Global cereal production to rebound, forecasts FAO

By Karen Willmer

- Last updated on GMT

Related tags: Prices, Biofuel, Wheat, Us

Global cereal production is expected to recover from the shortfalls
experienced in the past year, according to a report released today.

The Organisation for Economic Co-operation and Development (OECD) and Food and Agriculture Organisation (FAO) met in Paris today to present the world Agriculture Outlook for 2007 to 2016. The report said global cereal trade is projected to grow at close to 1.5 per cent annually up to 2016, despite the current high prices and low yields. Poor harvest in the EU and the US, as well as drought in Australia has caused a downfall in exports recently, however this is expected to change, depending on development of the biofuel industry. "Agricultural markets have been reacting to higher energy prices since 2000 in that commodity costs have increased,"​ said the report. "But increased demand for agricultural products in the form of bioenergy feedstocks, largely from sugar, maize, vegetable oils and wheat, constitute an important change from the previous market situation."​ Where cereal prices have increased in 2006, the report asks whether this is due to changes in the marketplace or whether it is due to the weather. Cereals production fell in 2006 due to poor weather in North America, Europe and Australia, with a total shortfall of over 60m tonnes. However, demand for cereal use for ethanol in these regions rose by 17m tonnes, and so the greater demand encouraged higher prices. "Maize prices in theUShave undoubtedly been supported by increased biofuel production. There is obviously growing interest in many countries in the development of renewable energy supplies based on the use of agricultural feedstocks." ​It expects maize-based ethanol output to double between 2006 and 2016 in the US. However, despite projections of a lower global stock and additional demand globally, it said prices are expected to fall below the current levels. The outlook for cereal prices in general is expected to remain high, even if lower than the recent peak, purely due to the weather-related shortfall. It said this will decrease throughout the outlook period, however demand for cereals, particularly increasing in developing countries, will mean prices will stay high. The outlook estimates current world wheat prices to be at $204 (€150) per tonne for 2006/2007, which will decrease to $183.2 (€134) per tonne by 2016. However, this is still higher than the $152 (€110) per tonne price average from 2001/2002 to 2005/2006. The report estimates world wheat production to reach 672.6m tonnes by the end of the next 10 years, however consumption will be 674m tonnes. Production is currently estimated at 596m tonnes, with a consumption of 621.4m tonnes. The average for the past five years has been 594.5m tonnes produced with a consumption of 608.8m tonnes, highlighting the rise in demand now and then over the next 10 years. However, the overall conclusion seemed to be that the demand for biofuels and the general increase in demand for cereals are going to affect the market. Prices will drop over time, however, they are likely to still remain higher than in previous years. "The future developments in the biofuel industry, in particular in terms of policy and technological developments, are unclear, and this implies uncertainty for agricultural markets, especially those for cereals, oilseeds and sugar crops,"​ the report stated.

Related topics: Markets

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