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FAO: World Cereal Production Forecast to Fall by 2.7 Per Cent

23 November 2012

Global cereal supply and demand balance is forecast to tighten considerably in 2012/13, due mainly to declines in wheat and maize production, according to the FAO Outlook Report. World cereal production is forecast to fall by 2.7 percent from previous year’s record crop, leading to a 25 million tonne contraction in world stocks.

Cereals

Global cereal supply and demand balance is forecast to tighten considerably in 2012/13, due mainly to declines in wheat and maize production. World cereal production is forecast to fall by 2.7 per cent from previous year’s record crop, leading to a 25 million tonne contraction in world stocks.

Wheat

A tightening in world supply and demand balance is keeping wheat prices above the 2011 levels. Latest information confirms a smaller wheat crop in 2012 and, with projected utilization exceeding production, stocks are expected to be drawn down sharply, especially major exporters’ stocks. World trade in 2012/13 is forecast to fall below the previous season’s peak.

Coarse Grains

World coarse grains supply and demand balance in 2012/13 is extremely tight with FAO’s latest forecast for production in 2012 pointing to a 2.5 per cent decline from the 2011 record and stocks falling to historic lows, a factor which continues to underpin international prices.

Rice

World rice production in 2012 may surpass last season’s record, supported by favourable growing conditions. Steadfast import demand together with very ample export availabilities are sustaining an expansion of trade in 2012, with a further, albeit small, increase foreseen in 2013.

Cassava

World cassava output is expected to increase vigorously in 2012 and may continue to do so in 2013, sustained by growth in Africa, where cassava remains a strategic crop for both food security and poverty alleviation. Prospects are more uncertain in Asia, where the sector expansion next year will largely depend the competiveness of cassava in the production of ethanol relative to other feedstocks. In 2012, world trade in cassava products is set to undergo a marked increase, entirely sustained by industrial demand.

Oilseeds

The 2012/13 oilcrop season is opening under the legacy of a tight 2011/12 balance and a disappointing soybean crop in the United States. Current supply and demand forecasts for the new season provide limited scope for a relaxation in prices – at least until prospects for record South American soy crops are confirmed.

Sugar

World sugar production is forecast to reach a new record, more than sufficient to cover projected global sugar consumption. Large export availabilities in key supplying countries, along with a rebuilding of sugar inventories in major importing countries, are expected to boost trade in 2012/13.

Meat

Global meat markets are challenged by high feed prices, stagnating consumption, and falling profitability, with growth in total output slowing down to 2 per cent. With international prices close to record highs, growth in world trade is also decelerating.

Milk

International prices of dairy products are rising in the face of limited export supplies. Milk production continues to grow in many countries, especially in Asia, Oceania and South America.

Fish

Weakening import demand caused international fish prices to drop in the first half of 2012. The dip mainly affected farmed species, while quotations for wild fish, such as tuna, fared better.

Acknowledgements

The Food Outlook report is a product of the FAO Trade and Markets Division. It is written by a team of economists, whose names and email contacts appear under their respective market summary contributions. The report benefited from research support by many staff, namely, David Bedford, Claudio Cerquiglini, Julie Claro, Berardina Forzinetti, Grace Karumathy, David Mancini, Patrizia Mascianá, Marco Milo, Fiorella Picchioni, Turan Rahimzadeh, Barbara Senfter and Stefania Vannuccini.

Special thanks go to Rita Ashton for compiling the report and overall administrative support, as well as to Claudio Cerquiglini, for preparing the charts and statistical tables. Additionally, the team is grateful to Nancy Hart for her editorial assistance.

Cereal market summary


This season’s world cereal supply and demand balance is proving much tighter than in 2011/12 with global production falling short of the projected demand and cereal stocks declining sharply. However, the tightening is not uniform across all cereals. While this season’s maize and wheat supplies are compromised by disappointing harvests, supplies of rice are ample, which is prompting a further build-up of inventories.

Global cereal production in 2012 is expected to fall by 2.7 per cent from previous year’s record crop, but almost match the second best performance of 2008. The overall decrease reflects a 5.5 per cent reduction in wheat, and a 2.5 per cent decline in coarse grains, while the global rice crop is seen to grow by 0.7 per cent above last season record. Severe droughts this year in the United States and across a large part of Europe and into central Asia have been the main cause of the reduced wheat and coarse grains crops.

World cereal utilization in 2012/13 is projected to decline slightly from the previous season, but still anticipated to exceed production. Wheat utilization is set to decline by 1.4 per cent, mostly on lower feed use after the previous season’s record. Total utilization of coarse grains is forecast to drop nearly 1 per cent, largely because of reduced industrial maize use for ethanol production in the United States. By contrast, world rice utilization could increase by 1.5 per cent, helping cereal consumption to remain stable.

Based on the latest forecasts for global production and utilization, world cereal stocks at the close of crop seasons ending in 2013 could fall to 497 million tonnes, 4.8 per cent (25 million tonnes) less than their opening level. The decline would also reduce the world cereal stock-to-use ratio from 22.6 per cent in 2012 to 20.6 per cent in 2013, which compares with the low of 19.2 per cent registered in 2007/08.

This season’s shrinking supplies have tended to lift international prices. In October, the FAO Cereal Price Index averaged 259 points, down slightly from September, but 12.0 per cent higher than in October last year. Reduced export supplies and more expensive grains are forecast to result in a 6.9 per cent contraction in cereal trade in 2012/13.

Wheat market summary


FAO’s latest forecast for global wheat production in 2012 points to a 5.5 per cent decline from last year’s record level to 661 million tonnes. This forecast, which is considerably below expectations earlier in the year, largely reflects the impact of severe drought in eastern Europe and central Asia, but also the reduced prospects in the southern hemisphere. Biggest declines are expected in the CIS countries, where production by the three largest wheat producers, Kazakhstan, the Russian Federation and Ukraine, is forecast to fall by 36 million tonnes.

Global wheat utilization in 2012/13 is projected to drop slightly to 687 million tonnes. At this level, total utilization would exceed production for the second consecutive season. Feed use of wheat, which peaked in 2011/12, is likely to decline but still remain above average, due to the very tight maize supply. However, world wheat trade is likely to contract sharply – by 8.2 per cent from the record volume registered in 2011/12 – to only 135 million tonnes. This fall reflects larger supplies in several wheat importing countries but also some reduction in feed wheat import demand and tighter exportable supplies.

Against this backdrop, world wheat stocks could be cut by 11.9 per cent from their opening level, to 167 million tonnes by the close of the crop seasons ending in 2013. At this level, the world wheat stock-to-use ratio could drop to 24.0 per cent, from 27.4 per cent in 2011/12, but still remain above the 22 per cent low registered in 2007/08. The ratio of major wheat exporters’ closing stocks to their total disappearance – defined as domestic utilization plus exports – is also expected to fall sharply, to 13.9 per cent from 18.2 per cent in the previous season. This confirms a significant tightening of the global wheat supply-anddemand balance in 2012/13.

FAO’s early outlook points to a rebound in world wheat production in 2013. Current prices are higher than a year ago and, given demand prospects, wheat remains an attractive option for producers. Thus, weather permitting, plantings in most major producing countries are expected at least to match those of last year or even to increase, especially in those areas affected by drought in 2012. International wheat prices are unlikely to retreat to lower levels without a strong rebound in world production in 2013.

Coarse grain market summary


The latest forecast for world production of coarse grains in 2012 stands at about 1 137 million tonnes, sharply down from earlier forecasts and 2.5 per cent below 2011’s record crop. The devastating summer drought in the United States reversed an otherwise positive outlook for the 2012/13 marketing season. The reduced US maize crop is largely behind a 3.2 per cent decline in global maize output in 2012, to around 856 million tonnes. World barley production also fell this year, by 3.4 per cent, to 130 million tonnes, mainly due to a decrease in the CIS countries. One positive outcome has been the expansion in sorghum production, which is forecast to increase by 9 per cent in 2012, to nearly 61 million tonnes, mostly due to good prospects in Africa, the largest producing region.

Tight supply and high prices are likely to result in a slightly smaller world utilization of coarse grains to 1 152 million tonnes in 2012/13, the first decline after nearly ten years of undisrupted expansion. The anticipated decrease reflects a fall in maizebased ethanol production in the United States, by as much as 10 per cent from the previous year. Feed utilization is expected to contract by almost 1 per cent, with declines in the developed countries offsetting increases in the developing countries, especially in Asia.

In spite of lower projected use, world utilization would still exceed this year’s production, resulting in a drawdown of stocks and a sharp drop in the global stocks-to-use ratio as well as the major exporters’ stock-to-disappearance ratio. The tightening of the supply-and-demand balance has pushed up prices of major coarse grains to very high levels, which are in part responsible for the forecast of an 8 per cent contraction in world trade in 2012/13, to 121 million tonnes. International maize prices surged to record levels in early September and, while they have retreated somewhat in recent weeks, the market remains vulnerable given the run-down stock levels in the United States, the world’s largest exporter.

Rice market summary



The 2012 rice season is unfolding positively in most regions, as a revival of the monsoon rains has allayed fears of a repeat of the 2009 drought in India. As a result, global production is forecast to exceed last year’s record by about 1 per cent and reach 486 million tonnes (milled rice basis), a level more than sufficient to cover world consumption in 2012/13 and enable countries to increase their end-of-season inventories.

Import demand was particularly strong in 2012, supported by a decline in export prices from the high 2011 levels, as large export availabilities intensified competition among several of the world suppliers. Consequently, international trade in rice is anticipated to grow by 2.5 per cent in calendar 2012 to a new high of 37.3 million tonnes. Early prospects for 2013 are also positive, with trade forecast even higher, at 37.5 million tonnes. Among the major developments driving trade in rice this year and probably next are the very large size of China’s imports, contrasting with subdued purchases by traditional importers, such as Bangladesh, Indonesia and the Philippines. As regards exports, India is expected to displace Thailand as the world’s major rice exporter in 2012.

Global rice utilization in 2012/13 is predicted to increase by 1.4 per cent to 475 million tonnes, of which 402 million tonnes are destined for human consumption, with only small amounts diverted to feed or industrial uses. Per capita food consumption is expected to reach an estimated average of 56.8 kg per year, up from 56.7 kg in 2011/12.

While international prices were rather subdued in the first four months of the year, they resumed an upward trend in May 2012, sustained by the high price policy implemented by Thailand and, in recent months, by pressure from other cereal markets. Thus, although prospects for increasingly abundant rice supplies would call for a retrenchment of rice quotations in 2013, their future direction will be very much influenced by the policies of the major country players, in particular Thailand, and developments in the wheat and maize markets.

Cassava market summary



World cassava output in 2012 is expected to reach 282 million tonnes, an increase of 7 per cent from the level of 2011, and the fourteenth annual rise in succession. The expansion, which has been particularly prominent in recent years, is being driven by increasing industrial applications of cassava in East and Southeast Asia, especially for ethanol, and rising demand for food in the African continent.

World trade in cassava products, entirely sustained by industrial demand, is set to undergo a marked expansion by 2012. This is the result of the price competitiveness that cassava has gained over maize thanks, by and large, to policies in Thailand, the world’s leading international supplier of cassava products. International prices of chips and starch have been remarkably stable and low in spite of very strong demand and highly volatile grain markets.

The outlook for 2013 points to a continued expansion of production in Africa, where cassava remains a strategic crop for both food security and poverty alleviation. In Asia, prospects remain far from certain, depending on how the price relation between maize and cassava evolves and on the competiveness of cassava in the production of ethanol relative to other feedstocks. These outcomes will be heavily influenced by Thailand’s “price pledging scheme” and in particular, the degree of price discounting in sales from official stockpiles. The region’s uncertainty has been compounded by the recent weakness of domestic root prices in major producing countries that do not administer domestic price supports. The extent of these price falls cast doubt on the degree of market incentive for producers to plant cassava for the new season.

Oilseeds market summary



The 2012/13 oilcrop season is opening under the legacy of a tight 2011/12 balance and with a disappointing soybean crop in the United States. Last season’s tightness mainly resulted from short global soybean supplies which, combined with firm soy demand, led to a significant drawdown in world stocks. With global stock-to-use ratios falling to critically low levels, international prices embarked on a new upward trend in 2012. Oilseed and meal quotations, in particular, climbed virtually without interruption until August, setting new records. Only oils/fats prices departed from this tendency as the arrival of abundant palm oil supplies on the world market coincided with a weak demand for the product.

The 2012/13 season started with very low opening stocks, but also with disappointing first harvests, especially in the United States, where the new soybean crop (the harvest of which is nearing completion) was hit by severe drought. The US production shortfall is likely to limit global export availabilities over the first half of the current season. Although record-high soy prices are expected to strongly stimulate plantings in South America (where the season is about to start), harvests in the region are several months away, meaning that favourable weather conditions throughout the growing season will be required for current forecasts of a record crop to materialize.

Overall, the current 2012/13 outlook points to an improvement in the global supply and demand balance for oilcrop products, in particular oilmeals. Built into this forecast are expectations that persistently high prices are going to ration demand for oilmeals and that growth in the demand for oils/fats could be contained by a lower uptake of vegetable oils by the biodiesel industry.

Considering that only a partial recovery in global stock levels and stock-to-use ratios appears possible, international markets are expected to remain vulnerable, leaving limited room for a relaxation in prices, at least until prospects for record soy crops in South America are confirmed.

Sugar market summary



According to FAO initial forecasts for 2012/13 season, world sugar production is set to increase by 3.8 million tonnes, or 2.2 per cent, from 2011/12. For the third consecutive year, production is anticipated to surpass consumption, with the surplus expected to hover around 5.4 million tonnes, contributing to a rebuilding of sugar stocks to relatively comfortable levels. The growth in sugar output is attributed to an expansion in area and input use, sustained by remunerative international sugar prices and a return to more normal weather patterns. Falling sugar outputs in India, the EU and Thailand are anticipated to be offset mainly by expansions in Brazil, the world’s largest producer, and Australia. World sugar consumption is set to grow by about 2 per cent in 2012/13, reflecting increases in several developing countries that benefited from income gains and falling domestic sugar prices. Large export availabilities in key supplying countries will be balanced, to some extent, by a rebounding of purchases by traditional importers aiming to beef up stocks as a protection against future price instability, which could lessen the possibility of price dips in the coming months.

Further Reading

You can view the full report by clicking here.

November 2012

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