FAO/GIEWS - Food Outlook No.4, September1998

CEREALS

• SUPPLY/DEMAND ROUNDUP
• BOX: NUMBER OF DEVELOPING COUNTRIES WITH FOOD SUPPLY PROBLEMS RISE
• CURRENT PRODUCTION AND CROP PROSPECTS
• BOX: FLOODS CAUSE EXTENSIVE CROP DAMAGE IN SEVERAL PARTS OF ASIA
• TRADE
• CARRYOVER STOCKS
• EXPORT PRICES

SUPPLY/DEMAND ROUNDUP

Latest information continues to point to a satisfactory cereal supply outlook for 1998/99 despite a slight deterioration in the 1998 production prospects since the last report in June. World cereal output in 1998 is now expected to decline by 1 percent to 1 892 million tonnes (including rice in milled terms) from last year's record, but would still be above trend for the third consecutive year. At the forecast level, cereal output would be close to the slightly increased consumption requirements expected in 1998/99, and stocks would remain virtually unchanged from their revised opening level. Thus, the global stock-to-utilization ratio in 1998/99, at 17.3 percent, would remain within the 17-18 percent range that the FAO Secretariat considers the minimum necessary to safeguard world food security. Although many of the 1998 cereal harvests are completed, and the probability of a major further deterioration in the outlook for the 1998 cereal output is diminishing, the bulk of the world’s rice crops in Asia have yet to be gathered. From late June onwards, persistent rains, attributed to the La Niña phenomenon, have flooded large areas of cropped land in Asia (see box on page 7) where over 90 percent of the global rice output is produced. It is too early to estimate the full impact of the floods, and the situation will have to be closely monitored in the weeks ahead, as any significant deterioration in paddy production prospects could fuel further increases in world rice prices, which are already unseasonably high.

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/ Does not equal the difference between supply and utilization due to differences in individual country trade years.

Regarding production, as mentioned above, the FAO forecast for world cereal output in 1998 has been revised downward since the last report in June, by 19 million tonnes, to 1 892 million tonnes (including rice in milled terms). The latest revision is mostly due to a sharp reduction of the output estimates for the CIS, where severe drought and hot temperatures prevailed throughout the summer months, severely affecting yield prospects in several major producing areas. However, at the forecast level, world cereal production in 1998 would be just 1 percent below the 1997 record and still above the average of the past five years and above trend.

The forecast for world wheat output remains at 606 million tonnes, 1.5 percent down from 1997 but still just above trend. Upward revisions to the forecasts for the United States, several European countries and Australia have been offset by reductions elsewhere, most notably in the CIS, but also in Asia, Africa and South America. FAO’s forecast for 1998 world coarse grains output now stands at 907 million tonnes, somewhat below the forecast in the last report due to less than ideal growing conditions in some parts, particularly in the CIS, but virtually unchanged from the estimated crop in 1997. Although larger coarse grains outputs than last year are still estimated for Asia, Africa, and North and South America, the size of the increase is likely to be less than earlier expected. Nevertheless, the combined increase throughout these regions should offset smaller outputs expected in Europe and the CIS. Coarse grains production in Central America and Oceania would remain close to the previous year’s levels. Global paddy output in 1998 is now forecast to fall to 566 million tonnes, 2 percent down from the record crop last year. In the southern hemisphere and around the equatorial belt the harvest of the 1998 main season paddy crops is complete and preliminary estimates suggest a fall in production. In the northern hemisphere, where the bulk of the paddy is yet to be harvested, severe flooding has affected crops in several countries in Asia. The full impact of the flooding is still not known, and thus the final outlook of the 1998 paddy crop remains very uncertain.

FAO’s latest forecast of world trade in cereals in 1998/99 (July/June) is 199 million tonnes, 2 million tonnes lower than forecast in the last report, and 8 million tonnes down from the previous year. A significant reduction in global wheat trade and a return to a more normal level of rice trade, after the record level in 1998 are expected to more than offset a slight increase in coarse grain shipments. Global imports of wheat in 1998/99 are now forecast at 90.5 million tonnes, marginally above the previous forecast but still 5.6 million tonnes below the revised estimate for 1997/98. The sharpest decline is expected in Asia due to a combination of increased domestic production in some countries and also reduced purchasing power because of the financial crisis. World trade in coarse grains is now forecast at 88.5 million tonnes, 2.5 million tonnes less than earlier forecast, but still 1 million tonnes above the previous year. The bulk of the increase is accounted for by larger maize and barley imports in some Latin American countries. While it is still too early to make a realistic forecast of global rice trade in the 1999 calendar year, early indications point to a reduction in shipments after the record level forecast for the current year as a result of the adverse affect of El Niño on production in several importing countries.

Global cereal utilization in 1998/99 is forecast to rise to 1 890 million tonnes, slightly above the long-term trend. At this level, world utilization of all cereals combined would be only 0.7 percent up from 1997/98, compared to a 1.3 percent increase in the previous year and a nearly 3 percent expansion two years ago. A smaller expansion in feed use would be mainly responsible for this year’s expected slower growth in total global utilization. The gradual but steady decline in grain prices since their peak in 1995/96 stimulated increased global cereal utilization for animal feed, particularly in 1996/97. However, with the financial crisis in Asia since last year, the fast growth in feed utilization has subsequently faded despite an even steeper fall in international prices. While wheat and coarse grain prices have fallen further in recent months, in view of the continuing economic difficulties confronting the economies of several countries in Asia, and more recently also the Russian Federation, growth in global cereal utilization in 1998/99 is expected to be minimal.

International wheat and coarse grains prices remained under downward pressure reflecting generally favourable 1998 crop prospects and stagnant import demand. Export prices for wheat are now 30 percent below a year ago and at their lowest level since the early 1990s. In late August, the price of U.S. wheat No. 2 (HRW, fob) was US$ 110 per tonne, down US$ 17 per tonne from May and US$ 44 per tonne less than a year ago. Export prices for most of the major coarse grains have also continued to fall over the past three months. By late August, the price of U.S. maize had fallen to a 10-year low of US$ 84 per tonne. World coarse grain markets continue to be largely influenced by abundant exportable supplies, favourable 1998 crop prospects in several major producers, large supplies of competitively priced wheat which could be used for feed, and weak import demand. By contrast, export prices of rice from most origins remained firm through July and August, mostly due to limited exportable supplies and larger than normal purchases. The FAO Export Price Index for Rice (1982-84=100) averaged 131 points in July and August, up from 130 points in June and well above the low of 119 points in November last year.

FAO’s latest forecast for cereal stocks for crop years ending in 1999 is 330 million tonnes, marginally above the revised estimate of their opening level. A small build-up of wheat and coarse grain inventories would offset a significant reduction in those of rice. Assuming that current forecasts of production and utilization materialize, the global stock-to-utilization ratio is estimated to remain above 17 percent in 1998/99, close to the revised level for 1997/98, and within the 17-18 percent range considered by the FAO Secretariat to be the minimum necessary to safeguard global food security.