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Global Grain Markets Tighten - FAO Cereal Supply and Demand Brief

11 September 2012, at 12:00a.m.

Continued deterioration of cereal crop prospects over the past two months, due to unfavourable weather conditions in a number of major producing regions, has led to a sharp cut in FAO’s world production forecast since the previous report in July. Based on the latest indications, global cereal production would not be sufficient to cover fully the expected utilization in the 2012/13 marketing season, pointing to a larger drawdown of global cereal stocks than earlier anticipated.

World Cereal Production in 2012 Falling Short of the 2011 Record

FAO’s latest forecast for world cereal production in 2012 stands at 2,295 million tonnes, down 52 million tonnes, or 2.2 per cent, from the record in 2011. This forecast is significantly (about 4 per cent) below the estimate reported in FAO’s previous report in July, largely reflecting the worsening of maize production prospects in the United States because of the widespread and severe drought.

World production of coarse grains (i.e. maize, barley, sorghum, millet, rye and oats) is projected at 1,148 million tonnes, down 17 million tonnes (or 1.5 per cent) from 2011. The anticipated fall mainly reflects a smaller maize crop, which is expected to decline to 864 million tonnes in 2012, 20 million tonnes less than in 2011. According to the latest report from the United States Department of Agriculture, published on 10 August, this year’s maize crop in the United States could fall to 274 million tonnes, down 56 million tonnes (17 per cent) from the July forecast and 40 million tonnes (13 per cent) below the previous year.

The FAO’s forecast for world wheat production has also been downgraded since July. Global wheat production is anticipated to reach 663 million tonnes in 2012, down 15 million tonnes (2 per cent) from the previous forecast, which would be 36 million tonnes (5 per cent ) below 2011. Most of the decline from last year (as well as from the previous report) reflects the negative effects of drought on CIS yields and production. Wheat output in the Russian Federation is forecast to decline by 29 per cent to 40 million tonnes compared to 2011 and below the 41.5 million tonnes registered in 2010. Production also looks set to fall sharply in Kazakhstan and Ukraine, by 47 per cent and 37 per cent respectively. By contrast, a number of other key producers may harvest larger crops. In the United States, wheat production is to increase by 13.5 per cent to an above-average level of 61.7 million tonnes. In Canada, wheat output is expected to be above-average and 6 per cent higher than in 2011. This year’s harvest in India is pointing to a record of almost 94 million tonnes (up 8 per cent from the previous year’s record). Likewise, in China, wheat output may reach a new high of 118 million tonnes. In the EU, the latest projections point to only a small reduction from 2011.

The global rice production forecast for 2012 has been cut by 6 million tonnes since July and now stands at 483.3 million tonnes (milled basis), up marginally (0.2 per cent) from the 2011 level. The revision stems from a deterioration in crop prospects in a number of Asian countries, mostly as a result of unfavourable climatic conditions. This has been particularly the case in India, where late and weak monsoon rains in June and July constrained main Kharif crop plantings, giving way to a 6 per cent decline in this year’s production, to 98.5 million tonnes. Current prospects similarly point to smaller crops in Cambodia, the Republic of Korea, the DPR Korea and Nepal although, on aggregate, the region is still expected to end the season with favourable results largely due to larger crops in China (Mainland), Indonesia and Thailand.

Global Cereal Utilization in 2012/13 to Fall Below the Trend

Global cereal utilization in 2012/13 is forecast at 2,317 million tonnes, down marginally from the previous season and 2 per cent below the 10-year trend. Elevated grain prices are seen to curb demand, especially for production of fuel ethanol from maize.

Global maize utilization is currently forecast to contract by 1.3 per cent to 869 million tonnes. While maize usage for feed and food is expected to remain unchanged at 485 million tonnes and 126 million tonnes respectively, its use for other purposes may decline by at least 12 million tonnes (4 per cent) to 258 million tonnes. This drop would be mainly on account of the United States, where the volume of maize for conversion into ethanol is forecast to fall to 114 million tonnes in 2012/13, down as much as 10 per cent from 2011/12. In addition to high maize prices, ethanol plants sourcing maize from the regions hardest hit by the drought in the United States have had difficulty obtaining supplies and remaining competitive. Overall, total utilization of coarse grains is forecast at 1,156 million tonnes in 2012/13, marginally less than the previous season but some 4 per cent below the 10-year trend.

For wheat and rice, world utilization is projected to remain on trend, at 687 million tonnes and 474 million tonnes, respectively. In the case of wheat, feed use is likely to fall below the previous season’s exceptional high level but still remain above normal because of a continued tight maize supply situation.

World Cereal Stocks to Decline Sharply

The forecast for world cereal stocks at the close of crop seasons ending in 2013 has been lowered to 503 million tonnes, down 32.5 million tonnes (6 per cent) from July. At this level, total inventories would be 19 million tonnes (3.6 per cent) below their opening level. The latest revision follows the recent indications that the 2012 production outcome will be much smaller than previously anticipated, in particular for maize and wheat. As a result, the world stock-to-use ratio is likely to approach 21 per cent, which compares with 22.5 per cent last season and with the low of 19.2 per cent registered in 2008.

The forecast for global wheat inventories has been trimmed by 3 per cent since July to 174 million tonnes, down 19 million tonnes (10 per cent) from their opening level but still significantly above the low of 141 million tonnes in 2008. The reduction in wheat inventories from the previous season mostly reflects lower ending stocks in Kazakhstan, the Russian Federation and Ukraine, although reserves are likely to be drawn down also in China (Mainland) and the United States. At the current forecast level, the world wheat stock-to-use ratio could drop to 25 per cent, from 28 per cent estimated in 2011/12, though sill 3 percentage points above the low of 21.9 per cent in 2007/08.

World inventories of coarse grains are forecast to shrink by 8.4 million tonnes from their opening level to 164 million tonnes, which is down 13 per cent from the previous forecast in July. The bulk of the decline reflects the deteriorating maize supply situation in the United States, where the end-of-season inventories are expected to reach 16.5 million tonnes, pushing down the country’s stock-to-use ratio to an all-time low of 6.3 per cent. Similarly, the world stock-to-use ratio for coarse grains is heading towards a sharp decline, from an already very modest 15 per cent in 2011/12 to an all-time low of only 13.3 per cent in 2012/13.

Consistent with the downward revision to the global production forecast, rice inventories at the close of the 2013 marketing years are expected to reach 165 million tonnes, 2.5 million tonnes less than previously foreseen but 6 per cent more than in 2012 and an all-time record. This would be sufficient to lift the global stock-to-use ratio from 32.9 per cent in 2012 to 34.4 per cent in 2013. Rice exporting countries are anticipated to account for most of the stock rebuilding. Among the major producers, a smaller harvest is likely to curtail India’s inventories below the highs seen in 2012, while those held by China (Mainland) and Thailand may grow further.

World Cereal Trade Contracts in 2012/13

World trade in cereals in 2012/13 is expected to decline to 290 million tonnes, down 2 per cent from the previous forecast in July and as much as 4 per cent (12 million tonnes) less than in 2011/12.

Reduced trade of coarse grains accounts for most of the projected decline in world cereal trade. At 120 million tonnes, global trade in coarse grains in 2012/13 (July/June) would be 3 million tonnes (2.6 per cent) below 2011/12, down 7 million tonnes (5.5 per cent) from the previous forecast in July. Lower maize trade is mostly responsible for the shrinking volume of world trade in coarse grains, mainly due to reduced shipments from the United States, the world’s largest maize exporter, owing to very tight domestic supplies this season.

The forecast for world trade in wheat in 2012/13 has been raised slightly since the previous report to 135.5 million tonnes (including wheat flour in wheat equivalent). However, wheat trade would still be as much as 8 million tonnes (6 per cent ) below the previous season, which was a record. The decline in world trade would be mostly on account of a higher domestic production in several wheat importing countries depressing world import demand. Given the anticipated contraction in world trade this season, export availabilities in the major exporters are likely to be sufficient in spite of reduced supplies in Argentina and several exporting countries belonging to the CIS.

Global rice trade in the calendar year 2013 is forecast to amount to 34.8 million tonnes, down 2 per cent from a revised 2012 estimate of 35.4 million tonnes. The decline mainly reflects expectations of sufficient domestic availabilities that should allow China (Mainland), Egypt, the Islamic Republic of Iran and Nigeria to cut their purchases. On the export side, the contraction is primarily foreseen to concern shipments by India, which would more than offset larger deliveries by China (Mainland), Pakistan and Thailand.

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September 2012