Costs for cereals to fall, predicts FAO

By Lindsey Partos

- Last updated on GMT

Related tags: Cent, Rice, Fao

The UN's Food and Agricultural Organisation (FAO) has predicted lower cereal prices for 2009 as production outstrips use and world cereal stocks recover from recent critical lows.

At 496 million tonnes, the Rome-based agency forecasts world cereal stocks will rise to their highest level since 2002.

"The sharp increase in world cereal production in 2008 has paved the way for a recovery in global cereal supply and demand balance in the 2008/09 marketing season,"​ said the FAO in its latest crop prospects report.

In 2008 soaring costs for cereals from wheat to rice sliced into margins for all participants in the food industry. But as the economic crisis prevails across the globe, and in addition to the boost to stock levels, prices for key cereals are expected to ease in 2009 as order books globally contract.

Wheat

The FAO figures show that international wheat prices generally increased in January this year, although they did remain 'quite volatile'.

But abundant supplies following the record world wheat harvest in 2008 "continue to put downward pressure on prices", ​said the UN agency.

Evidence of bearish figures is available from the international benchmark price - US wheat (number 2 hard red winter, f.o.b. gulf) - that although averaged 7 per cent higher in January than in the preceding month, remained a considerable 33 per cent down from the January average last year and a staggering 50 per cent below its peak in February 2008.

Maize

As for wheat, international maize prices have also been on the increase in the past month but remained volatile.

The FAO report shows that although prices were supported by prolonged dry conditions for this year’s maize crop in Argentina and Brazil, a dip in normal sales from the US - the world's largest maize exporter - together with the USDA report in mid-January showing lower demand estimates for the US maize and much higher forecasts for end-season stocks (an increase of 8 million tonnes) put downward pressure on prices.

The US maize (number 2 yellow, gulf) January average was 8 per cent up from December but 17 per cent below the January average last year and almost 40 per cent below its peak in June 2008.

Rice

International rice prices increased in January, with the price of the benchmark Thai white rice 100 per cent B averaging 5 per cent up from the December, and well above - a massive 59 per cent - the price at the same time last year.

According to the agency, the rebound in international rice prices since late December is largely attributed to the pledging programme in the largest world’s exporter Thailand, which has moved "some 4 million tonnes of paddy away from the market into public inventories at a price reported to be 20 per cent higher than market levels."

Record cereal production in 2008

At 2 272 million tonnes, the latest forecast for world cereal production in 2008 is up 6.6 per cent from 2007 and represents 'a new record', states the FAO. In parallel, world cereal use in 2008/09 is forecast to reach 2 200 million tonnes, 3.5 per cent more than in 2007/08.

While output of all the main cereals rose in 2008, the most significant growth was registered for wheat.

The bulk of the increase comes from wheat, up 12.4 per cent, although the global coarse grains and rice crops increased significantly by 4.6 per cent and 3.5 per cent respectively.

Output rose throughout most parts of the globe, with the exception of the Near East and neighbouring Commonwealth of Independent States (CIS, former soviet republics) countries in Asia, where the season was negatively affected by drought, and in North America, where production of maize in the US 'retreated from an exceptionally high level' in 2007.

The bulk of the increase is confined to the developed countries, which accounted in particular for the strong recovery in wheat production.

"While in developed countries the 2008 cereal output is estimated 12.3 per cent higher than in the previous year, in developing countries the expansion was just 2.3 per cent,"​ said the FAO. Mainly reflecting a weak supply response in Asia, accounting for three-quarters of the developing countries’ production, where the aggregate cereal output remained 'virtually unchanged'.

Cereal consumption to rise per head

The combination of improved world supplies and projected lower prices are expected to result in a general increase in per capita food consumption of cereals with the FAO estimating that, at a global level, the per capita food use is forecast to reach 153.3 kg, up from 152.6 kg in 2007/08.

Overall, world cereal use is predicted to reach 2.2 billion tonnes in 2008/09, up 3.5 per cent from 2007/08.

Total wheat use - both for feed and food - is forecast to rise by 5 per cent in 2008/09, after a contraction in the previous season when supplies were particularly tight. Food utilisation of wheat is expected to expand only slightly by 1.3 per cent overall to reach 452 million tonnes, with stronger pull coming from developing countries group where demand is expected to be slightly stronger, at 1.8 per cent.

In terms of coarse grains, world use is forecast 1 103 million tonnes, up 3 per cent from the previous season. Food use of coarse grains is forecast to rise by 2 per cent from the previous season to reach 191 million tonnes, with most of the growth expected in Africa where production rose in several countries.

The agency predicts that on the back of the global financial crisis, rice consumption will rise as consumers switch away from 'more expensive animal products' to staples, such as rice. Rice use, mainly for food consumption, is predicted to rise by 2.4 per cent. On a per capita basis, average rice consumption for food products is expected to increase from an estimated 56.9 kg in the past two years to 57.3 kg in 2008/09.

World cereal stocks recover

Some relief for the food industry as wheat inventories are forecast to expand by a considerable 24 per cent up from their low opening levels.

Most of this growth is expected in the EU, Canada and the US, where stocks during the previous season were significantly depleted in order to meet the rise in demand and exports. According to the FAO, much larger stocks are also forecast for a number of the CIS countries because of the increase in their production.

Total coarse grains stocks are forecast to grow in 2008/09, increasing 15 per cent from their opening levels. As for wheat, most of the increase in coarse grains’ stocks is expected in major exporting countries, in particular the EU following the recovery in maize and barley production.

And for rice, the boost to 2008 harvests should see world rice stocks, at the close of countries’ marketing years ending in 2009, rising significantly.

Both developing and developed countries are expected to build up rice inventories, said the FAO report, with the bulk of the accumulation expected in leading rice exporting countries, including China, India, Thailand and Vietnam.

Contraction in world cereal trade in 2008/09

Impacted by the slowing down in demand as economies across the world contract, the global cereal trade is expected to fall by 3.6 per cent to 263 million tonnes in 2008/09, down from the previous season’s estimated record volume.

According to the FAO figures, on current indications, a sharp drop in coarse grains trade would more than offset an increase expected for wheat, with trade in rice due to remain largely unchanged.

World trade in coarse grains in 2008/09 (July/June) is currently forecast to fall by almost 13 per cent from the previous season, largely reflecting reduced imports by the EU where domestic cereal production increased substantially in 2008.

By comparison, global trade in wheat is forecast to increase by 6 per cent in 2008/09 (July/June), mostly reflecting stronger import demand in Asia.

The picture for world rice trade in 2009, heavily influenced by the outcome of the 2008 paddy season, is now forecast to increase marginally to 30.9 million tonnes.

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