Cereals

Supply/Demand Roundup

After a small upward revision, world cereal output in 2002 is now estimated at 1 838 million tonnes (including rice in milled equivalent), which is 63 million tonnes less than the previous year's harvest. However, with total cereal utilization in 2002/03 rising, world cereal stocks for crop years ending in 2003 are expected to plunge to their lowest level since the early 1970s. Tighter supplies have led to generally higher prices for most cereals during the current season, although a weakening trend has predominated in recent months, mostly as a result of the coming onto the market of several non-traditional exporting countries with ample excess supplies.

GLOBAL OUTLOOK ^1/

Wheat	2001/02	2002/03
Production
Trade
Stocks
Prices
Coarse Grains
Production
Trade
Stocks
Prices
Rice
Production
Trade
Stocks
Prices

stable up down: These signs refer only to the direction of change from the previous season.

Mixed prospects for 2003 production

Early indications for the 2003 wheat crops point to a likely increase in global output following larger plantings in several areas and the expectation of a return to normal yields in some major producing countries, where severe drought reduced production last year. In the northern hemisphere, winter wheat plantings in the United States have expanded to the highest level since 1998. In Canada, where the crop has still to be planted this spring, a sharp recovery from last year's exceptionally drought-reduced output is expected. In Asia, the outlook for the winter wheat crops is mixed: weather conditions are satisfactory in the northern and eastern countries of the region but plantings are reported to be down again in China, the largest producer. In the Indian sub-continent, drier than normal weather could reduce this year's yields. In Europe, the winter wheat area has changed little in the EU, but conditions for crops are generally good and at this stage, there is potential for yields to improve. In several countries in central and eastern Europe, adverse weather last autumn may well have led to an overall reduction in the area sown but conditions over the winter have been generally favourable. In the CIS countries in Europe, the area planted to winter cereals is estimated to have increased slightly, but late planting and harsh winter conditions may result in above-average winter kill and lower yields.

The first 2003 coarse grain crops are already planted in some of the major producing countries in the southern hemisphere. In southern Africa, prospects remain uncertain. Recent rainfall has helped to compensate for earlier dryness in several parts of the subregion, particularly in South Africa, but conditions still remain too dry in many important producing areas and below average rains could persist until March on the basis of recent El Niño monitoring. In South America, smaller plantings are expected in the two main producing countries - Argentina and Brazil. Although weather conditions have been generally favourable, farmers in Argentina are faced with financial constraints linked to the uncertain economic environment there, while in Brazil, a preference towards high value exportable crops has diverted area away from the main maize crop.

The 2003 paddy season is well advanced in the southern hemisphere rice producing areas, with the harvest due to commence from March/April. The outcome is still very uncertain in many parts, depending on the weather pattern in the next three months, which is expected to be largely influenced by the current El Niño event.

Moderate El Niño will persist in early 20031/

Latest reports from the major climate monitoring systems (IRI, the International Research Institute for Climate Prediction, BOM, the Australian Bureau of Meteorology, and NOAA/CPC, the US Climate Prediction Center), confirm a virtually 100 percent probability of El Niño conditions persisting in early 2003. However, it is most likely that this will remain a moderate El Niño, with a significantly weaker impact than in 1997-98.

Among the regions commonly affected by El Niño, drier-than-average conditions are expected to persist over most of Indonesia, Micronesia, northern/northeastern Australia and southeastern Africa during January-March 2003, and over Northeast Brazil and northern South America during January-April 2003, while wetter-than-average conditions are forecast over coastal sections of Ecuador and northern Peru during February-April 2003.

Cereal production down 3 percent in 2002

Global cereal output in 2002 is estimated at 1 838 million tonnes, up slightly since the previous report, but still 3.3 percent down from the previous year. The forecast for world wheat production in 2002 stands at 568 million tonnes, some 3 percent down from the previous year's level, largely on account of reduced plantings and drought in three of the world's major wheat exporters, namely Australia, Canada and the United States. For coarse grains, the provisional estimate of output in 2002 is 881 million tonnes, which would be almost 4 percent down from 2001. Drought in the afore-mentioned countries is again the principal cause of the reduction. FAO's latest estimate of global paddy production in 2002 has been lowered by 2 million tonnes since the last report to 582 million tonnes (389 million tonnes in milled equivalent). This is 16 million tonnes less than in 2001 and the lowest level since 1998. The year-on-year reduction, which was mainly concentrated in Asia, is mostly a result of adverse weather conditions, although persisting low international prices also contributed to the shortfall, especially in exporting countries.

World Cereal Production, Supplies, Trade and Stocks

Utilization to grow in 2002/03 but remains below trend

World cereal utilization by the close of the marketing seasons in 2003 is forecast at 1 956 million tonnes, up 9 million tonnes, or about 0.5 percent, from the previous season but still 6 million tonnes below the 10-year trend. The latest forecast is also 10 million tonnes more than was anticipated earlier, reflecting upward adjustments to feed use in the EU and in the United States. Nevertheless, at the current forecast levels, world feed utilization of cereals would still be down slightly from the previous season, at about 707 million tonnes. The decline is mostly on account of a smaller feed use of maize in the United States, given the expected reductions in pig and cattle inventories. By contrast, world cereal use for direct human consumption is forecast to rise to 978 million tonnes, driven by a modest increase in the developing countries as a group, to 803 million tonnes. However, on average, per caput food use could still decline somewhat.

Stock drawdown will be largest in past two decades

The forecast for global cereal stocks by the close of the seasons ending in 2003 remains at 466 million tonnes, 111 million tonnes below their opening level. This would represent the most pronounced year-on-year variation in two decades, which would bring global inventories down to the lowest level since the early 1970s. Along with deliberate attempts to downsize inventories in important cereal producing countries such as China and India, the global stock drawdown was also required to offset the contraction in production in a number of major exporting countries affected by drought.

Forecast for trade in 2002/03 raised by strong EU purchases

The forecast for world trade in cereals in 2002/03 has been raised by almost 4 million tonnes since the previous report to 240 million tonnes, mostly due to larger wheat purchases by the EU. Nevertheless, at this level, global trade would still be 3 million tonnes below the previous year's record volume. The bulk of the decline is expected to arise from smaller wheat trade, now forecast at 105 million tonnes. Trade in coarse grains is now set to increase marginally in 2002/03 to 108 million tonnes, with most of the gain stemming from a rise in maize shipments. The forecast for rice trade in 2003 is, as yet, very tentative but early information points to a modest decline from the high 2002 level, to just below 27 million tonnes.

Cereal prices remain under pressure

International wheat prices have continued to weaken since October 2002, in spite of sharply reduced exportable supplies in Australia and Canada as well as a tighter situation in the United States. The depressed prices reflect the abundance of cheaper supplies from alternative sources, which has greatly reduced the competitiveness of the US-origin wheat even among traditional US export markets, such as Egypt. In January, the U.S. wheat No.2 (HRW, fob) averaged US$153 per tonne, down US$27 per tonne from November, although still up by US$25 per tonne from the corresponding month last year. International maize prices also weakened considerably. The market has come under downward pressure from ample supplies of competitively priced low-quality wheat, as a substitute for maize, large maize sales by China and continued exports from Brazil. In January, the U.S. maize No.2 (Yellow, fob) averaged US$106 per tonne, down US$3 per tonne since November, but US$14 per tonne above the corresponding month in 2002. International rice prices have also remained under downward pressure over the past two months, with the FAO Total Price Index (1998-2000=100) averaging 72 in January, 1 point below November. However, although the Total Price Index has moved little since May 2002, there continues to be significant divergence in the trends in prices of different origins and qualities.

1. For regular updates on El Niño, visit ' Environment: Geoinformation, monitoring and assessment,' on the FAO World Wide Web site at the following URL address: http://www.fao.org/sd/