FAO/GIEWS - Food Outlook No.2 - May 2002 p.3

Supply/Demand Roundup

Early prospects for global cereal production in 2002 point to an increase for the second consecutive year. Based on the condition of crops in the ground and planting intentions for those still to be sown, and assuming normal weather for the remainder of the 2002 cropping seasons, world cereal output this year is forecast at 1 905 million tonnes (including rice in milled equivalent), 21 million tonnes up from 2001 and about 1 percent above the average of the past five years. At this forecast level, anticipated world cereal utilization in 2002/03 would exceed production in 2002, as has been the case for the past three seasons. This development gives rise to the possibility of a tighter supply situation as stocks will need to be drawn down again in 2003. However, the exceptionally large exportable supplies in several countries would continue to mitigate the negative impact of lower cereal inventories at the global level, for at least another season. As a result, international cereal markets are unlikely to experience any significant upward price pressure also during the upcoming 2002/03 marketing season.

Production

FAO’s first forecast of world wheat production in 2002 is 603 million tonnes, 22 million tonnes or almost 4 percent up from the previous year and above average. In the northern hemisphere, the winter wheat crops are well developed and spring wheat planting is underway in some parts. Output of wheat in Asia is expected to increase significantly this year from last year’s reduced crop, mostly reflecting improved weather conditions in India as well as throughout the Near Eastern subregion. In North America, somewhat larger crops are forecast both in the United States and also in Canada where planting has yet to begin this spring. In Europe a significant increase is forecast, mostly on the strength of larger crops in the EC following a significant expansion of area. Generally, smaller crops are expected elsewhere in the European region due partly to adverse weather but also as a consequence of bumper crops last year, which depressed prices and encouraged a shift out off wheat production. The exception is the Russian Federation, where particularly favourable weather could lead to a further modest increase in production this year. By contrast, production in North Africa is set to fall, largely because of inadequate rainfall in the main producing areas. Little change is envisaged in Central America where an average crop is being harvested in Mexico. In the southern hemisphere where most of the major wheat crops will only be sown later this year, wheat output is tentatively expected to increase in South America, but intentions for planting in Argentina remain uncertain. Early indications point to a larger wheat crop also in Australia.

At this early stage, the first forecast of global coarse grains output in 2002 is 910 million tonnes, marginally up from the previous year and also above average. The larger coarse grain crops expected in Asia and North America would more than offset reductions anticipated in all other regions. However, since the major coarse grains in the northern hemisphere are yet to be planted, this early forecast is very tentative.

In the northern hemisphere, most countries have yet to start their 2002 paddy season, pending the arrival of the monsoon rains, and several of them are still harvesting the second or third 2001 paddy crops. By contrast, the 2002 paddy season is well advanced in the southern hemisphere and around the equatorial belt, where many countries are already harvesting their main crop. FAO’s first forecast for paddy production in 2002 stands at 587 million tonnes (393 million tonnes in milled equivalent), 6 million tonnes less than in 2001, and the lowest since 1998. This outlook is highly tentative since the final outcome will depend critically on the timing, magnitude, and distribution of the monsoon rains, made all the more uncertain this year because of a possible recurrence of the El Niño phenomenon and associated weather adversities.

Trade

FAO’s first forecast for world cereal trade in 2002/03 is tentatively put at 236 million tonnes, down slightly from the 2001/02 estimated level. Most of the anticipated decline would be on account of subdued wheat and rice trade while, for coarse grains, overall trade prospects are expected to improve somewhat. Global wheat trade in 2002/03 is forecast at 105 million tonnes, down 1 million tonnes from the current season, while for coarse grains, the first forecast stands at 107 million tonnes, up slightly from the 2001/02 volume. For rice, early indications suggest that global trade in 2003 could decrease somewhat from the current year’s level, which is now forecast at just over 25 million tonnes, 1.5 million tonnes up from 2001 and the second highest level since the record performance in 1998.

World Cereal Supply and Demand

Utilization

Early forecasts for 2002/03 point to a further rise in total cereal utilization. The overall outlook is expected to be similar to developments in the current season with feed utilization expanding the most and food consumption largely keeping pace with population growth. The forecast for world cereal utilization in 2001/02 has been raised slightly since the last report to 1 941 million tonnes. At this level, world cereal utilization would be 1.5 percent up from the previous season, in part driven by a robust growth in animal feed usage, in view of relatively low feed grain prices. Food consumption of cereals is also anticipated to increase, mostly in line with population growth, leaving per caput food consumption at the global level largely unchanged at around 159 Kg per year.

World wheat utilization in 2001/02 is forecast to surpass 610 million tonnes for the first time ever. Out of this total, 70 percent is for direct human consumption. Animal feed use of wheat could rise to 110 million tonnes, stimulated by rapid increases in many CIS countries. World coarse grain utilization is also forecast to expand in 2001/02, reaching a new peak of around 923 million tonnes, of which feed use would represent over 60 percent. The bulk of this season’s expected growth would be on account of higher feed utilization, mostly in Europe because of large supplies and low prices. World rice utilization in 2001/02 is forecast to grow by 2.5 million tonnes to 407 million tonnes (in milled equivalent). Of the total, food consumption is expected to account for 361 million tonnes, up by 4 million tonnes from the previous year and sufficient to allow average per caput consumption to remain steady at around 59 kg per year.

Stocks

Based on FAO’s first forecast for cereal production in 2002 and utilization in 2002/03, world cereal stocks would need to be drawn down further by the close of countries’ crop years in 2003, to 515 million tonnes. This would be 9 percent below their already reduced opening level. Although global level wheat stocks are seen to fall, the bulk of the decline will likely be restricted to very few countries. Moreover, the overall reduction is expected to be partially offset by an increase in the aggregate inventories of the major exporters, where production is forecast to increase. For coarse grains and rice, at this early stage, the reduction of inventories is expected to be more widespread.

Prices

International wheat export prices remain generally below their levels in the previous season under the pressure of large exportable supplies. In April, U.S. wheat No. 2 (HRW, fob) averaged US$125 per tonne, down US$3 per tonne from January and US$5 per tonne less than a year earlier. Given prospects for good crops in 2002, weak world import demand and large export availabilities across several non-traditional exporters, international wheat prices are likely to decline in the coming season. International prices of maize have also suffered from large exportable supplies and from a generally favourable outlook for the main crops in the northern hemisphere. As a result, a sharp decline in prices has been observed over the past few months. In April, U.S. No. 2 maize (fob) averaged US$87 per tonne, down US$5 per tonne since January and equal to the previous year’s level. International prices for rice held steady in the first quarter of 2002, and remain generally above those a year ago. The FAO Export Price Index for Rice (1982-84 =100) averaged 90 points in April 2002, unchanged from March, and only 1 point less than in January and February. The average in April 2001 was 87 points. Price developments in the coming months are expected to remain sensitive to the purchasing intentions of the major Asian importers, and the export policy of India, which is currently emerging as one of the lowest priced rice suppliers to the world market. However, as the season in the northern hemisphere advances, markets are likely to be more influenced by crop prospects in the major producing areas should adverse weather arise from a possible recurrence of the El Niño phenomenon.