MARKET SUMMARIES

CEREALS

Soaring prices and volatile conditions characterized world cereal markets for much of the 2007/08 season. Some relief may be in sight for the new season (2008/09) but given the seriousness of global supply and demand imbalances, cereal markets are unlikely to regain their stability any time soon. Among the major cereals, the tight wheat supply condition is likely to improve most, given the prospects for more bountiful harvests in 2008. This should pave the way for a gradual easing of export restrictions; not only on wheat but also on other cereals. However, rice markets are undergoing an exceptionally difficult period, despite relatively abundant global supplies. Additionally, the outlook for coarse grains is not as favourable as that for wheat. The maize situation is of particular concern as this year's output is unlikely to exceed last year's record, and demand for the production of ethanol does not show any signs of abating.

World cereal market at a glance

WHEAT

Huge increases in plantings driven by high prices are expected to lead to record wheat production in 2008. Most of the increase reflects a significant rebound in major exporting countries, which is expected to boost world export supplies in the new season, a prospect that has already resulted in a sharp fall in wheat prices in recent weeks. Improved wheat supplies may foster a substitution of wheat for less abundant coarse grains, which by raising wheat utilization, may prevent wheat stocks, now at critically low levels, from recovering to adequate levels. Therefore, while present indications suggest that wheat markets are likely to return closer into balance in the new season, any unexpected decline in production may quickly bring the market back to a precarious situation.

World wheat market at a glance

COARSE GRAINS

World production is forecast to increase slightly in 2008 compared with the record in 2007. However, total utilization is anticipated to outstrip production in 2008/09 mainly on higher biofuel usage. As a result, stocks next season are likely to fall and this prospect is supportive to prices which are already at very high levels. World trade is forecast to contract sharply in 2008/09 after peaking to a record volume in 2007/08. This decline would be mostly driven by lower imports of maize and sorghum because of much larger domestic supplies of substitute feed wheat in major markets.

World coarse grain market at a glance

RICE

Amid excellent production prospects, international rice prices may soon start weakening, especially if bumper crops encourage governments to lift trade restrictions. Since the beginning of 2008, prices have reached unprecedently high levels, in sharp contrast with the relative ample world supply conditions arising from record production in 2007 and with an even more buoyant outlook for crops in 2008. The apparent tightness of the world rice market stems largely from the imposition of export curbs in some major rice exporting countries, as part of packages launched to tame domestic food inflation. Besides propelling world prices to exceptionally high levels, export restraints are also behind an expected sharp contraction of rice trade in 2008. However, global production would be sufficient to sustain a small increase in per caput rice food consumption in 2008, without requiring more than a marginal release of global stocks.

World rice market at a glance

OILSEEDS

The rise in international prices of oilseeds and oilseeds products has accelerated in 2007/08, with values climbing to new record levels in March 2008. The ongoing harvests in the southern hemisphere confirm that, in 2007/08, world markets for oilseed products are tightening considerably. Reduced supply growth for oils and a drop in meal supplies are coinciding with further expansion in demand. With production falling short of demand, strong cutbacks in seed, meal and oil inventories are unavoidable, and global stock-to-use ratios for oils, and in particular meals, are seen falling to critically low levels in 2007/08. First forecasts for the 2008/09 season point towards a strong recovery in global oilseed production, as high prices should stimulate plantings. The resulting oil and meal output should be sufficient to meet global demand, and therefore prices for oilseeds and derived products could stabilize and possibly weaken in the coming months. However, considering that there would be only a partial recovery in stock levels and in stock-to-use ratios, in particular regarding oilmeals, prices should remain well above the values recorded one year ago.

World oilseeds and products markets at a glance

SUGAR

Generally favourable growing conditions led to an expected record level in world sugar production for 2007/08. Most of the growth in output will be accounted for by traditional importing countries and a strong performance by Brazil, which more that offset declines in Australia and India. Although world sugar consumption is foreseen to increase at a sustained rate, it will not be enough to absorb an expected second consecutive global supply surplus, contributing to a build-up of global inventories and an increase in stock-to-use ratio. Global sugar trade is foreseen to remain relatively unchanged from 2006/07, as a result of lower imports by Asia and Central America, and less than expected exports by South America and Oceania. Looking ahead, international sugar prices are likely to come under pressure against a background of continuing large exportable supplies and weak import demand.

World production and consumption of sugar

MEAT AND MEAT PRODUCTS

Global meat output is expected to grow in 2008, despite high feed prices. While meat consumption growth in developed countries is expected to remain modest, at less than 1 percent, stronger economic growth and higher income elasticities in developing countries is likely to lead to a 3 percent increase in utilization in 2008. As an important part of this increased demand will be met by imports, global trade in meat products is also anticipated to go up by 3 percent. An interesting development to note is that, nearly two-thirds of the rise in global meat exports, most of which is destined to go to developing countries, is expected to originate in developing countries themselves, mainly those in South America. The FAO international price index of meat products, which has been increasing on average 1 percent per month since early-2006, reached its highest level in April, currently estimated at 136 (1998-2000=100). The increase in the price index of nearly 3 percent compared with its value in March is mainly due to the increase in the prices of poultry products, which among all the meat products, are the first to reflect the higher prices of feed ingredients.

World meat markets at a glance

DAIRY

International prices of dairy products have retreated 12 percent from their peak in November 2007, as measured by the FAO index of international dairy prices. Nonetheless, the index in April 2008 was still 25 percent higher than in April 2007. There is uncertainty as to where markets will head, however, as global trade in milk products is anticipated to fall again in 2008, constrained by reduced availability in the six major exporting countries, especially those located in Oceania, where the sector has again been impaired by drought, and those in Europe, where supply growth may be limited despite increased production quotas. At the same time, import demand has faltered under high dairy product prices, especially as several of the major importing countries have recorded strong increases in milk output. Global milk production, which is responding to the past year's high milk product prices, is forecast to grow by 2.5 percent in 2008.

World dairy markets at a glance

FISH AND FISHERY PRODUCTS

Aquaculture looks set to equalize capture fisheries in the contribution of fish for human consumption (excluding fisheries for fishmeal production) in 2008. Aquaculture output has been growing for decades with its share reaching 49 percent in 2007 and with growth forecast also in 2008, the historic milestone of parity seems likely to be reached during the current year. Prices are moving upwards for most fish species and products, in particular for wild species from capture fisheries, whereas prices of farmed species show only moderate growth. This is the first time in decades that fish prices are increasing. However, weaker demand in key markets such as Japan and the United States and the impact of rising energy prices on production (mainly capture fisheries) and feed (aquaculture), leading to higher costs during the processing, transportation and distribution phases, are putting pressure on profit margins. With higher prices, aquaculture is able to respond by increasing supply although the situation remains mixed depending on species and product form. For example, the market for shrimp, the most important species in international trade, remains very weak with prices plummeting to record lows and with producers now curtailing supply. On the other hand, prices of tilapia, one of the fastest growing species in world trade, are increasing. For domestic consumers in developing countries, who consume the bulk of what is produced from both aquaculture and capture fisheries, domestic fish prices are reportedly increasing, following the price trend dominating food products in general.

World fish market at a glance

Food import bill

Global expenditures on food imports could surpass USD1 trillion in 2008

The global cost of imported foodstuffs in 2008 is forecast to reach USD 1 035 billion, 26 percent higher than last year's peak. This figure is still provisional as FAO's food import bill forecasts are conditional on developments in international prices and freight rates, which remain highly uncertain over the remainder of the year.

Among economic groups, the most economically vulnerable countries are set to bear the highest burden in the cost of importing food, with total expenditures by LDCs and LIFDCs anticipated to climb by 37-40 percent from 2007, after rising 30 and 37 percent, respectively, already last year. The sustained rise in imported food expenditures for both vulnerable country groups constitutes a worrying development, as on current expectations by the end of 2008, their annual food import basket could cost four times as much as it did in 2000. This is in stark contrast to the trend prevailing for developed countries, where year-to-year import costs have risen far less.

Forecast import bills of total food and major foodstuffs (USD million)