Global cereal supply and demand brief

OVERVIEW

World cereal supply remains satisfactory despite lower production in 2009

In spite of an anticipated 3 percent decline in world cereal production in 2009 from the 2008 record, the outlook for world cereal supply and demand situation in 2009/10 is satisfactory. World global cereal supply, consisting of production and carryover stocks, is expected to remain nearly unchanged around the high level of the previous season. With world cereal utilization forecast to expand at a much slower rate than in 2008/09, world cereal stocks by the end of seasons in 2010 may decline only marginally from their high opening level and remain the second largest volume since 2003. World cereal trade in 2009/10 is likely to be marked by a sharp contraction from the 2008/09 record, mostly driven by a massive cut in global wheat imports. The expectation of a second successive year of good crops has already resulted in declines in international prices of major cereals to well below their peaks in 2008.

PRODUCTION

Latest information confirms smaller global cereal output in 2009

World cereal production in 2009 is forecast at 2 208 million tonnes (including rice on a milled basis), 3.4 percent down from last year's record high but nonetheless the second largest crop ever gathered. Reductions are forecast for wheat and coarse grains while the global rice crop may register another marginal increase. This year's reduction in grain production is partly a result of a return to trend yields after strong productivity gains last year, but also comes from a reduction in overall plantings (mostly wheat) after last year's exceptional level. In several major producing countries farmers have been discouraged by the prospect of reduced returns relative to the previous year's exceptionally high levels because of current lower grain prices but persisting high input costs.

World wheat output down in 2009

FAO's latest forecast of global wheat production in 2009 stands at 655 million tonnes, some 4 percent down from last year's record but still well above the average of the past five years. The bulk of the decrease is expected among the world's top producing countries, in particular those in the eastern parts of Europe, and in the United States. Recoveries are forecast in some countries that last year were plagued by dry weather, such as in the Islamic Republic of Iran, Turkey and Syrian Arab Republic, but while important at national/regional level, these will not be sufficient to offset the decline expected at the global level.

World coarse grain output to remain relatively large in 2009 despite reduced crops in several regions

With most of the main southern hemisphere coarse grain crops already gathered, FAO's latest forecast for world output of coarse grains in 2009 stands at 1 093 million tonnes, 4.3 percent down from last year's record level but still the second largest crop in history. Africa is the only region where output is foreseen to increase in 2009, and most of that reflects a recovery in North Africa after drought last year. Aggregate output in Asia should remain virtually unchanged from last year's satisfactory level but throughout the other regions, smaller crops are expected on account of drought or lower planted area after exceptional high levels last year.

Growth in rice production to slow in 2009 after two years of large gains

The 2009 rice season is already well advanced following the arrival of monsoon rains in all the major producing areas by the end of June. Preliminary information on plantings and crop development so far indicate a generally favourable start to the season. Assuming a normal rainfall pattern in Asia in the coming months, world rice production in 2009 is forecast to increase fractionally from last year's record level to 689 million tonnes (460 million tonnes, milled equivalent). The relatively small increase expected in 2009 reflects less attractive prospects for producer returns, which would impact on farmers planting and crop management decisions. However, in spite of financial constraints, many governments have maintained their support to the sector through input subsidies, investment programmes and direct price incentives, which, barring any major setback, is likely to sustain production growth.

UTILIZATION

Total cereal demand expected to stagnate in 2009/10

World cereal utilization in 2009/10 is forecast to grow marginally (by less than 1 percent) from the previous season to 2 217 million tonnes. This is lower than forecast in the June Food Outlook reflecting downward adjustments to forecasts for North America and for major markets of South America. The below-average expansion anticipated in total cereal utilization generally reflects a slowdown in animal feed and industrial sectors growth while consumption of cereals for food is forecast to keep up with the overall growth in world population. Total feed usage of cereals is forecast to remain unchanged at around 771 million tonnes, as a contraction in the developed countries is offset by an expansion in the developing countries. Against the background of continuing economic problems, feed use in many countries is forecast to grow at reduced pace compared to the past and, in many cases, even decline sharply such as in Brazil, Mexico, the United States and several countries in the CIS. Another category which is expected to be adversely affected by current economic prospects is the industrial usage of cereals. In particular, the growth in the leading maize-based ethanol sector in the United States is forecast to be far less pronounced in 2009/10 than in previous years. By contrast and more positively, world food consumption of cereals is likely to keep pace with population growth and increase by 1.2 percent, to 1 042 million tonnes in 2009/10. At this level, average annual global per caput consumption of cereals would remain stable at around 153 kg per person.

STOCKS

Global cereal stocks remain at satisfactory level despite small decline envisaged this year

On the basis of latest forecasts for production and utilization, world end-of-season cereal stocks for crop years closing in 2010 are seen at 517 million tonnes. This would be slightly below the previous forecast and 1.3 percent below their relatively high opening levels. This month's downward adjustment mainly reflects the lowering of the FAO's forecasts for global rice production in 2009, following poorer monsoon rain forecasts in India, and hence lower rice stocks. In spite of this adjustment, the global cereal stock-to-utilization ratio is likely to remain stable at just over 23 percent, significantly above the lows of the previous recent seasons. Among the major cereals, world wheat and rice inventories are forecast to increase but coarse grains are expected to decline, mainly in the United States reflecting the anticipated decline in this year's production in this country.

TRADE

Declining world cereal trade in 2009/10 driven by reduced import demand for wheat

World cereal trade in 2009/10 is forecast to fall to about 257 million tonnes, down 5 percent from the estimated trade volume of 2008/09. The decline mostly reflects a sharp reduction in wheat imports driven by a general recovery in wheat production in several major wheat importing countries such as those in North Africa and in Asia. This season's anticipated decline in wheat import demand coincides with a significant reduction in export supplies in drought-stricken Argentina. By contrast, international trade in coarse grains is expected to remain unchanged with higher maize purchases compensating for declines in imports of all other coarse grains, in particular barley. Larger maize shipments from the United States are expected to compensate for reduced exports from Argentina. World trade in rice is forecast to increase marginally in 2009.

PRICES

International grain prices weaken considerably in past few weeks but for rice remain firm

International wheat prices weakened considerably in the past few weeks, being pushed down by seasonal harvest pressure and good production prospects. In addition to favourable harvest outlooks in the CIS, North Africa, China and India, the return of warm and dry weather in major spring wheat growing areas in the United States coupled with beneficial rains in Australia were among the main factors weighing on wheat prices in recent weeks and offsetting the deteriorating production outlook in Argentina. The export price of US wheat (No.2 Hard Red Winter) was USD 228 per tonne in early July, 33 percent down from the corresponding period last year and by about 50 percent from the peak in 2008. The US maize (No. 2 Yellow, Gulf) price has also fell sharply, to some 45 percent below the corresponding period a year earlier when they were hovering near their record peaks. Weak demand and a return of normal weather in the United States, world's largest maize producer, weighed on maize prices in recent weeks. However, in rice markets, prices have shown more resilience, with rather unfavourable monsoon rain forecasts in India providing support in recent weeks.