged to or decline slightly; imports of maize, the largest traded coarse grain are forecast to match last year’s reduced volume of around 63 million tonnes.

Total coarse grain imports into Africa in 1998/99 are put at 11.3 million tonnes, up 800 000 tonnes from the estimated imports in 1997/98. This increase is almost entirely due to higher import demand by several countries in southern Africa, particularly Zambia and Zimbabwe, due to a sharp decline in 1997/98 maize production caused by El Niño-related weather anomalies. In Asia, imports are currently forecast at around 53 million tonnes, 300 000 tonnes up from the previous report, reflecting this month’s upward revisions to maize and barley import estimates for China and the Islamic Republic of Iran, but still 1 million tonnes down from last year’s reduced volume. Asian coarse grain imports are likely to decline this season mostly because of larger domestic production and weaker demand from the animal feed sector, especially in countries affected by the financial crisis. The largest decline, of 900 000 tonnes, is forecast for Indonesia, following an increase in domestic production, while continuing weak demand is expected to result in a drop of about 800 000 tonnes in purchases by the Republic of Korea. However, a few Asian countries are likely to buy more coarse grains this season, in particular China and Saudi Arabia are forecast to raise their barley purchases.

In Europe, total imports are currently put at almost 4 million tonnes, slightly lower than last year, owing mostly to a likely decline in maize and rye imports by Poland which would more than offset a likely rise in barley and maize purchases by the Czech Republic. The forecast for imports into the CIS has been raised to 700 000 tonnes, up 500 000 tonnes since November due to the EC’s recent agreement to provide 500 000 tonnes of rye as food aid to the Russian Federation. Imports into Latin America and the Caribbean are put at nearly 17 million tonnes, down 700 000 tonnes from the previous report but 1 million tonnes more than last year. The bulk of the increase from last year would be due to larger maize and barley purchases by Mexico and higher maize import requirements by several countries affected by the hurricane "Mitch". Mostly due to lower production, Brazil is also forecast to import 400 000 tonnes more maize than in the previous year. However, Brazil’s coarse grains imports would be down 600 000 tonnes from the previous report, largely reflecting the recent currency difficulties combined with the apparent slowing of domestic feed use.

Turning to coarse grains exports, this year’s limited expansion in trade would mean improved market opportunities for only a few exporting countries. Among the main factors contributing to higher exports by some countries, expanded credit facilities and enhanced food aid play the most important roles. Based on the July/June trading season, higher import demand for barley combined with substantial rye food aid are expected to boost shipments from the EC, while larger maize exports from Australia, Canada and the United States would in part compensate for a decline in maize sales from Argentina, China and South Africa. Maize shipments from Hungary and Romania are also likely to decrease, while Turkey is forecast to increase its barley sales for the second consecutive year.

FAO’s estimate for world trade in rice in 1998 has been adjusted upwards by 1.5 million tonnes from the previous report to a new high of 26.6 million tonnes. This would be 7.6 million tonnes more than the estimate for 1997 and about 5.6 million tonnes above the previous record in 1995. The upward revision was triggered by new information that suggested larger import estimates than previously held for several of the major importing countries whose output was severely curtailed by weather-related problems. At the same time, record crops in some of the major exporting countries have made it possible to increase shipments to satisfy the exceptionally large demand on the international market.

The estimate for Indonesia’s rice imports in calendar year 1998 has been lifted by 300 000 tonnes to a record 5.8 million tonnes. It should, however, be noted that some of the country’s imports were supplied on special terms, particularly from the Government of Japan through rice loans to be honoured, at a future date, in kind or in cash. During the course of the year, Japan also provided Indonesia with financial assistance that enabled it to purchase additional rice from the international market. The 1998 import estimate for Bangladesh was raised by 800 000 tonnes from the previous report to 2.4 million tonnes largely as a result of devastating floods that affected most of the country, inflicting greater damage to the rice crops than estimated earlier. A portion of the import needs was met by food aid. Likewise, imports by Brazil were adjusted upwards by 200 000 tonnes from previous expectations to 1.4 million tonnes. Rice imports by the Russian Federation were also raised by 120 000 tonnes to 320 000 tonnes based on reports of lower output. Most of the imports were supplied in the form of food aid from different donor countries. The estimate for rice imports by several other countries, including Kuwait and Ghana, was adjusted upwards by a total of 140 000 tonnes. By contrast, rice imports by the United States and Colombia were reduced by a combined total of about 150 000 tonnes to 300 000 tonnes and 225 000 tonnes, respectively, based on official estimates. African countries in general are estimated to have imported less rice in 1998 owing to the continent’s record production in 1997.

On the export side, the official estimate for exports from Thailand, the leading rice exporter in the world, is 6.4 million tonnes, up by 200 000 tonnes from the previous report. India’s exports were raised by 500 000 tonnes to 4 million tonnes based on information of larger shipments to Bangladesh and some African countries towards the end of the year. The estimate of rice shipments from China (Mainland) in 1998 has been increased by 800 000 tonnes from the previous expectation to 3.3 million tonnes based on official data. Shipments from Japan were also adjusted upwards by 100 000 tonnes to 800 000 tonnes owing to additional food aid shipments to Indonesia. Export shipments from the United States were increased by 100 000 tonnes to 3.1 million tonnes based on official government data. The estimate for rice shipments out of Viet Nam for 1998 remained unchanged at a record 3.8 million tonnes. The Government of Viet Nam monitored rice export volumes during the course of the year and implemented temporary freezes on rice shipments on different occasions with the aim of ensuring sufficient domestic food supplies. By contrast, expected 1998 rice shipments from Pakistan were cut by 200 000 tonnes to 1.9 million tonnes based on the slowdown in the pace of export shipments towards the end of the year.

For 1999, global rice trade is provisionally forecast to decline from the estimated record in 1998, by more than 5 million tonnes, to around 21 million tonnes. This is based on the expectation of stepped-up production in many of the major importing countries whose output in 1997 was reduced by El Niño-related weather problems. Increased production, and therefore lower imports, may materialize particularly in Indonesia, the Philippines, Bangladesh and Brazil, the leading importers in 1998.

CARRYOVER STOCKS

The forecast for global cereal stocks by the close of the seasons ending in 1999 has been raised to 328 million tonnes, up 4.5 million tonnes from the previous report. While at the forecast level, world cereal carryover stocks would still be about 3 million tonnes down from their opening levels, the reduction would be considerably less than anticipated earlier, due mostly to higher stocks in the United States. Among individual cereals, the largest decline is expected in rice inventories followed by some reduction in wheat stocks. These contractions are expected to be partly offset by increases in coarse grain stocks. Overall, at 17.2 percent, the ratio of global cereal carryovers to trend utilization in the 1999/2000 season would be within the 17-18 percent range which the FAO Secretariat considers as the minimum necessary to safeguard world food security. The improvement in the estimate of the global stock-to-use ratio reflects higher cereal production and slower growth in utilization caused by the economic slowdown in several regions.

WORLD CARRYOVER STOCKS OF CEREALS

SOURCE: FAO

Global wheat stocks for crop years ending in 1999 are forecast to reach 136 million tonnes, some 5 million tonnes more than was reported in November and only 1.4 million tonnes below their relatively high opening levels. At the forecast level, total wheat stocks held by the major wheat exporters are expected to rise for the third consecutive year and reach almost 52 million tonnes, up 11 million tonnes, or 27 percent, from the previous year, mostly reflecting bumper crops in the EC and the United States. This month’s upward revisions concern mostly the EC, the United States and the Russian Federation. In the EC, the forecast for end-of-season stocks has been raised by 1 million tonnes, mainly due to downward adjustments to wheat consumption estimates. In the United States, following a slight reduction in this month’s estimates for domestic use combined with a downward revision to export estimates, the forecast for carryover stocks has been raised by 2.6 million tonnes. In the Russian Federation, end-of-season stocks are expected to increase in response to upward adjustments to its production estimates.

The level of world coarse grains stocks for crop years ending in 1999 is currently put at 142 million tonnes, up 3 million tonnes, or 2.5 percent, from last year and almost unchanged from the previous forecast. Based on the latest official figures, the forecast for coarse grains stocks in the United States has been raised to 51 million tonnes, of which maize would account for almost 46 million tonnes. At this level, the increase over last year would be 13 million tonnes, or 34 percent, and nearly 4 million tonnes more than was anticipated in November, mainly reflecting slower growth in domestic feed use and in exports of maize so far during the 1998/99 marketing season. By contrast, this month’s forecast of total coarse grains stocks in the EC has been lowered by 2 million tonnes to 22.5 million tonnes. At this level, total coarse grains stocks in the Community would be 1 million tonnes smaller than their 7-year high opening levels, mainly because of a decline in production and the sharp increase in exports of barley and rye. In addition, the estimate for end-of-season stocks in Romania has also been lowered, by nearly 2 million tonnes, following a 35 percent drop in production caused mainly by lower maize yields.

FAO’s forecast for global rice stocks at the end of the marketing seasons in 1999 is virtually unchanged from the previous report at about 50 million tonnes, which is 9 percent down from their revised opening level. The bulk of the reduction is forecast in countries whose production was severely curtailed by weather-related anomalies, particularly China (Mainland), Bangladesh and Indonesia.

EXPORT PRICES

Wheat prices have been rather weak in the past two months. During the first half (July to December) of the 1998/99 trade year, wheat export prices averaged around US$122 per tonne, some US$ 27 per tonne, or 18 percent, lower than in the corresponding period in the preceding year. A short-lived rebound in trade resulted in some recovery in prices during September and October, but a return to a slower pace of exports, in spite of increased credits and food aid, checked the recovery. By late January, US 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, or 14 percent, below January 1998. In Argentina, despite the reduction in the size of the crop just being harvested, new crop prices have also been falling steadily in recent weeks amid weak international demand, greater competition among major exporters and the continuing absence of some traditional customers of Argentine wheat, such as the Islamic Republic of Iran. Correspondingly, fundamentals in the futures market are characterised by sluggish demand, large wheat inventories in major exporting countries and the recent unexpected depreciation in the Brazilian Real. By late January, the Argentine Trigo Pan was quoted at US$105 per tonne (fob), some US$26 per tonne lower than in October and 20 percent below the corresponding period last year. Similarly, at the Chicago Board of Trade (CBOT), the nearby March wheat futures contracts were quoted at US$100 per tonne, pointing to a decline of about US$14 per tonne since October and US$25 per tonne compared to the corresponding period last year.

LATEST CEREAL EXPORT PRICES *

SOURCE: FAO, see Appendix Table A.9 * Prices refer to the fourth week of the month.
1/ No. 2 Hard Winter (Ordinary Protein).
2/ Indicative traded prices.
3/ 100% second grade, f.o.b. Bangkok.
4/ A1 super, f.o.b. Bangkok.

Looking further ahead, however, a moderate upturn in wheat prices towards the end of the current season can not be ruled out. The predicted sharp decline in Argentine wheat crop, reduced winter wheat plantings in the United States and the EC, and also a likely reduction in the spring wheat crop in Canada could result in a tighter supply situation during the next season. This may support prices, although much will also depend on the eventual size of the 1999/2000 wheat crops in major importing countries, which are the main driving force affecting global import demand.

Export prices for nearly all types of coarse grains remained under downward pressure in recent months, despite intensified export sales especially to major destinations in Asia. By late January, the US maize export prices were quoted at US$97 per tonne, slightly below October 1998 and US$19 per tonne lower than a year earlier. Two main factors exerting downward pressure on average prices this season have been the slow recovery in Asian import demand coupled with abundant supplies, especially in the United States. Overall, during the first half of the 1998/99 marketing season, US maize export prices averaged around US$94 per tonne, US$19 per tonne below the comparable period in the previous season.

The current supply and demand outlook for the global maize market does not indicate the likelihood of any easing of the downward pressure on prices in the coming weeks. Recent reports from the United States point to much lower domestic feed use and, in turn, higher closing stocks. In these circumstances, in late January, the nearby March maize future contracts quoted at the CBOT were US$85 per tonne, a drop of some US$4 per tonne since October and US$24 per tonne, or 22 percent, down from the corresponding period last year. Over the medium-term, however, maize prices may find some support from the anticipated sharp decline in Argentina production in 1999, due to reduced plantings and unfavourable weather conditions, combined with a possible decrease in planting in other major exporting countries, mostly as a result of depressed prices. International rice prices felt the effects of shrinking import demand towards the end of 1998 and the FAO Export Price Index for Rice (1982-84=100), which had registered a yearly high of 132 points during the July to September period, fell to 124 points in December. In January, however, the price index edged upwards by 1 point to 125 points primarily due to an increase in quotations for prices in Thailand, the world’s leading rice exporter, where prices have been trending upwards since mid-December. This is largely the result of accelerated exports of Thai rice during the last few weeks of December and most of January, concerns of a potential sharp reduction in the second crop due to drought and a strengthening of the Thai baht during the period.

January prices for high quality Thai 100% B averaged US$307 per tonne, up from the December average of US$284 per tonne but down compared to the 1998 average of US$315 per tonne. In the United States, the market has been generally subdued due to a lack of activity and prices for No. 2/4 percent broken rice averaged US$395 per tonne in January, down from US$403 per tonne in December and compared to the 1998 average of US$413 per tonne. Export prices from other origins continued the general downward trend started in the last few months of 1998 primarily as a consequence of contracting import demand.

In the next few weeks, rice export prices are expected to continue to react to information about the condition of the Thai irrigation-dependent second crop which may be affected by water shortages and the progress of the rice crops in the southern hemisphere countries where harvesting usually begins in late-February/beginning of March.