Short cereal supplies wont help lift prices
By Philip Clarke
WORLD cereal prices are likely to remain under pressure next season, despite lower output and stocks, according to the latest Food Outlook report from the Rome-based Food and Agriculture Organisation (FAO).
“The underlying fundamentals provide little hope for any immediate recovery in wheat prices,” it says.
“Wheat futures for September and December have been on a sliding path in recent months, in sharp contrast to the corresponding period last year.”
Weak demand and generally favourable plantings have also put downward pressure on coarse grain values. “Given the likelihood of a record soybean crop, maize prices could be under more pressure if normal weather prevails during the crucial growing season this summer.”
The dominant feature has been the slow pace of exports, says the FAO, which has continued to put pressure on international prices. This has led to higher export subsidies by the EU and an increase in world carry-over stocks from this (1998/99) season.
The FAO puts current world cereal stocks at 337m tonnes.
But 1999/2000 could see the market bottom out, with better prospects for the new millennium.
The FAO predicts that global cereal output will start to fall, led by a 2.6% reduction in the wheat crop to 579 million tonnes. In particular it points to a 7% fall in US wheat plantings.
Conversely, global trade is expected to increase by 5% to 100m tonnes for wheat and by 2% to 92m tonnes for coarse grains. This will be fuelled by increased demand from several Asian countries and by outstanding food aid pledges to Russia which are still to be met.
The consequence will be a draw down in global stocks, which the FAO predicts will drop by 7% to 315m tonnes, with wheat stocks shrinking the most.
“Based on this, the stock-to-use ratio could fall below the 17% to 18% range considered as the minimum necessary to safeguard world food security and points to a tighter world supply/demand balance,” it says.
But this draw-down in stocks is likely to be in the worlds major importing countries, rather than the exporters, where production prospects still look good and where domestic consumption grows only slowly.
These countries are forecast to hold 47% of the worlds grain stocks by the end of next season, compared with just 29% in 1996. This partly explains why price prospects for the coming season are not better.
- World wheat estimate down 1m tonnes, FWi, today (24 June, 1999)
- IGC coarse grain forecast unchanged, FWI, today (24 June, 1999)