Food Outlook No.5 - December 2002 p.7

Carryover Stocks

Massive contraction expected in world cereal stocks

FAO's forecast for world cereal stocks by the close of the seasons ending in 2003 remains virtually unchanged since the previous report at 466 million tonnes, down 110 million tonnes, or 19 percent, from their opening levels. This significant contraction is foreseen mostly as a result of a sharp drop (over 3 percent) in world cereal production in the face of a marginal rise in total cereal utilization. In addition to China, where cereal stocks are set to contract for the fifth consecutive year, the other notable stock declines are expected in countries where cereal production this year is forecast to drop sharply such as in Australia, Canada, Brazil, India and the United States.

Global wheat inventories, by the close of the seasons ending in 2003, are forecast to fall to 167 million tonnes, 50 million tonnes, or 23 percent, below their opening levels. Among the major exporters, only the EU is expected to end the season with larger stocks, given this year's upturn in wheat production. By contrast, in the United States, a combination of drought and reduced plantings have lowered production and this is expected to bring about a 55 percent cut in wheat stocks, to less than 10 million tonnes, which would be close to an 18-year low. In Australia and Canada, severe drought is also responsible for reducing wheat output and, consequently, leading to an erosion of stocks.

World Carryover Stocks of Cereals

Source : FAO

In aggregate terms, major exporters are likely to hold no more than 32 million tonnes of wheat in their inventories by the end of their respective seasons in 2003. The expected decline in major exporting countries' wheat stocks would imply a significant drop in the ratio of their wheat stocks to their total disappearance (the sum of their domestic consumption and exports). Based on the latest forecasts, this ratio would be just about 15 percent, down sharply from nearly 21 percent in the previous season and the lowest since 1996, when the ratio fell to 14 percent.

Among the major wheat producing countries in Asia, China's wheat carryovers this season are put at 63 million tonnes, down 24 million tonnes from their opening levels, as wheat production in 2002 is put at below the previous year's already reduced level and the lowest since 1989. Despite this decline, carryover stocks in China are still regarded to be sufficient which, in part, explains why imports have been kept at a minimum. In India, despite higher production, continuing large exports could result in a drawdown of around 4 million tonnes in this season's wheat ending stocks. In spite of this decline, however, stocks in India would still remain well above reserve requirements, at nearly 28 million tonnes. Wheat inventories in Pakistan are also forecast to contract sharply this season. Based on the latest forecasts, end-of-season stocks in Pakistan could drop by 3.5 million tonnes from their opening levels to less than 1 million tonnes, even though production in 2002 is estimated to be higher than in the previous year. Continued exports and strong domestic demand are among the main reasons for the anticipated fall in Pakistan's wheat stocks.

In Africa, sharply lower stocks are anticipated in Egypt, Eritrea, Ethiopia, Nigeria and Tunisia, where the gap between supplies (including expected imports) and requirements could be narrowed by drawing on their own domestic inventories. In the CIS countries, larger stocks are forecast for nearly all the countries in the region, given this year's good harvests. Only in the Russian Federation are wheat stocks expected to decline slightly, mainly because of the strong pace of exports.

World coarse grain inventories for crop years ending in 2003 are forecast at 174 million tonnes, down 37 million tonnes, or 18 percent, from the previous year. The most significant decrease is forecast for the United States, where a sharp drop in this year's production could result in a decline of nearly 20 million tonnes in carryovers, to 25 million tonnes. The anticipated drawdown is limited, however, as domestic feed utilization is expected to contract. Based on the latest estimates, total use of coarse grains for feed in the United States is likely to drop by 8 million tonnes, of which the reduction in maize utilization alone would account for 5 million tonnes. The drought reduced outputs in Australia and Canada would also result in a sizeable drop in their ending stocks. By contrast, total inventories in the EU are forecast to remain close to the previous season's comfortable level of around 20 million tonnes. As with wheat, the ratio of major exporters' total coarse grain stocks to their total disappearance is likely to shrink drastically this season, falling to roughly 12 percent, down from around 17 percent in the past two seasons and the lowest since 1996.

Despite a sharp upturn in maize production in China, maize inventories in that country are likely to decline by around 8 million tonnes, to about 80 million tonnes. The main explanations are continuing large exports and fast growth in domestic feed use. As a result of reduced production, smaller inventories are anticipated in the Russian Federation, Brazil, and Mexico. Total stocks in Africa are also expected to decline, by around 1 million tonnes, mostly driven by declines in sorghum and maize output in a number of central and southern African countries.

The forecast for world rice stocks at the close of the marketing seasons in 2003 has been lowered by over 5 million tonnes since the last report to nearly 125 million tonnes, with inventories below their revised opening level by almost 23 million tonnes - one of the largest declines on record.

The recent downward revision mostly reflects the lower production outlook for China and India, the two largest rice producers, which will imply a larger drawdown from inventories than previously anticipated to maintain normal levels of consumption. In contrast to last year, when stocks fell considerably in several major importing countries, almost all of this season's contraction is likely to concentrate in rice exporting countries.

In particular, carry over stocks in China (Mainland) are forecast to fall by 14 million tonnes from last year, to 79 million tonnes, down 2 million tonnes from the preceding forecast. A 7 million tonne drop could also be recorded by India under the current expectations of falling 2002 production, which compares to the earlier forecast of 5 million tonnes. Closing stocks in the country are now expected to fall to 17.5 million tonnes at the end of the season. Some downward stock adjustments have also been made in the case of Thailand and the Republic of Korea, in parallel with the lowering of their production forecasts while improved production prospects have led to an upward revision in closing inventories in the United States and Viet Nam