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ACKNOWLEDGEMENTS

The Food Outlook report is a product of the FAO Trade and Markets Division. This report is prepared under the overall guidance of Boubaker Ben-Belhassen, Director, and Abdolreza Abbassian, Senior Economist. 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, Julie Claro, Anna Maria Giusti, Grace Karumathy, Lavinia Lucarelli, David Mancini, Emanuele Marocco, Marco Milo, Di Yang and the fisheries statistical team.

Special thanks go to Stanislaw Czaplicki and David Bedford for preparing the charts and statistical tables and to Valentina Banti for her administrative support. Additionally, the team is grateful to Rita Ashton for the desktop publishing and to Nancy Hart for her valuable editorial assistance.

HIGHLIGHTS

Food commodity markets remain well supplied but the cost of importing food is set to rise by 6 percent from last year’s level to reach USD 1.413 trillion in 2017. Sharp increases in freight rates, stronger import demand and firmer prices of most food commodities are expected to elevate the global food import bill to its second highest level on record.

WHEAT

Even though world wheat production in 2017 is forecast to fall below last year’s record level, wheat supplies in 2017/18 remain relatively large. Stocks are set to increase for the fifth consecutive season, reaching an all-time high. Trade is expected to contract, with international prices still mostly above last year levels.

COARSE GRAINS

With global production projected at a new record while total utilization grows at a slower pace than in the previous season, world stocks are heading for a further increase, reaching an all-time high. Trade is also expanding, underpinned by brisker purchases as buyers try to take advantage of large export availabilities and weak prices.

RICE

Although weather disruptions are set to stall production growth this season, global rice supplies are still forecast to exceed utilization, enabling a small expansion of world rice inventories. After staging an 8 percent recovery in 2017, global trade is expected to rise only modestly in 2018. Price gains since June have been limited by stiff export competition.

CASSAVA

World cassava production could dip in 2017, on account of lower plantings in the major producing countries induced by a combination of policy changes, drought conditions and depressed root prices. Cassava trade flows are expected to remain firm, owing to poor prospects for China’s maize supply with which cassava competes.

OILCROPS

Although global oilseed production is forecast to remain flat in 2017/18, world supplies of both meals/cakes and oils/fats are expected to expand further, aided by large carry-in stocks. In both markets, output could essentially match demand, allowing closing stocks to remain steady at comfortable levels.

MEAT

A modest growth in global wheat production is forecast for 2017, supported by expansions in bovine, pig and poultry meats and some gain in ovine meat. Trade is anticipated to grow too, albeit at a slower rate than in 2016 due to falling import demand by China.

DAIRY

World milk production in 2017 is forecast to exceed last year’s level on favourable weather conditions and more attractive prices. A moderate expansion is expected in world trade in 2017 with increases in cheese and skimmed milk powder more than offsetting declining trade in butter and whole milk powder.

FISHERIES

Global production of fish and fishery products is expected to expand in 2017, but prices have risen across all seafood commodity categories as increased supply is being more than offset by the demand stimulus resulting from an improving global economy.

GLOBAL PROSPECTS FOR MAJOR TROPICAL FRUITS

Growth in tropical fruit trade has outpaced that of most other food commodities. Innovations in distribution, trade agreement measures, population growth, and shifting consumer preferences driven by rising incomes, will continue to support further expansion ahead. However, with tropical regions particularly susceptible to extreme climate-related events, uninterrupted supplies to international markets will be a significant challenge.

CONTENTS

MARKET SUMMARIES

MARKET ASSESSMENTS

Wheat

Coarse grains

Rice

Cassava

Oilcrops, oils and meals

Meat and meat products

Milk and milk products

Fish and fishery products

SPECIAL FEATURE

Global prospects for major tropical fruits

MAJOR POLICY DEVELOPMENTS

Grains

Rice

Oilcrops

Meat

Dairy

STATISTICAL TABLES

MARKET INDICATORS

Futures markets

Ocean freight rates

Food import bills

The FAO price indices

CEREALS

World cereal markets are likely to be comfortably balanced in 2017/18, with total supplies exceeding projected demand and inventories on the rise. Global cereal production in 2017 is forecast to surpass the 2016 peak by a small margin. Total production of coarse grains is set to reach a new record, with most of the expansion taking place in South America and Southern Africa. However, wheat production is forecast to decline slightly from last year in spite of an upward adjustment since October driven by a larger-than-earlier anticipated harvest in the Russian Federation. The decline in wheat production from 2016 mostly reflects a lower harvest in the United States, as well as a projected fall in Australia’s wheat crop after a record output in 2016. Global rice production in 2017 is expected to remain broadly stable.

World cereal utilization in 2017/18 is set to expand by 1 percent from the previous year. Overall, food consumption of cereals is forecast to grow by 1.3 percent and feed use by 0.4 percent, while industrial utilization is projected to rise by 1.2 percent. Based on the latest forecasts for cereal production and utilization, world cereal stocks by the close of seasons in 2018 are set to reach a new record level. This would result in the global cereal stock-to-use ratio remaining stable at a 15-year high of 27 percent, with the ratio for wheat up slightly and those for coarse grains and rice down marginally. World wheat inventories are currently pegged at an all-time high despite a downward revision since October. Global stocks of rice and coarse grains are also set to reach record levels. The increase in wheat and rice stocks largely reflects an anticipated accumulation of inventories in China, whereas for coarse grains, the expansion reflects higher end-of-season maize stocks in South America and the United States.

World trade in cereals in 2017/18 is forecast to remain close to the 2016/17 estimated volume, with an expected decline in wheat trade largely offset by larger shipments of maize, sorghum and rice. Overall, given the ample size of export supplies, competition among major exporters in 2017/18 is expected to remain stiff.

Contact:

Abdolreza.Abbassian@fao.org

WHEAT

Even though world wheat production in 2017 is forecast to fall below last year’s record level, wheat supplies in 2017/18 remain relatively large. Stocks are set to increase for the fifth consecutive season, reaching an all-time high. Trade is expected to contract, while prices, which still exceed last year’s levels, have remained under general downward pressure since the start of the season.

Global wheat production in 2017 is forecast at 752.8 million tonnes, down slightly from 2016. Most of the decrease is associated with significant production cuts in the United States and Australia. However, global output is still forecast to be the second highest on record. Global wheat trade is also seen to decline a slight 1.2 percent below the 2016/17 record level, amounting to 175.2 million tonnes. The forecast contraction in world trade in 2017/18 is largely the result of reduced import demand in Asia, more than offsetting higher expected imports by Europe and North America.

Wheat utilization is forecast to increase for the second consecutive season, reaching 738.2 million tonnes, some 0.7 percent above the previous season’s record high level. After a contraction in 2015/16, wheat utilization rebounded in 2016/17, helped by improved global supplies and lower international prices. With projected supplies in 2017/18 exceeding the previous season’s level, total wheat utilization is set to rise further, albeit at a slower pace because of firmer prices.

Inventories are forecast to increase further in 2017/18, boosted by large supplies in China. Global wheat stocks are forecast to reach 258 million tonnes by the close of seasons in 2018, an all-time high and 5 percent above their opening levels. World wheat inventories have increased continuously since 2013/14, as growth in global production exceeded expansion in total world consumption. Overall, the bulk of this season’s projected expansion in world wheat reserves is expected to take place in China, where wheat inventories are forecast to increase by at least 18 million tonnes, or 20 percent, to around 110 million tonnes.

Contact:

Abdolreza.Abbassian@fao.org
Jonathan.Pound@fao.org (Production)

COARSE GRAINS

A record production in 2017 amid a slow rising utilization is likely to contribute to a further expansion in world inventories. FAO forecasts global coarse grain production in 2017 to exceed the previous year. Most of the increase is associated with higher maize production in Southern Africa and South America, more than offsetting the expected reduction in the United States.

Total utilization of coarse grains in 2017/18 is forecast to increase rather marginally with the feed use growing by only 0.3 percent from 2016/17. While feed demand for maize is expected to remain relatively firm, declines in feed use of barley and sorghum in China and the United States are seen to push down the year-on-year growth in total feed utilization. Industrial use of coarse grains is also expected to experience a below-average increase, largely because of a weaker intake of maize for production of biofuels. Based on latest forecasts for global production and utilization, world stocks could rise to a new record level. Maize and barley inventories are behind this projected rise, mostly in Brazil, South Africa and the United States, while sorghum stocks are heading for a decline, mostly in Argentina, Australia and China. Overall, the major exporters’ stock-to-disappearance ratio is forecast to increase further in 2017/18, which indicates more abundant export availabilities of coarse grains for world markets during the current season. This, in turn, should comfortably meet the current projected rise in import demand.

Ample supplies in major exporting countries are forecast to drive up world trade volume slightly to nearly 184 million tonnes. Bigger maize exports account for most of the overall increase. International trade in barley and sorghum is likely to contract while trade in oats and rye is likely to stay subdued. Among the world’s leading maize exporters, the biggest year-on-year rise in exports is forecast for Brazil, more than offsetting an equally significant fall in shipments by the United States. Large export supplies in South America have, in fact, contributed not only to weaker prices but, even more importantly, to lower price volatility so far this season.

Contact:

Abdolreza.Abbassian@fao.org
Jonathan.Pound@fao.org (Production)

RICE

Global production prospects were marred by a series of climatic setbacks affecting main-crops in the Northern Hemisphere during the critical summer months. Although strong production incentives in Asia and Africa permitted plantings to remain largely unaffected, the weather disruptions are now anticipated to limit world rice production growth in 2017, keeping output marginally below the 2016 record outcome of 501 million tonnes (milled basis).

International trade in rice is forecast to expand by 1 percent in 2018 to reach 45.4 million tonnes, underpinned by larger Asian purchases, namely by Indonesia, the Philippines and Saudi Arabia. Import demand is forecast to be less lively elsewhere, limited by larger local availabilities and higher international prices. Among exporters, India and Thailand are expected to retain their positions as the top global rice suppliers, although tighter availabilities could undermine their ability to compete. Sales by China, Myanmar and Viet Nam are predicted to continue progressing in 2018.

World rice utilization is forecast to reach around 503 million tonnes in 2017/18, up 1.1 percent from 2016/17. Food use is expected to account for all of this expansion, permitting a modest increase in global per capita consumption to 53.8 kg.

Despite expectations of stagnating output this season, global rice supplies are still predicted to exceed utilization, enabling a small (0.4 percent) expansion in world rice inventories at the close of the 2017/18 marketing years to 169.2 million tonnes. Continued accumulations in China are anticipated to sustain this increase, while drawdowns in Thailand and the United States could drive a 9 percent contraction in the stocks of the major exporting countries to a ten-year low.

Contact:

Shirley.Mustafa@fao.org

CASSAVA

After two decades of uninterrupted growth, world cassava production is forecast to undergo a slight contraction in 2017. A combination of policy changes, depressed root prices and adverse weather in the major producing countries is thought to have been responsible for lowering plantings in 2017 resulting in a decline in production.

The volume of world trade in cassava in 2017 is expected to remain stable, matching the positive outcomes of the two preceding years. International flows of cassava, primarily confined to East and Southeast Asia, are very much contingent on industrial and feed demand, particularly from China, the world’s leading cassava importer, and on the competitiveness of supplies in Thailand, the world’s leading exporter. However, a downturn in China’s maize supply prospects, the domestic substitute for imported cassava, has paved the way for sustained cassava deliveries to the country. The revival in cassava demand has given support to international product quotations, which had fallen to multi-year lows in the past 12 months.

The current positive trade prospects may only provide a temporary stimulus to cassava sectors in the region. A bumper maize crop in China in the following season would pose a significant threat to cassava demand as would a more active policy of de-stocking maize in the country.

The potential for cassava to compete in markets beyond China is also uncertain, given that international maize prices are currently hovering at relatively very low levels. While cassava root prices in Southeast Asia have firmed in recent months, the outlook for next year and beyond will much depend on whether producers would be willing to accept the risks of a possible strong decline in cassava demand in China. Already some indication is provided by way of a recent official survey in Thailand, which points to 9 percent drop in cassava area in 2018.

Contact:

Adam.Prakash@fao.org

OILCROPS

The 2016/17 season saw an easing in the global oilseeds and oilmeal supply and demand situation, while vegetable oil fundamentals remained relatively tight. Accordingly, during the recently ended October/September marketing year, international prices for oilseeds and oilmeals remained subdued, while those of oils/fats maintained their strength.

Preliminary forecasts for 2017/18 point to a broadly balanced global supply and demand situation, in both the oilseed and meal markets as well as in the oils/fats segment. Global oilseed production is forecast to match last season’s record level, with small year-on-year contractions in soybean and sunflowerseed compensated by improvements in other oilcrops. While the global area of the seven major oilseeds is anticipated to expand further, average yields are expected to retreat to trend levels, following last season’s unparalleled highs. For soybeans, individual countries’ prospects are mixed, with year-on-year gains concentrated in the Northern Hemisphere, notably the United States, China and Canada, while, in South America, possible drops are looming in Brazil and Argentina.

World oils/fats production is forecast to expand moderately in 2017/18. Growth would be led by palm oil, with production in Southeast Asia reverting to average growth, after the last two seasons’ El Niño-related swings. Global oils/fats utilization could grow less than last season, assuming moderate income growth in a number of countries and only limited expansion in demand from the biodiesel sector. International meal output, on the other hand, is forecast to remain flat, given the anticipated drop in soybean production. Based on current forecasts, global supplies of both meals and oils/fats would be adequate to meet global demand, thus allowing end-of-season stocks to remain at comfortable levels. World trade in oils/fats and meals/cakes is anticipated to keep expanding in 2017/18, albeit at a somewhat reduced pace compared with the previous season.

In the coming months, international prices of oilseeds, oils and meals will be influenced by changes in the production forecasts for soybeans in South America and palm oil in Southeast Asia. Uncertainties remain regarding the actual course of global oil and meal demand, including, in the case of oils/fats, the impact of recent policy changes concerning the biodiesel market.

Contact:

Peter.Thoenes@fao.org

MEAT AND MEAT PRODUCTS

After stagnating in 2016, world meat production is forecast to recover in 2017, increasing by 1.1 percent, or 3.5 million tonnes, to 324.8 million tonnes, amid moderate increases in bovine, pig and poultry meats and a modest gain in ovine meat. Much of the global meat output expansion is forecast to originate in the United States, Brazil, the Russian Federation, Mexico and India, but also in Argentina, Turkey and Thailand. After two years of downsizing associated with an on-going process of farm restructuration and consolidation, meat production in China, the world’s largest meat producer, is expected to remain stable around the 2016 level, as expansions in ovine, pig and bovine meats are anticipated to compensate for a marked decline in poultry meat, constrained mainly by the spread of the highly pathogenic avian influenza (HPAI).

World trade in meat is forecast to reach 31.5 million tonnes in 2017, 1.2 percent above last year, but the growth is slower than the 4.4 percent registered in 2016. World trade in bovine meat is expected to record the fastest expansion, followed by poultry, while pigmeat and ovine meat trade may fall somewhat. On the demand side, Japan, Angola, Cuba and Mexico, as well as the Republic of Korea, Iraq, Chile, the United Arab Emirates and Viet Nam are all expected to step up imports. By contrast, meat imports by China, the EU, Egypt, Saudi Arabia, South Africa and Canada may decline, in some cases a reflection of larger domestic supplies and, in others, of falling demand in the wake of relatively high international prices. Among exporters, the United States, Thailand, India, Argentina, Ukraine and Brazil are all anticipated to step up meat exports in 2017, while the EU, Australia, New Zealand, Paraguay and Chile may see theirs fall. The spread of the HPAI is expected to affect the direction and pace of poultry meat production and trade across different regions.

International prices of all meat categories firmed moderately over the first half of the year but levelled off in recent months due to intensified competition and sluggish import demand. Across the various meat categories, the ovine meat prices gained as much as 39 percent, while bovine, poultry and pigmeat prices individually increased by nearly 7 percent. The FAO Meat Price Index gained 9 percent, or 14 points, between January and October 2017, mainly reflecting the price movements of bovine, pig and poultry meats, which have larger weights in the index.

Contact:

Upali.GalketiAratchilage@fao.org

MILK AND MILK PRODUCTS

World milk production is set to reach 833.5 million tonnes in 2017, 1.4 percent more than in 2016. Much of the anticipated rise is expected in Asia and the Americas, while the sector might stagnate in Europe and Africa and possibly face a decline in Oceania.

World trade in dairy products is forecast to increase by 1.3 percent in 2017 to 71.6 million tonnes (in milk equivalent) marking a second year of modest growth. Most of the export growth is expected to come from North America and Europe. Despite a slow growth in milk production, the EU is anticipated to account for the largest export expansion, underpinned by increased sales of cheese and skim milk powder (SMP). Likewise, greater shipments of cheese, but also of SMP, are expected to boost exports from the United States. In contrast, exports from South America, Oceania, Asia and Africa are forecast to decline in 2017, largely reflecting supply constraints.

On the demand side, Asia is anticipated to drive the expansion, with imports by the region predicted at around 41 million tonnes, 1.5 percent more than in 2016. Within Asia, China is behind much of that expected increase, with its purchases fuelled by demand for higher value-added dairy products, in particular cheese and SMP. Elsewhere, imports are forecast to rise in Algeria, Australia, the Russian Federation, Mexico, Indonesia, the Republic of Korea, Japan, Thailand and Pakistan. Conversely, imports are foreseen to decline significantly in Brazil, Saudi Arabia, Oman, the United States, the EU, the Philippines, Egypt, Malaysia, the United Arab Emirates, Cuba, Belarus and Turkey.

Among the various dairy products, world trade in cheese and SMP is expected to increase in 2017, while trade in butter and WMP may contract.

After continuously rising for nine months from May 2016, international dairy prices tapered off for a short while in early 2017, when increased deliveries by the EU and the United States eased supply concerns. However, prices strenghthened from May to September 2017, reflecting a surge in butter prices and moderate increases in cheese and whole milk powder, while skim milk powder prices remained subdued. In October, the index declined by 4 percent as importers held back purchases awaiting the emerging trend for export availabilities from Oceania.

Contact:

Upali.GalketiAratchilage@fao.org

FISH AND FISHERY PRODUCTS

Global production of fish and fishery products is expected to expand by 2.3 percent in 2017, a faster growth rate than last year, primarily accounted for by a recovery in catches of anchoveta in South America and by a further expansion of aquaculture production, which continues to rise at some 4–5 percent a year. The aquaculture sector is estimated to be the world’s primary source of fish for all purposes within 5 years.

Despite higher production in 2017, the additional demand generated by improving economic conditions globally has lifted seafood prices. The FAO Fish Price Index was 10 points higher in August, the most recent available month, with all commodity groups higher than the same month in 2016. Together with higher traded volumes, this is expected to translate into an 8 percent increase in the value of world exports in US dollar terms for the year, with higher export revenues for many producing countries.

Recent OECD-FAO projections show accelerating world gross domestic product (GDP) growth in 2017 and 2018 after years of sluggish economic performance globally, which represents a positive development for the seafood sector. Although the large established markets of the United States of America, the EU and Japan still account for a substantial proportion of seafood imports, it is demand growth in Asia, and particularly China, that will be the most important single factor in shaping the global seafood market for the foreseeable future.

There are two important events for the seafood sector taking place in late 2017, both focused on key topics relating to Sustainable Development Goal (SDG) 14: Life Below Water. The first is the 11th World Trade Organization (WTO) Ministerial taking place in Buenos Aires on 17 December, where it is hoped progress will be made towards addressing the need to limit harmful fisheries. The second is the VI edition of the CONXEMAR-FAO World Congress that was hosted in Vigo, Spain on 2 October, where participants discussed climate change and how to mitigate its negative effects on our oceans.

Contact:

Audun.Lem@fao.org
Stefania.Vannuccini@fao.org

WHEAT

PRICES

International prices have decreased but still above last year

Worries over unfavourable weather affecting crops in Canada and the United States, combined with uncertainty about production prospects in several other major producing countries, resulted in firmer prices during the closing months of the 2016/17 marketing season. However, wheat quotations fell steadily from the beginning of the 2017/18 marketing season on indication of better than anticipated harvests, especially in the EU and the Russian Federation. As the season progressed, weather concerns affecting growing conditions in Argentina and Australia as well as winter wheat plantings in the Northern Hemisphere, combined with storm-induced disruptions at US Gulf ports, provided occasional support to prices. However, in October, the benchmark US wheat (No.2 Hard Red Winter), f.o.b. Gulf averaged USD 214 per tonne, down 10 percent from the beginning of the season in July, but still nearly 11 percent above October 2016. In fact, since the beginning of the season, the United States’ wheat export quotations have remained above last year’s levels. This is primarily because of tighter supplies of high quality wheat in the face of rising world demand, as illustrated in Box 1. Wheat futures have followed a similar movement since the beginning of the current season. In October, the Chicago Board of Trade (CBOT) quotation for December delivery averaged USD161 per tonne, up 7 percent from October 2016. More detailed analysis of the futures markets can be found in Box 1 as well as in the Market Indicators section of this report.

PRODUCTION

Wheat production down slightly from last year

FAO’s current forecast for world wheat production in 2017 stands at 752.8 million tonnes, which is 7.4 million tonnes, or 1.0 percent, below the previous year’s level. Most of the decrease this year is associated with significant production cuts expected in Australia and the United States. However, the global output is still forecast to be the second highest on record.

In the United States, wheat production in 2017 is forecast to decrease by 25 percent to 47.4 million tonnes. The decline is principally due to a significant cut in the winter-wheat-planted area and a return to trend yields from last year’s above-average highs. Similarly, the spring and durum outputs are also forecast to fall due to unfavourable weather, although the impact of dryness was not as serious as first expected, prompting slight upward production revisions in recent months. Canada is forecast to harvest a reduced crop of 27.1 million tonnes, about 15 percent down from 2016, with a reduction in both plantings and yields contributing to the contraction.

In Europe, harvesting of the 2017 wheat crop is nearly complete. Production in the EU is forecast to increase by 4 percent to 150 million tonnes in 2017. Much of this increase rests on an improved output in France, while an upturn in overall yields also supported the year-on-year production gain. Moreover, the generally favourable weather improved overall wheat quality compared to 2016, although rains at harvest time in Germany and Poland adversely affected crop quality in these countries. In the Russian Federation, improved weather conditions over the course of the season led to several upward revisions of the production forecast. With the harvest expected to be complete by mid-November, the output is forecast at a record high of 83.6 million tonnes, up 10 million tonnes from 2016. In Ukraine, higher yields are expected to have fostered a 2 percent increase in wheat production, estimated at 26.6 million tonnes, with the bulk of the crop already harvested in spring. In Kazakhstan, where the bulk of this year’s crop has already been gathered, our latest estimates put the wheat production at around 14 million tonnes, down 7.5 percent from the previous year.

In Asia, with most of the crop harvested, a small increase in the regional output is forecast in 2017. Most of the increase concerns India, where a rise in the Government’s procurement price and beneficial weather instigated a significant expansion in plantings. As a result, the country’s 2017 wheat output is estimated at 98.4 million tonnes, 6.6 percent higher than the previous year. In Pakistan, a moderate production increase is foreseen, with output reaching 26 million tonnes this year, reflecting generally good weather and an expanded use of fertilizer that helped to boost yields and more than compensate for a contraction in sowings. In China, the world’s largest wheat grower, production is forecast to increase by 1 percent to 130 million tonnes, putting it at a similar level to that of 2015.

In the Near East, wheat production in Turkey is forecast to rise by 6 percent to 21.8 million tonnes on account of well distributed rains, while production in the Islamic Republic of Iran is anticipated to remain almost unchanged relative to last year’s output. On-going conflicts continue to constrain agricultural production in Afghanistan, Iraq and the Syrian Arab Republic. As a result, wheat output levels in all three countries are expected to remain below average, although favourable weather in Syria helped support a moderate yearly increase.

In North Africa, above-average and well distributed rains in Morocco resulted in a sharp recovery in wheat production in 2017, estimated at 7.1 million tonnes, more than double the 2016 output, which was adversely affected by dry weather. Similarly, Algeria registered a yearly production gain, mostly reflecting a larger harvested area.

In the Southern Hemisphere, the production outlook for Australia indicates a decline in the 2017 output, following the previous year’s exceptionally high level. Preliminary forecasts put the 2017 output at 21.6 million tonnes, 38 percent down on a yearly basis. Dryness during the winter months is the main factor behind this year’s drop, with yields expected at below-average levels, although a smaller harvested area is also expected to contribute to the decline.

In South America, the aggregate 2017 wheat production is forecast to fall by 6 percent. Most of this decline pertains to an expected 18 percent reduction in Brazil’s wheat output, forecast at 5.5 million tonnes. Containing a larger decline at the regional level, Argentina’s output is forecast at a well above average level of 19 million tonnes, resting on a price-driven expansion in sowings that more than offset a small decrease in yields.

Looking ahead, planting of the 2018 wheat crop is underway across northern hemisphere countries. In the United States, drier weather in some key growing states had slowed the pace of sowings compared with the previous year. Plantings are expected to continue until the end of November. In the EU, preliminary indications suggest that wheat sowings could rise in 2018, as earlier expectations of an area expansion for alternative oilseed crops dissipated due to unfavourable weather during the planting period, which comes before winter wheat sowings. In the Russian Federation and Ukraine, recent beneficial rains helped to replenish soil moisture and supported a quickening of winter wheat plantings, with sowing progress up compared to the previous year.

TRADE

Wheat trade to remain below the 2016/17 record level

FAO’s forecast for world trade (including wheat flour in wheat equivalent) in 2017/18 (July/June) has been raised by 500 000 tonnes since October to 175.2 million tonnes, which is still down 2 million tonnes, or 1.2 percent, from the all-time high of 177.4 million tonnes in 2016/17. The latest upward revision reflects small adjustments to the projected imports by Nigeria and Mexico.

The forecast small contraction in world trade in 2017/18 is largely driven by expected lower imports by Asia, more than offsetting higher imports anticipated in Europe and North America.

In Asia, total wheat imports in 2017/18 are forecast at 88.7 million tonnes, down 2.3 million tonnes, or 2.5 percent, from 2016/17 with the bulk of the decrease expected in China and India. Wheat imports by China are currently forecast to reach 3.2 million tonnes, some 1 million tonnes less than in 2016/17. Large domestic supplies, especially following this year’s record harvest, are the reason for the lower projected wheat purchases by China from abroad. Similarly, wheat imports by India are seen to decline by 2 million tonnes in 2017/18, to 4 million tonnes, in view of this year’s bumper harvest. Wheat purchases by Thailand are also forecast to decrease, by some 800 000 tonnes to 3 million tonnes, with the main reason being the Government’s decision to restrict imports of feed wheat, effective since the beginning of this year. By contrast, several countries in Asia are likely to import more wheat in 2017/18, in particular the Syrian Arab Republic, where the ongoing conflict has greatly increased the country’s reliance on imports, despite some increase in this year’s domestic production level.

In Africa, aggregate wheat imports in 2017/18 are projected at around 49 million tonnes, slightly lower than the 2017/18 record level. Imports by Egypt, the world’s largest wheat importer, are forecast at 12 million tonnes, some 400 000 tones above the 2016/17 estimated level. The small drop in this year’s production, increasing demand and high domestic prices are among the main factors behind the anticipated high level of imports by Egypt. As of October, foreign wheat deliveries with a moisture level of up to 13.5 percent will be allowed for a nine-month period; previously, the permissible moisture level was set at 13 percent. However, as in 2016/17, uncertainties remain as to the eventual size of Egypt’s import purchases, due to the changing policies. Higher wheat imports are also forecast for South Africa, primarily because of the decline in domestic production but also because of strong demand which induced the Government to lower the import tariff by 60 percent as of early October. The new tariff is the lowest since February 2015. By contrast, wheat imports by Morocco are set to decrease by 1 million tonnes, or 18 percent, to 4.5 million tonnes, as a result of a recovery in domestic production this year.

In Latin America and the Caribbean, imports in 2017/18 are forecast to change little in most countries. Smaller purchases are anticipated for Bolivia and Brazil. Higher domestic wheat production is seen to result in a nearly 44 percent drop in wheat imports by Bolivia, to 360 000 tonnes. In Brazil, large domestic supplies, due to high carryover stocks from the previous season, could result in imports declining by 260 000 tonnes to stand at 7.5 million tonnes. By contrast, wheat imports by Mexico are anticipated to exceed the previous season’s level by 300 000 tonnes to reach 5.3 million tonnes. Lower production and strong demand are the main factors behind this anticipated increase.

In Europe, aggregate wheat imports in 2017/18 are forecast to reach 7.7 million tonnes, up 460 000 tonnes from the 2016/17 estimate, with most of the increase in the EU. Total wheat imports by the EU are forecast at 5.3 million tonnes, slightly higher than in 2016/17, despite this year’s sharp recovery in production. Strong demand for durum wheat is the main reason behind the expectation for higher imports.

In North America, tight domestic supplies of premium wheat in the United States are likely to drive up imports to 4.1 million tonnes, 800 000 tonnes more than in 2016/17 and the highest level since 2013/14.

Regarding exports, overall supplies of wheat in 2017/18 should be more than adequate to meet the global import demand. Aggregate wheat exports by the major exporting countries[3] in 2017/18 (July/June) are forecast to amount to just under 162 million tonnes, some 1.5 million tonnes less than in 2016/17.

Among the major exporters, competition for markets is expected to remain stiff, as has been the case over the past few seasons. Large supplies from the Black Sea region, in particular from the Russian Federation following this year’s bumper crop, are expected to further intensify this competition for market shares. Wheat shipments from the Russian Federation are forecast to increase to at least 32 million tonnes, 17 percent above the 2016/17 level and an all-time high, which places the country as the world’s largest wheat exporter. The increase in exports from the Russian Federation will more than offset reduced sales by Ukraine and Kazakhstan, the other two regional players.

Exports from the EU are also set to increase, by around 9 percent to just over 28 million tonnes. This year’s strong recovery in production and more favourable exchange rate are seen to boost sales from the EU, although the overall shipments would remain well below the record 34 million tonnes attained in 2014/15. While Canada is seen to export 21 million tonnes of wheat, slightly more than last season, wheat sales by Argentina are pegged at 12 million tonnes, nearly unchanged from the previous year’s high level. By contrast, shipments from the United States are forecast to fall, by almost 11 percent, to around 26 million tonnes. Reduced domestic production and a stronger US dollar are expected to weigh on sales by the United States this season, although demand for the United States’ high protein wheat is expected to continue unabated (see Box 2).

UTILIZATION

Wheat utilization to increase for the second consecutive season

At the current forecast level of just over 738 million tonnes, world wheat utilization in 2017/18 stands at some 5 million tonnes, or 0.7 percent, above the previous season’s record high level. After a contraction in 2015/16, wheat utilization rebounded in 2016/17, helped by improved global supplies and lower international prices. With projected supplies in 2017/18 exceeding the previous season’s level, total wheat utilization is set to rise further, albeit at a slower pace because of firmer prices so far this season compared to last year.

The main use of wheat is for direct human food consumption, which represents over 70 percent of its total utilization. Food use of wheat in 2017/18 is forecast at 503 million tonnes, around 1.1 percent, or 5.4 million tonnes, higher than in the previous season. The projected increase contributes to a relatively stable average per capita consumption level at the global level, which is expected to remain at around 67 kg. Variations at country levels are expected to follow their long-term trends in most cases, although in some countries, they could be affected by domestic price developments. In Egypt, for example, due to elevated food inflation, per capita wheat consumption is likely to decrease slightly, to 184.5 kg, which is still among the world’s highest.

Total feed use of wheat, forecast at nearly 138 million tonnes, is also seen higher than in 2016/17 by around 1 percent. The anticipated small increase is largely concentrated in the EU and the Russian Federation, where ample wheat supplies are seen to further boost the usage of wheat for animal feed, more than offsetting anticipated reductions in Canada and the United States, where supplies are expected to be reduced because of lower production.

By contrast, total other uses of wheat (which includes industrial use, seeds and post-harvest losses) is set to remain close to the previous season’s level, at around 97 million tonnes. Based on derived estimates from recent reports of the International Grains Council, total wheat used for industrial production in 2017/18 could reach 23 million tonnes, just slightly higher than in 2016/17. Starch manufacturing, which represents the primary industrial use of wheat, is forecast to hover around 12 million tonnes, marginally above the 2016/17 estimated level. Total wheat use for the production of biofuels (excluding non-fuel uses) is also seen to remain stable, at just below 9 million tonnes.

STOCKS

Wheat inventories to increase further, boosted by large supplies in China

Global wheat stocks are forecast to reach 258 million tonnes by the close of seasons in 2018, an all-time high and 13 million tonnes, or 5 percent, above their opening levels. However, this forecast is 3 million tonnes below the previous FAO forecast published in October, with most of the downward revision in the Russian Federation. World wheat inventories have increased continuously since 2013/14, as growth in global production has exceeded expansion in total world utilization. Based on the current prospects, the world wheat stock-to-use ratio in 2017/18 would reach a high of 34.4 percent, up slightly from the previous season. However, the ratio of major wheat exporters’ closing stocks to their total disappearance (defined as domestic utilization plus exports), which is considered to be a better measure of availability in global markets, is set to decrease to 17.4 percent in 2017/18 from 18.7 percent in 2016/17. This slight decrease reflects a cut in the total end-season inventory level held by the major exporting countries to 70 million tonnes, down 5 million tonnes from their opening levels. Most of the decline is expected in Australia, Canada and the United States, due to reduced production levels, and in the EU, reflecting higher utilization and exports. By contrast, following this year’s record output in the Russian Federation, the country’s end-season wheat inventories are set to reach 15 million tonnes, up 5 million tonnes from their revised opening levels but 2.6 million tonnes below the October forecast, mostly on account of an expected increase in domestic use.

Overall, the bulk of this season’s projected expansion in world wheat reserves is expected to take place in China, where wheat inventories are forecast to increase by at least 18 million tonnes, or 20 percent, to around 110 million tonnes. After a decade of relative stability in the level of wheat stocks in China, within the range of 50 to 55 million tonnes, inventories started to rise sharply from 2015/16, boosted by the increase in domestic production. At the current forecast level, wheat stocks held in China would represent some 43 percent of the world total.

[3] Major exporters of wheat include Argentina, Australia, Canada, EU, Kazakhstan, Russian Fed., Ukraine and the United States.

COARSE GRAINS*

PRICES

Maize quotations remain under downward pressure

Ample global availabilities have continued to put downward pressure on international maize prices since the current marketing season began in July. Large export supplies in Argentina and Brazil, the two leading Southern Hemisphere maize producers, contributed not only to weaker prices but, even more importantly, to lower price volatility. In fact, worries over yield prospects in the United States and hurricane-affected logistical transport interruptions at US Gulf ports provided only limited and short-lived support to export quotations. The benchmark US maize price (yellow, No. 2, f.o.b.) averaged USD 148 per tonne in October, down by 6 percent from the start of the season in July and 2 percent below the corresponding period last year. By contrast, prices of the other two major coarse grains, barley and sorghum, remained generally firmer and above their last year levels, mostly with a brisker pace in trade than during the same period last year. In October, feed barley prices of France and the Black Sea origins averaged some 20 percent above October 2016, while sorghum quotations (US Gulf) were up 10 percent from last year.

Turning to the futures markets, the CBOT maize futures for delivery in December 2017, the benchmark delivery month for the new US crop, averaged USD 138 per tonne in October, down 10 percent from the start of the season but almost at par with the same period last year. Large world supplies and the favourable weather over the summer period which improved yield prospects, especially in the United States, contributed to a sharp decline in maize futures from their one-year high at the beginning of the season. Stiffer competition among the major exporters also limited the upside. More detailed analysis of the futures markets can be found in the Market Indicators section of this report.

PRODUCTION

Global production of coarse grains to reach a record in 2017

FAO forecasts global coarse grains production in 2017 to reach 1359.7 million tonnes, 13.4 million tonnes, or 1.0 percent, higher than the previous year marking a new record high. The annual growth is mainly driven by strong recoveries in maize production in Southern Africa and South America that more than outweighed a large production cut in the United States.

Global maize production in 2017 is forecast at 1 063.6 million tonnes, 22.9 million tonnes, or 2.2 percent, higher than the previous year.

In the United States, improved weather conditions in the latter part of the season resulted in higher than expected yields, triggering an upward revision of the production forecast that now stands at 362.7 million tonnes, although still 6 percent down from the previous year. The yearly decrease stems from a contraction in plantings that more than offset the positive impact of above-average yields. In Canada, in contrast to a subdued early-season production outlook, the latest estimate puts the 2017 output at a record high of 13.6 million tonnes, reflecting above-average yields and a larger planted area.

In Europe, drier weather in southern parts of the EU dampened yields prospects and in combination with a decrease in overall plantings, maize production in 2017 is forecast to fall by 2 percent to 60 million tonnes. Similarly, yields are estimated to fall in Ukraine, pushing this year’s maize output to 26.7 million tonnes, down 5 percent from 2016. In the Russian Federation, the maize output is also forecast to decline by 9 percent from the record high of 2016 to 14 million tonnes. Dry weather conditions in the summer and excessive rainfall during the harvest period are the main factors driving the decrease.

In Asia, aggregate production in 2017 is forecast to fall. Most of this decline is associated with China, where a lower maize procurement price established by the government triggered a contraction in plantings and resulted in an output of 212.5 million tonnes, down 3 percent from 2016. Elsewhere in Asia, maize production in 2017 is expected to remain close to the previous year’s levels, except in Indonesia, where robust demand from the domestic feed industry spurred an expansion in plantings, causing production to increase by 1.5 million tonnes to reach an overall level of 21.5 million tonnes.

In the Southern Hemisphere, harvesting of the bulk of the 2017 crop is complete.

In South America, production in Brazil is estimated at 99.4 million tonnes, 57 percent above the drought-reduced output of 2016 and a record high. The sharp rebound is driven by higher yields for both the first and second season crops, and a larger planted area. Argentina also registered a record output of 49.5 million tonnes. An expansion in the sown area, instigated by high prices and by good weather, which also helped boost yields, has driven this year’s increase.

In Southern Africa, good weather raised yield levels above previous year’s levels, and higher prices encouraged an increase in plantings in South Africa, supporting a record output of 17.5 million tonnes, more than double the drought-affected production of 2016. Similarly, favourable weather conditions in the neighbouring countries of Malawi, Zambia and Zimbabwe resulted in strong production rebounds this year.

FAO forecasts global barley production at 142.7 million tonnes, 4.8 million tonnes, or 3.3 percent down from 2016. The bulk of the decline rests on a lower output in Australia, forecast at 8 million tonnes, 40 percent down from 2016, which reflects below average rains in key growing areas and some frost damage. Smaller reductions forecast in Canada, the EU and the United States mainly reflect price-induced cuts to the sown areas. The decreases more than outweighed the estimated production gains in Morocco and the Russian Federation, which were due to beneficial weather.

World sorghum production is forecast by FAO at 59 million tonnes, 3.4 million tonnes, or 5.4 percent, below the previous year. The lower forecast reflects a smaller crop expected in the United States, where reduced prices led to a cut in the sown area. Minor year-on-year gains are expected in Asia and South America.

TRADE

Global trade in coarse grains at a new peak in 2017/18

FAO’s latest forecast for world trade in coarse grains in 2017/18 (July/June) stands at a record high volume of nearly 184 million tonnes, 1.8 million tonnes, or 1.0 percent, above the 2016/17 estimated level. Larger trade in maize accounts for all of the anticipated expansion in world trade in coarse grains in 2017/18, while international trade in barley and sorghum is likely to contract. Trade in other coarse grains – oats, rye and millet – is seen to remain steady.

Total world trade in maize is expected to approach 144 million tonnes in 2017/18, up almost 3 percent from the previous season, marking an all-time high. The increase would be largely associated with stronger import demand in several Asian countries, the EU and Mexico. Maize imports by Asia are currently forecast at 70.5 million tonnes, up as much as 6.3 million tonnes, or 9.8 percent, from 2016/17, mostly due to bigger maize purchases from international markets by China, Islamic Republic of Iran, the Republic of Korea, Saudi Arabia and Vietnam. In all cases, demand from vibrant domestic livestock sectors is behind the increase in those countries’ imports of maize. In China, in spite of large domestic supplies, the forecast indicates an increase in imports, reflecting the faster pace of the country’s foreign purchases since the beginning of the season, as domestic prices remained above international levels, making imports still profitable.

In Central America, total maize imports in 2017/18 are forecast at just over 21 million tonnes, 800 000 tonnes, or 4 percent higher than in 2016/17, with higher imports by Mexico accounting for all of the rise. This year’s decline in production amid strong domestic feed demand is likely to push maize imports by Mexico to a new high of 15.5 million tonnes.

Total maize imports in Europe are also forecast to increase, by 2 million tonnes, or 14.6 percent, to 16.5 million tonnes. This increase would be almost entirely due to higher purchases by the EU. Total maize imports by the EU are projected to increase to an all-time high of 15.6 million tonnes, 15 percent more than in 2016/17 because of strong feed demand and competitive prices.

By contrast, maize imports in Africa in 2017/18 are projected to decline by 1.9 million tonnes, or 8.3 percent, to just under 21 million tonnes. This decrease is primarily driven by a sharp cut in purchases by several countries in Southern Africa, mainly because of production recoveries. In South Africa, traditionally a leading regional exporter, no imports will be needed following a strong rebound in domestic production. Two years of consecutive poor harvests forced the country to import nearly 2 million tonnes of maize annually. Imports by Zimbabwe are also seen to drop, from over 900 000 tonnes in 2016/17 to almost nil, reflecting this year’s bumper crop and a government ban on maize imports that was announced in June.

World trade in barley, the second largest traded coarse grain after maize, is set to drop by 2 million tonnes, or 7 percent, from the previous season, to 27 million tonnes. However, with nearly steady imports in all major markets, the decline is mainly driven by the anticipated fall in barley purchases by China, more than offsetting an increase in imports by Saudi Arabia. In China, imports of barley are projected to decline by 2.7 million tonnes in 2017/18, reaching a more normal level of 4.6 million tonnes. China has imported exceptionally large volumes of barley, as well as sorghum, since 2014/15, in response to elevated domestic prices of feed grains and a slowdown in maize purchases. By contrast, Saudi Arabia, the world’s largest barley importer, is anticipated to increase its purchases this season by 500 000 tonnes to 11 million tonnes, in order to meet the growth in domestic feed demand. Similarly, global trade in sorghum is seen to contract in 2017/18, falling by nearly 900 000 tonnes, or 10.5 percent, to 7.6 million tonnes. While small increases in imports of sorghum are anticipated in few countries, the decline in world trade reflects a significant cut in sorghum imports by China – which decreased from 5.6 million tonnes in 2016/17 to 4.5 million tonnes in 2017/18 – and smaller imports also by Mexico, which decreased by 110 000 tonnes to 670 000 tonnes.

Turning to export prospects in 2017/18 (July/June), larger export availabilities of coarse grains are seen to comfortably meet the current projected rise in import demand. Among the world’s leading maize exporters, the biggest year-on-year rise in exports is forecast for Brazil, where a record maize crop and a favourable exchange rate are likely to drive up the country’s maize sales this season by as much 15 million tonnes, or 120 percent, to around 28 million tonnes, representing the second highest level on record. The sharp increase in exports by Brazil more than offset an equally significant fall in exports by the United States, the world’s largest maize exporter. Total maize sales from the United States in 2017/18 are seen to drop to 47 million tonnes, nearly 15 million tonnes, or 24 percent down from the 2016/17 record level of just under 62 million tonnes. However, a record harvest in Argentina is forecast to boost its maize sales to 27 million tonnes, up sharply from the previous season’s high of 22.6 million tonnes. Maize shipments from Ukraine are seen at around 20 million tonnes, down slightly from the previous season’s record volume, while South Africa, which is showing a recovery in maize production, is expected to return to international markets with at least 2.5 million tonnes of exports this season. In the barley market, the anticipated contraction in world trade is seen to weigh on shipments from Argentina, Canada and Ukraine, while the anticipated drop in sorghum trade could result in decreased sales by Australia and the United States, and more than offset increases in exports from Argentina and Sudan.

UTILIZATION

Utilization of coarse grains to increase marginally in 2017/18

Global utilization of coarse grains in 2017/18 is forecast to reach nearly 1 352 million tonnes, representing an expansion of around 1 percent from 2016/17. Total feed utilization of coarse grains in 2017/18 is pegged at 753 million tonnes, only 0.3 percent up from 2016/17. This compares with an over 2 percent expansion in 2016/17. This apparent slowdown in growth is largely a reflection of anticipated reduced feed use in a handful of countries, namely Serbia which had a sharp fall in its maize harvest, several CIS countries, particularly Kazakhstan and Ukraine, which also have had lower outputs, and the Russian Federation, where more abundant wheat supplies following this year’s record harvest are likely to partially substitute maize in animal feed rations. Smaller feed use of coarse grains is also seen in the United States, mainly driven by a cut in sorghum feed more than offsetting an increase in feed use of maize. However, feed usage of coarse grains is set to rise in the Republic of Korea, Saudi Arabia and Vietnam, supported by a growing demand from their livestock sectors. In China, the expansion is likely to be modest. Total use of coarse grains for feed in China in 2017/18 is projected to approach 149 million tonnes, only 0.3 percent above the 2016/17 level. However, given its large supplies, feed use of maize is set to rise by 1.4 percent, or 2 million tonnes, to reach 140 million tonnes, more than offsetting a decline in feed barley intakes of 22 percent, or 1 million tonnes. Brazil and Mexico are among the other countries where feed use of coarse grains is set to increase. In Brazil, record maize production and, consequently, large domestic supplies are seen to drive up feed use by 4 percent, to nearly 44 million tonnes. In Mexico, ample domestic maize supplies, following above-average production coupled with large carryovers from the previous season, will contribute to its feed use rising by 5.8 percent to around 19 million tonnes.

World food consumption of coarse grains is forecast to reach almost 208 million tonnes in 2017/18, 1.5 percent more than in 2016/17. Africa and Asia account for most of the food consumption of coarse grains. Total food use of coarse grains in Africa is projected at nearly 91 million tonnes, 2.0 percent higher than in 2016/17, with most of the anticipated increase in Ethiopia, Nigeria, Sudan and Tanzania. In Asia, total food use of coarse grains is projected to rise to over 62 million tonnes, with the biggest year-on-year growth to occur in China and India. At the global level, per capita consumption of coarse grains is expected to remain stable at around 28 kg per capita, with maize at 17.4 kg, followed by sorghum at 3.8 kg and millet at 3.1 kg.

After a strong 5 percent expansion in 2016/17, total industrial use of coarse grains is forecast to register only a modest increase in 2017/18, rising by 1.2 percent, to reach nearly 327 million tonnes. Total industrial use of maize – for production of ethanol, starch and sweeteners – is expected to reach 289 million tonnes, 2.5 percent higher than in the previous season. This forecast is largely derived from recent reports published by the International Grains Council. Most of the year-on-year increase is expected in China, where total industrial use of maize is set to reach an all-time high of at least 63 million tonnes in 2017/18, 5.3 percent higher than in 2016/17. In addition to starch, of which China is the world’s largest producer, the government recently announced new plans to boost the nationwide use of maize for production of biofuels. One aim of this measure is to reduce the stock of low quality maize kept in the country’s inventories.

The United States remains the largest user of coarse grains for industrial applications – largely of maize for production of starch and biofuels (ethanol). According to the latest official USDA forecast (October 2017), the use of maize for production of ethanol in the United States stands at 139 million tonnes in 2017/18, representing a 0.7 percent increase. This compares with a 4 percent year-on-year growth in 2016/17 (see Table 3). This slowdown is mostly due to less favourable export prospects. The leading market for the exports of ethanol from the United States is Brazil but shipments to Brazil are expected to fall sharply in 2017/18 because of import restriction measures in place since May, including a more recent imposition of a 20 percent tariff (Tariff Rate Quota) on ethanol imports above 600 million litres. In addition, China, another major market for the ethanol industry of the United States, has imposed a series of new tariffs on fuel ethanol and distiller’s dried grains (DDG) imports since the start of the current year.

STOCKS

Inventories of coarse grains continue rising in 2017/18

Based on the latest forecasts for global production in 2017 and utilization in 2017/18, by the close of crop seasons in 2018, world stocks are forecast to reach an all-time high of 291 million tonnes, up 0.8 percent from their already very large opening levels. Out of this total, maize inventories are forecast at nearly 237 million tonnes, up slightly from the previous season with most of the increase in Brazil, South Africa and the United States. Barley stocks are forecast to total over 31 million tonnes, some 4 percent higher than in the previous season, mostly driven up by higher inventories in the Russian Federation. By contrast, sorghum stocks are heading for a decline of nearly 9 percent to around 8 million tonnes, with the bulk of this decline occurring in Argentina, Australia and China,.

Overall, this season’s global stock-to-use-ratio is projected at 20.9 percent, down from 21.4 percent in 2016/17 but still remaining a relatively high ratio historically. In fact, major exporters’ stock-to-disappearance ratio (domestic utilization plus exports) is forecast to increase – from 13.7 percent in 2016/17 to 14.8 percent in 2017/18 – which indicates more abundant export availabilities of coarse grains for world markets during the current season. Among the major exporters, the biggest year-on-year increase in inventories involves Brazil where, following a bumper maize crop, ending stocks are projected to triple in size and reach an all-time high of 15 million tonnes. To a much smaller extent, total inventories of coarse grains in Argentina and the Russian Federation are also heading for some increases in 2017/18, more than offsetting projected drawdowns in Australia and the EU.

On a regional basis, Asia ranks first in terms of total stocks of coarse grains held, currently projected at nearly 118 million tonnes. At this forecast level, Asian inventories would be some 16 million tonnes, or 12 percent, down from their opening levels, mostly because of a sharp reduction anticipated in China maize stocks. The largest Asian and world stock holder of maize is, in fact China, which has nearly 83 million tonnes in its inventories. This represents 81 percent of all maize held in Asia and 35 percent of the world total. However, at 83 million tonnes, China stocks would be down almost 19 million tonnes, or 18 percent, below their opening levels. The sharp reduction is due, in part, to this year’s fall in production as well as recent attempts by the government to boost domestic maize utilization.

RICE

PRICES

Generally firm, although patterns vary across market segments

International rice prices have made moderate increases in the past five months, as depicted by the FAO All Rice Price Index (2002–2004=100), rising from a June value of 209 points to 216 points in October. Despite this general firmness, quotations have not followed consistent patterns across the various rice market segments. After a prolonged period of weakness, Japonica prices have regained momentum, as prospects of a smaller US harvest have amplified the support lent by seasonal tightness and the resumption of trading activities in the Far East. In the fragrant market, the strength manifested by Basmati prices earlier in the year spread to Thai Hom Mali rice values, causing aromatic prices to reach multi-year highs.

However, in the Indica market, price firmness during the first half of the year was followed by considerably weaker patterns. This was especially the case in Asia, where prices fell amid signs that ample exportable availabilities existed to meet reviving demand from African buyers and the surge in orders from South Asian countries affected by poor weather. In Thailand, the price of benchmark 100% B white rice dropped by 12 percent below its June value to arrive at USD 411 per tonne in October, notwithstanding a general strengthening of the Thai baht. Among the major rice exporters, only the United States saw long-grain prices continue their upward trajectory, sustained primarily by expectations of a steep production decline and an upbeat pace of foreign sales.

On an annual basis, these tendencies brought the January–October average of the FAO All Rice Price Index to 204 points, up 4 percent from its value in the corresponding period of 2016. Most of this increase was the result of a 32 percent surge in aromatic quotations, although lower quality Indica values also posted a 3 percent increase. Prices in the other rice market segments remained slightly below their corresponding levels in the previous year.

PRODUCTION

Growth prospects undermined by weather setbacks

Since the previous Food Outlook report, a series of unfavourable climate-related events have affected main paddy crops in the Northern Hemisphere, which have now reached the harvesting stage. This has been the case in Asia, where, unlike 2016, the critical Northern Hemisphere summer months were characterized by mixed growing conditions that inhibited planting expansions. As a result, FAO’s latest forecast of world rice production in 2017 points to a broadly stable output level of 500.8 million tonnes (milled basis).

Production in Asia is now forecast to fall 550 000 tonnes below the 2016 bumper harvest to 452.5 million tonnes. Within the region, the Republic of Korea, Japan, Nepal and Viet Nam are all set to see output negatively affected by excess rains or cloudy conditions, whereas reductions in the Democratic People’s Republic of Korea and Sri Lanka would be linked to abnormal dryness. A sequence of floods also dampened the outlook for Bangladesh, likely translating into a third successive season of little or negative production growth. In India, although government incentives kept Kharif crop plantings at above-normal levels, the uneven distribution of the rains caused main-crop acreage to decline by 0.9 percent year-on-year. The monsoon also left behind a mixed water supply situation that could preclude a sizeable increase in secondary crop plantings. As a result, FAO anticipates 2017 output in India to fall 1 percent below the 2016 all-time high to 109.5 million tonnes. In China (Mainland), even though this year’s cut in the government purchasing prices reduced Indica plantings, most of the area contraction is likely to be compensated by yield improvements and a shift away from maize cultivation in favour of still profitable Japonica rice. Thus, the country’s 2017 output is seen little changed year-to-year, at 141.8 million tonnes. Among the countries that have benefitted from more favourable weather, particularly positive results are expected in Indonesia, where the sector continues to draw support from the Government, but also in Thailand, where improved price prospects and ample water supplies are likely to allow another output expansion. Record-breaking crops are also anticipated in Cambodia, Pakistan and the Philippines, with the Islamic Republic of Iran, Iraq, the Lao People’s Democratic Republic, Malaysia, Myanmar and Turkey all set to gather larger crops.

Aggregate output in Africa is forecast to reach 20.3 million tonnes in 2017, 1 percent more than the 2016 all-time high. Most of the region’s growth is predicted to concentrate in West Africa, as generally plentiful rains have enabled producers in the subregion to respond to attractive prices and government assistance programmes by expanding plantings. With the exception of Burkina Faso, Guinea Bissau and Mauritania, most West African countries are anticipated to end the season with positive results. Particularly strong gains are likely in Ghana, Nigeria, Mali and Senegal. After two successive years of unseasonable dryness, more normal rainfall patterns allowed output to recover in Malawi, Mozambique and Zambia, while better yields are expected to be behind a small expansion in Egypt. The outlook is more downcast elsewhere in the continent. This would be namely the case of Madagascar, where production is seen falling to a 13-year low of 2.2 million tonnes as a result of severe dryness and damages caused by cyclone Enawo. Crops in the United Republic of Tanzania were similarly marred by erratic rains early in the season, fueling expectations of output falling to 2.0 million tonnes, 10 percent short of heights attained in 2016.

In Latin America and the Caribbean, 2017 production is predicted to reach a record level of 19.2 million tonnes, 7 percent more than the 2016 level. In South America, where most countries have already concluded the season, generally favourable growing conditions boosted yields, more than offsetting area cuts instigated by tight profit margins. In Brazil, production rebounded by 16 percent to 8.4 million tonnes. Output also expanded in Colombia, Guyana and Uruguay, more than compensating for reductions in Argentina, Chile, Ecuador and Peru. The outlook is also positive for countries located in Central American and the Caribbean, especially for Haiti, Mexico and the Dominican Republic, even if an intense Atlantic hurricane season has caused crop damages in several countries in the subregion.

In Australia, notwithstanding some initial setbacks associated with untimely rains, production staged a three-fold recovery to 543 000 tonnes, as ample water supplies and attractive producer margins permitted plantings to rebound. By contrast, in the United States the 2017 season is likely to end with a 20 percent reduction in output to total 5.7 million tonnes, as competition with other crops caused plantings to contract sharply and extensive flooding problems led to additional area losses. Growth prospects for the EU and the Russian Federation were similarly dampened by area cuts in response to unattractive prices, although yield improvements may help stabilize the 2017 output in the EU at around 1.8 million tonnes.

TRADE

Trade growth to decelerate in 2018

After rebounding by 8 percent in 2017, world trade in rice is forecast to expand by a mere 1 percent in 2018 to reach 45.4 million tonnes. All of the expected growth would rely on larger imports by countries in Asia, where 21.9 million tonnes are forecast to be imported on aggregate, up 3 percent from 2017. Within the region, purchases by China (Mainland) are envisaged to remain sizeable, at 5.9 million tonnes, given the persistently large differentials between Chinese prices and international quotations. On the other hand, the need to replenish stockpiles may encourage Indonesia, the Philippines and Saudi Arabia to step up imports next year, even if purchases in Indonesia and the Philippines will likely depend on policy decisions. In Indonesia, the planned expansion of the voucher-based food assistance programme (Bantuan Pangan Non Tunai) could diminish the need to rely on foreign supplies for in-kind rice distribution in the event that domestic procurement targets are not met as in 2017. In the Philippines, final decisions regarding the rice tariffication process are still pending, while announced plans to raise public domestic procurement five-fold could curb state purchases from abroad. Barring major setbacks, production recoveries could instead permit Bangladesh and Sri Lanka to slightly lower their 2018 imports to 1.1 million and 450 000 tonnes, respectively.

Rice imports by Africa are forecast to remain close to the 2017 high of 15.6 million tonnes, sustained by larger purchases by Burkina Faso, Guinea Bissau, Mauritania, Togo and, in particular, Nigeria. In the latter, despite expectations of a larger domestic crop, some 2.9 million tonnes may still be required from abroad to meet demand from a fast-expanding population and to quell persistently high domestic prices. At the same time, a number of countries are expected to have sufficient local availabilities to reduce reliance on imports next year, namely Benin, Mali, Senegal, Sierra Leone and, to a lesser extent, Kenya and Madagascar.

Deliveries to Latin America and the Caribbean are forecast to contract by 5 percent in 2018 to 3.9 million tonnes. Much of this decrease would be on account of Brazil, where large carry-in stocks and less attractive prices in neighbouring countries could lower imports to more normal levels of 670 000 tonnes. Ample availabilities from good crops and large 2017 purchases are also seen to lower imports by Cuba, Haiti, Mexico and Peru, more than offsetting increases in Bolivia, Costa Rica and Venezuela.

In the other regions, firm demand for fragrant and broken rice is expected to keep imports by the EU at an ample level of 1.8 million tonnes, while purchases by the United States hold steady at 750 000 tonnes.

As for exports, although India and Thailand are predicted to remain the world’s leading suppliers of rice in 2018, both countries could see their ability to compete eroded by more limited exportable availabilities. In the case of India, a somewhat smaller 2017 crop is expected to result in a 4 percent year-on-year contraction in foreign sales to 10.7 million tonnes. As for Thailand, a 5 percent reduction in exports to 10.4 million tonnes would stem from the depletion of government inventories, which is likely to prevent the country from maintaining sales of lower-grade rice at the above-average levels sustained since 2014. Based on current prospects of reduced crops, Argentina, the United States and Uruguay are all forecast to see their rice exports reduced in 2018.

Meanwhile, the resumption of Chinese exports to Africa, which had essentially come to a stop over the 2012–2015 period, has been an emerging feature of rice trade in recent months, along with Myanmar’s headway in diversifying its outlets thanks to competitive pricing. Given prospects of ample availabilities due to generally positive harvests, FAO anticipates these trends to continue in 2018, with shipments by China (Mainland) reaching an 11-year high of 1.2 million tonnes, and those of Myanmar striking a new record of 2.2 million tonnes. Provided no major production setback is incurred next year, Viet Nam is forecast to see increased demand from its traditional Asian markets. Combined with the approval of more lenient export terms for rice traders, this could sustain a 9 percent increase in 2018 deliveries by Viet Nam to 7.5 million tonnes. Export recoveries are also foreseen for Pakistan and Brazil next year, adding to expected increases in Australia, Cambodia, Guyana and Paraguay.

UTILIZATION

Per capita consumption to increase modestly

Global rice utilization is forecast to expand by 1.1 percent in 2017/18 to 503.2 million tonnes (milled basis). All of this growth would be sustained by greater food consumption, which is expected to reach 406.6 million tonnes, 1.4 percent more than in 2016/17. This would place world per capita rice consumption at 53.8 kg, compared to 53.7 kg a year earlier. The modest expansion mirrors expectations that somewhat tighter supplies would steady rice intake in Asia, while causing it to fall in North America. Consumption growth is predicted to be more upbeat in the other regions, especially in Africa, where demand for rice remains strong despite persistently high domestic prices in eastern and southern parts of the continent. All non-food uses of rice are forecast to change little year-on-year. For instance, feed use is seen close to the 2016/17 level at 17.8 million tonnes. Although use of rice as animal feed is being sustained by the release of supplies from government granaries in Japan, the Republic of Korea and Thailand, more affordable feedstuffs are expected to displace rice in most other countries, especially in Bangladesh, China (Mainland) and Viet Nam.

STOCKS

China to sustain a small expansion in global rice inventories

Despite expectations of stagnating production growth, world rice supplies are predicted to exceed utilization in 2017/18, giving rise to a small (0.4 percent) expansion in global rice inventories by the close of 2017/18 marketing years to 169.2 million tonnes (milled basis). This level would be sufficient to cover four months of projected global rice use, while keeping the world rice stock-to-use ratio at a comfortable level of 33.1 percent in 2017/18.

To a large extent, the forecast expansion in global rice inventories hinges on expectations of a 3 percent build-up in China (Mainland) to 102.2 million tonnes. Chinese rice reserves are gauged to have risen steadily since 2007/08, as high domestic prices encouraged successive large harvests and imports. The same factors are expected to be at play this season, although the stock buildup is likely to be moderated by a considerable pick-up in export activity and more success in finding a market for the large supplies stored in government granaries. Among other rice importers, Bangladesh, Iraq, Nigeria and the Philippines are all similarly predicted to replenish their inventories. However, these gains are likely to be offset by stock reductions in the Republic of Korea, Madagascar, Sri Lanka and the United Republic of Tanzania, all linked to output shortfalls. A steep cut in the Republic of Korea would be further associated with ongoing government efforts to destine surplus production to the industrial and animal feed sectors.

Among net-exporting countries, sizeable state acquisitions are forecast to keep rice inventories in India broadly steady year-to-year, while bumper harvests should allow Brazil, Cambodia, Myanmar and Pakistan to add to their reserves. By contrast, rice stocks are seen ending lower in Argentina and Viet Nam, in view of expected drops in domestic production, and in Uruguay, due to the fast pace of exports. Still, the largest drawdown is forecast for Thailand, where reserves may contract by 2.1 million tonnes to stand at 6.0 million tonnes, as a result of a robust pace of exports and the depletion of state reserves. A sizeable reduction is also envisaged for the United States, where inventories may drop to a 14-year low of 880 000 tonnes, following a sharp decline in production. Mostly on account of these large expected falls in Thailand and the United States, the major exporters’ stock-to-disappearance ratio is predicted to drop from 18.5 percent in 2016/2017 to a ten-year low of 16.9 percent in 2017/18.

CASSAVA

PRICES

International quotations of cassava products in 2017 reverse earlier sharp falls

Monthly reference prices of internationally traded cassava, a market that is mostly confined to East and Southeast Asia, have recovered in the latter half of 2017, after having fallen to multi-year lows.

Thai chips prices (f.o.b. Bangkok) were quoted at around USD 185 per tonne in October 2017, some 8 percent higher than in the corresponding month of last year and 19 percent more than in May 2017, when they plummeted to a 8-year low. Thai flour and starch prices (Super High Grade, f.o.b. Bangkok) were being quoted at around USD 350 per tonne, 11 percent higher than in October 2016, when they also fell to a 7-year low.

The turnaround to the trend in quotations is entirely on account of developments in China – the major destination for internationally traded cassava products. Last year, the country began to implement measures to lower its accumulated stockpiles of maize, with the state grain reserves body auctioning large volumes, which were deemed unfit for human consumption, to its feed and industrial sectors. As imported cassava and maize compete fiercely in these sectors, China’s maize stock release had a significant effect on cassava quotations, especially given the thinness of the international market for cassava. The removal of minimum support prices for maize in China also made domestic maize more competitive with imported substitutes, further pressurizing cassava quotations. However, drought-induced lower plantings and logistical constraints in supply have significantly disrupted the 2017/18 maize season in China, resulting in prices of domestic maize climbing well above counterpart international quotations. This resurgence in import demand for domestic maize substitutes has given some support to cassava prices.

PRODUCTION

Global cassava production to fall in 2017

After two decades of uninterrupted growth, world cassava production is forecast to undergo a slight contraction in 2017, dropping to 278 million tonnes, around 1 million tonnes lower than the level of last year. Hitherto, cassava held the status of being one of the fastest expanding staple crops at the global level, registering annual average growth well above 3 percent over the past decade, but a combination of policy changes, depressed root prices and adverse weather in the major producing countries was behind lower plantings and consequently lower harvest prospects for 2017.

Forecasting cassava production is difficult, owing to the widespread lack of data on harvest expectations and negligible information on planting intentions. Even in countries where the crop is known to play a critical role in food security and rural development, or where its trade carries importance, little effort is made to regularly survey the crop, as is done for other staple crops. This holds especially true in sub-Saharan Africa (SSA), the world’s largest cassava growing region. Nevertheless, with rising demand for the staple and with enhancing food security and the rural economy high on the agenda of the region, 2017 cassava production in SSA could reach a record 156 million tonnes, around 0.6 million tonnes more than the level of 2016.

The crop is the subject of many expansion programmes in the region, as commercializing cassava and domestically producing staple crops – in order to limit imports – remains a key objective of many West African governments. In Nigeria, the regional production leader, the “Anchor Borrower’s Programme” (ABP), initiated by the country’s central bank, provides preferential loans to smallholder farmers who provide their product to the processing sector. However, while cassava is one of the many commodities listed in the programme, the implementation of ABP has, in effect, made rice more lucrative to cultivate and led to farmers shifting out of cassava. As a result, Nigeria’s cassava crop is set to contract by 5 percent from last year to 55 million tonnes in 2017.

Supported by favourable growing conditions and an enabling environment for investment, cassava production in Ghana, the region’s second largest cassava producer, could rise by 8 percent to a record 19 million tonnes in 2017. Current year prospects also remain positive in other important producing countries in West Africa, especially Benin, Côte d’Ivoire, Cameroon and Sierra Leone where, owing to good weather, either all-time high or near-high harvests are anticipated.

Cassava’s tolerance to erratic weather conditions spares production from considerable contraction – compared to other crops – has put cassava expansion high on the agendas of many governments in eastern and southern African countries. In Angola, Burundi, United Republic of Tanzania and Uganda drought has marred 2017 production prospects to some degree, while better growing conditions in Madagascar and Rwanda are expected to lift production back to trend levels, with Mozambique officially forecast to gather a record crop of almost 11 million tonnes, some 20 percent higher than in 2016. In central Africa, ongoing conflict in the Democratic Republic of the Congo, the subregion’s largest producer, could spell yet another large-scale contraction in cassava output.

In Asia, industrial demand for cassava in the ethanol, starch and animal feed sectors, and their lucrative export markets, have underpinned a strong expansion of the crop in the past decade, particularly in Southeast Asia. The 2017 cassava production for the entire continent is forecast to recover from last year, rising by 2 percent to a record of 92 million tonnes. This is in spite of a cessation of output growth in Thailand, Asia’s largest producer. At the beginning of the season, low root prices and favourable weather conducive to competing crops prompted a shift from cassava, resulting in a fall in Thailand’s cassava acreage. Official sources point to an output level of 31 million tonnes in 2017, around 1 percent lower than last year. The decline would have been more pronounced had it not been for an improvement in yields.

Elsewhere in Southeast Asia, cassava output in China is forecast to rise to around 5 million tonnes, on account of good weather. However, the country largely sources its cassava needs in processed form (mainly dry chips and flour) from Thailand and neighbouring countries, namely Cambodia, Lao People’s Democratic Republic and Viet Nam, where it has engaged in efforts to secure long-term supplies from them. Of all these countries, only Cambodia’s production is expected to increase significantly in 2017. According to official reports, the country is anticipated to gather a record crop of some 15 million tonnes, 11 percent more than in 2016. Buoyed by rising regional demand, the expansion of cassava cultivation in Cambodia has been remarkable, increasing almost twice-fold in the space of three years.

By contrast, in Indonesia and the Philippines, cassava is more important for food security than for industry. Dietary diversification programmes in the two countries have targeted cassava as a substitute for rice, which both countries import heavily. In Indonesia, however, the sector remains subdued. With exceptionally low root prices at the start of the season, lower plantings will likely limit the prospect of any output growth. The country is expected to gather a crop of around 20 million tonnes in 2017, slightly lower than last year, but some 4 million tonnes short of the levels registered at the beginning of the decade. In the Philippines, based on the pace of the harvest for the first six months of the year, cassava output is expected to reach 2.8 million tonnes in 2017, marginally above the level of 2016.

In South Asia, cassava plays a role in food security in India, particularly in the major growing states of Kerala (consumption of fresh roots) and Tamil Naidu (starch for food manufacturing). Combined, the two states account for 98 percent of national output. At around 4.6 million tonnes, officials foresee production largely unchanged from last year, and less than half of the record crop that was harvested in 2009. Cassava output is on a gradual decline in India, as farmers are opting to cultivate more remunerative crops, such as rubber, black pepper and coffee.

The cassava production outlook for Latin America and the Caribbean points to a significant contraction in 2017. Led by Brazil, the region’s principal producer, drought at the beginning of the season has lowered plantings considerably, resulting in an officially forecast crop of 20.1 million tonnes, a decline of 15 percent or 3.6 million tonnes from last year. This is in spite of higher market prices for root as well as an increase in the minimum price in 2017.

Concerning the region’s other sizable producing countries, Paraguay and Colombia, higher prices at the beginning of the season are expected to have sustained production in 2017, while in Peru, conducive policy and favourable growing conditions could lift cassava production in 2017.

UTILIZATION

Lower food availability drives cassava utilization down in 2017

Cassava is utilized in a multitude of ways. Food constitutes the major end use of the crop, but local and regional markets for animal feed, industrial use and energy feature prominently. Assessing the levels of uptake by different markets is virtually impossible, as again, little concerted effort is made at the country level to assess utilization. On the other hand, because cassava roots are highly perishable once harvested, they are utilized almost entirely within the crop year, making market assessments somewhat easier.

Cassava is mainly utilized as a foodstuff. As a staple, the root crop has little importance in the global diet (typically around 20 kg per capita per year in fresh root equivalent) owing to its perishability and bulkiness which preclude its widespread trade. However, cassava has major dietary significance in the tropical areas where it is grown. This is particularly evident in sub-Saharan Africa, where cassava is an important dietary staple in root form, but also in processed form. Indeed, fermented and non-fermented granulated and flour-based cassava products have become established forms of consumption of the staple in the region, where many countries have launched value-addition initiatives in the cassava food chain, promoting the rural economy and helping meet rising dietary needs.

In a similar vein, measures to promote added-value cassava at the expense of imported staples are also active. Nigeria, for example, continues to encourage the processing of cassava into flour as a substitute for wheat in making bread, in order to enable the country to curb its high dependency on imported wheat. The policy objective to reduce by half wheat imports by 2018 requires the mandatory blending of wheat flour with cassava flour. While the policy should act as a growth stimulus for Nigeria’s cassava production and processing sectors, domestic cassava prices are reported to have increased significantly on the back of scarcity of the raw material, and the country’s wheat imports are still expected to reach a record in 2017. Pressure in Ghana for policy-makers to instil a 10 percent mandatory cassava-wheat flour blending ratio is gathering momentum, and is deemed feasible, given the low quantities of wheat that the country currently imports.

Since non-food markets for cassava are of little significance in sub-Saharan Africa, production levels effectively translate into levels of food availability in the region. As a result, per capita food availability is estimated at approximately 105 kg in fresh root equivalent in 2017, down 2.3 percent from last year. The prospective sizeable fall in per capita food availability stems from negligible production growth in 2017, mainly in Nigeria, coupled with extremely robust population growth in the subregion.

Cassava also features prominently in diets in Latin America and the Caribbean, especially in Brazil, where the blending of cassava flour with wheat flour is mandatory. Likewise, in south Asia (India) and Southeast Asia (Indonesia and Philippines), cassava is widely consumed as food. However, as non-food markets for cassava are also well established in these regions, it is difficult to assess precise changes in utilization for direct human consumption.

Demand for cassava as a raw material in the energy sector, particularly in East and Southeast Asia, is likely to increase. Generally, falling gasoline prices in Southeast Asia have put ethanol at a competitive disadvantage and, where mandatory blending rates are in force, competition among agricultural feedstocks for energy conversion is fierce. However, in China, the largest utilizer of cassava in ethanol production, a resurgence in imports of cassava-based feedstocks in the latter half of the year could see energy applications of cassava on the rise in 2017.

Based on analysis in countries that have established markets for cassava feedstuffs, the global use of cassava as an animal feed could also fall in 2017, where it is in direct competition with other feeding stuffs, particularly maize, and where annual supplies are expected to fall, such as in Brazil. Thailand could partake in this tendency, given the prospect of low cassava availabilities in the country.

TRADE

Cassava trade in 2017 unchanged

At just under 22 million tonnes (chip and pellet weight equivalent), the volume of world trade in cassava in 2017 is expected to match the levels of the two preceding years. Mostly confined to East and Southeast Asia, international flows of cassava are hugely contingent on industrial and feed demand for the product, particularly from China, and on the competitiveness of Thai exports. The importance of the two countries in shaping international trade is noteworthy, with China typically accounting for two-thirds of world imports, and Thailand for around 70 percent of world exports.

A policy change in China last year that began promoting the increased use of domestic substitutes, principally maize from stockpiles, has had little influence on cassava inflows to the country in 2017. After falling to a multi-year low in January, internal maize prices have been steadily rising throughout the year in China on the back of supply disruptions, according imported cassava products with improved competitiveness. International demand for cassava flour/starch, commonly referred to as tapioca, is expected to attain new heights in 2017, with flows reaching almost 10 million tonnes (chip and pellet weight equivalent). Based on the annual pace of shipments to date, once again Thailand is expected to dominate tapioca export market, where demand in China could rise by as much as 25 percent to a record 5 million tonnes. Purchases in 2017 by Japan, the Taiwan Provence of China and Malaysia are also expected to increase, albeit moderately. On the other hand, shipments to Indonesia – the second largest market for starch – could fall by as much as 25 percent to around 1 million tonnes.

As for cassava chips and pellets, growth in trade is forecast to be less vibrant in 2017, reaching just short of 12 million tonnes and nearly matching the volume of 2016. Demand by China for cassava chips is expected to remain robust, on account of cassava’s revived competitiveness as a feedstock in its ethanol distilleries and as a feed ingredient in its livestock sector. While Thailand is set to be the dominant chip exporter, Viet Nam and Cambodia – the other important suppliers in the region – are also forecast to sustain their export shares of last year.

Prospects for an international cassava market expanding beyond Asia remain largely elusive, with no sign of re-emerging demand for substantial cassava volumes in Europe (which once imported pellets in large quantities for its feed sectors), or of significant exports from the major producing regions of Africa or Latin America and the Caribbean. This is in spite of Ghana and Nigeria having been granted a duty free quota to export 4 million tonnes of cassava chips to China on an annual basis.

OUTLOOK

Uncertainties prevail in non-food markets

Growth prospects for world cassava sectors appear delimited along the lines of geography that characterize the role of cassava in the agricultural economy. For instance, as cassava is principally a food crop in Africa, the sector is providing a strong stimulus for rural development, poverty alleviation, economic growth and, ultimately, food security. There is also wider recognition of cassava as a choice crop in the context of climate change adaptation strategies, particularly in eastern and southern African countries that have recently endured sustained periods of drought. These considerations are providing cassava sectors in the continent with a more assured long-term footing and are, by and large, behind an annual average production growth rate, which except for 2017, has outpaced population growth for the past decade and beyond. The current year anomaly is on account of a new policy in Nigeria that has incentivized the cultivation of other crops at the expense of cassava, resulting in cassava’s scarcity and very high prices. Notwithstanding the prospect of higher root prices going into the next season, given the importance of cassava to Nigeria’s economy, official intervention could see production growth back on track next year.

By contrast, cassava sectors in Asia are strongly susceptible to developments in China, the principal destination for cassava products. In fact, almost all cassava sectors in Southeast Asia have been geared to meet China’s high import demand, expanding in tandem with trade growth. However, with highly competitive industrial and feed procurement, the immediate future for cassava had appeared bleak on account of China’s policy change to promote domestically stockpiled maize to meet internal demand. But because of supply problems of maize in the country – poor crop prospects and logistical disruptions in distribution – respite to regional cassava sectors was provided by way of unfilled demand in China.

The downgrading of China’s 2017/18 maize supply prospects may only provide a temporary stimulus to cassava in the region. A bumper maize crop in the following season or overcoming supply hurdles would pose a significant threat to the cassava sector. So would a more active policy of de-stocking maize. Given the thinness of international cassava trade, even a minor recovery in China’s maize supply would bring about serious ramifications to the international market for cassava, as witnessed in the latter half of last year.

The potential for cassava to compete in markets beyond China is also uncertain, given that international maize prices are currently hovering at relatively very low levels. While cassava root prices in Southeast Asia have firmed in recent months, the outlook for next year and beyond will much depend on whether producers would be willing to accept the risks of a possible strong decline in cassava demand in China. Already some indication is provided by way of a recent official survey in Thailand, which points to 9 percent drop in cassava area in 2018.

OILCROPS, OILS AND MEALS[1]

PRICES[2]

Current supply and demand forecasts point to steady prices

The 2016/17 season saw an easing in the global oilseeds and oilmeal supply and demand situation, while vegetable oil fundamentals remained relatively tight. Accordingly, during the recently ended season, international prices for oilseeds and oilmeals remained close to the previous season’s subdued level, whereas oils/fats values maintained their strength – as reflected by FAO’s price indices trailing the oilseed complex.

FAO’s price index for oilseeds averaged 154 points 2016/17, close to the subdued level witnessed in 2015/16 and well below the 2011/12 peak. The index’ course level primarily reflects developments in the soybean market that saw bumper soy crops from the world’s two key suppliers, Brazil and the United States, concur with moderate growth in global demand – a situation that drove global soy inventories to unprecedented highs. Moreover, early forecasts for the forthcoming 2017/18 season pointed to another record-breaking soy crop in the Northern Hemisphere, raising the chances for a further expansion in world soybean supplies, hence adding to downward pressure on prices. FAO’s price index for oilmeals, which primarily reflects soymeal values, followed the path of the oilseeds index very closely, recording a slight fall compared with 2015/16. Besides spill-over weakness from soybeans, the softening in meal prices was driven by developments in two closely related markets. Firstly, in 2016/17, meal-rich soybeans were predominantly crushed for oil rather than meal, a situation that has led to burdensome soymeal supplies. Secondly, strong competition from competitively priced feedgrains weighed on oilmeal prices throughout 2016/17.

FAO’s price index for vegetable oils averaged 171 points in 2016/17, up 16 points compared with 2015/16, though well below the peaks recorded earlier in the decade. The overall supply and demand balance of oils/ fats remained relatively tight, especially during the first half of 2016/17, driving prices upward. International quotations for palm oil, the world’s most consumed oil, climbed to two-and-a-half year highs, underpinned by a slower than anticipated recovery in palm oil production. This, combined with robust global import demand, slowed the replenishment of stocks in the world’s top suppliers, Indonesia and Malaysia.

Preliminary forecasts for 2017/18 point to a broadly balanced global supply and demand situation in both the oilseed and meal market as well as in the oils segment. If confirmed, this would provide limited scope for marked upward or downward movements in prices. Stock-to-use ratios similar to those observed in the last two seasons and the convergence, during the last two to three months, of the current Chicago Board of Trade futures price for soybeans with that recorded last year seem to confirm this picture. In the coming months, international oilseed, oil and meal values will be influenced in particular by changes in the production forecasts for soybeans in South America and palm oil in Southeast Asia. Uncertainties remain regarding the actual course of global oil and meal demand, including, in the case of oils/fats, the impact of recent policy changes concerning the market for biodiesel.

OILSEEDS

2017/18 production forecast marginally above last season’s record level

After surging by 9 percent in 2016/17, global oilseed production is tentatively pegged at 586 million tonnes in 2017/18 – marginally above last season’s level. Based on current forecasts, year-on-year contractions in global soybean and sunflowerseed production would be offset by sizeable gains in cottonseed and, to a lesser extent, groundnut, rapeseed and palmkernel.

Global 2017/18 soybean production is forecast at 346 million tonnes — 1 percent below last season’s all-time high, but still the second largest output on record. The anticipated drop would stem from a return to trend yields, after near optimal weather propelled yields to record-highs last season. Global plantings, on the other hand, are projected to expand by about 4 percent. In the Northern Hemisphere, where harvests are about to near completion, production is pegged at record or near-record levels in all key producing countries except India. In the United States, the world’s leading soybean producer, latest estimates peg production at an unprecedented 121 million tonnes. The increase would mainly originate from record-high soy plantings (as farmers trimmed wheat and coarse grains acreage), while yields would retreat from last season’s peak. In China, production is anticipated to rise for the second consecutive year. The reversal from the prior, downward trend was supported by reforms of China’s maize policy regime, with lower support payments for maize enticing farmers to shift to alternative crops, in particular soybeans. A record-breaking harvest is also reported from Canada, where farmers raised soy plantings on the back of attractive prices. In India, by contrast, production is poised to drop sharply, following a sizeable contraction in area sown and less favourable weather conditions than last year. In South America, where sowings of the 2017/18 crop are now underway, aggregate output is anticipated to drop by almost 5 percent from last season’s record level on expectations of only modest gains in plantings and a return to trend yields, assuming average weather conditions. Based on these forecasts, Brazil’s output could retreat by 6 percent, albeit the country would still harvest the second-largest crop on record. On the other hand, in Argentina, area planted could decline further, influenced by crop rotation requirements and government policies favouring competing crops as well as poor weather, which, together, could drive production to a four-year low.

Global rapeseed production is currently forecast to exceed last season’s all-time high by a small margin. While global area planted would be close to record levels, average yields could trail behind last season’s top level, thus limiting production gains. The anticipated production rise would stem from larger crops in the EU and CIS countries, reflecting yield improvements in the case of the EU and the Russian Federation, and higher plantings in Ukraine. Meanwhile, in Canada, plantings surged but yields remained low, keeping production about unchanged. By contrast, production is forecast to fall in India and China, where farmers have cut plantings in response to, respectively, low domestic prices and the termination of public support programmes. In Australia, production is expected to drop sharply, following unfavourable weather.

Global sunflowerseed production is projected to trail behind last season’s record. Based on current forecasts, sizeable contractions in the CIS and the United States would be partly offset by gains in the EU, Argentina and Turkey. Meanwhile, global cottonseed production is set to expand under the lead of the United States, Pakistan and India, underpinned by higher plantings. Also global groundnut production could grow, boosted by top yields, with production gains in the United States and China expected to more than offsett losses in India.

OILS AND FATS[3]

2017/18 oils/fats production to grow less than last season

FAO’s current 2017/18 crop forecasts translate into a further, albeit modest, expansion in global oils/fats production to 226.5 million tonnes, as opposed to last season, when global output increased sharply due to palm oil’s recovery from the 2015 El Niño episode.

As for individual oils, in 2017/18, further growth in palm oil production and, to a lesser extent, rape, cottonseed and lauric oils, would compensate a fall in soybean and sunflowerseed oil. Global palm oil production is expected to revert to an average growth pace. In Indonesia, palm oil production would keep expanding, allowing the country to consolidate its position as the world’s leading producer. By contrast, Malaysia’s output is pegged only marginally above the country’s 2014/15 record, as growth continues to be affected by slow expansion in mature area and limited productivity gains, partly stemming from a protracted shortage in plantation workers.

Global oils/fats supplies in 2017/18, which comprise 2017/18 production and 2016/17 carry-out stocks, are forecast to outstrip last season’s level by 2–3 percent, with last year’s rise in global inventories contributing to this season’s supply growth.

Supply improvements will be concentrated in Indonesia, Malaysia, the United States and the EU, mostly reflecting good crops. Conversely, domestic availabilities are projected to expand only scantily in Argentina, Canada and China, and to drop compared with last season in Australia, Brazil, the CIS and India, due to either poor harvests or reduced carry-in stocks.

Global oils/fats utilization set to keep expanding

World consumption of oils/fats in 2017/18 is pegged at 226 million tonnes, implying a year-on-year growth of about 3 percent, slightly less than in the past three seasons.

With regard to individual oils, soy and palm oil are expected to lead consumption growth, supported by ample supplies and by price discounts relative to other vegetable oils. The two oils’ joint share in total consumption is set to increase further, reaching 57 percent. Moderate consumption improvements are expected for the other oils/ fats, except for rapeseed oil, which could fall on the back of reduced 2016/17 carry-out stocks.

While population and economic growth remain the key drivers behind the rising uptake of oils/fats for food and other traditional uses, especially in Asia, subdued economic growth in a number of countries, together with limited growth in oils/fats demand by the biodiesel industry could temper growth in oils/fats consumption in 2017/18. Biodiesel production and, with it, oils/fats uptake would depend primarily on mandatory national consumption targets, which are anticipated to remain unchanged in most countries, except for Brazil and the United States, where higher consumption targets are set to be introduced in 2018. Meanwhile, demand for feedstock other than vegetable oil – especially used cooking oil – continues to gain ground in several countries, aided by policy incentives. Furthermore, discretionary blending of transport fuels with biodiesel is anticipated to remain negligible, as its profitability continues to be eroded by persistently high price premiums of vegetable oils relative to crude mineral oils.

Developing nations in Asia are anticipated to continue driving growth in global oils/fats uptake. While average or above-average growth is anticipated in China, Indonesia, Malaysia and Pakistan, a slowdown is possible in India, given the projected drop in local supplies. In the United States, Brazil, the EU and Argentina, changes in biodiesel policies could affect oils/fats demand. In the United States and Brazil, biodiesel production and, with it, oils/fats uptake could expand as higher domestic consumption targets are introduced. Furthermore, the United States recently restricted biodiesel imports from its main foreign supplier, Argentina, a measure that, in turn, could hit Argentina’s biodiesel production. By contrast, the EU’s recent decision to lift its import barriers on Argentine biodiesel could weigh on the bloc’s biodiesel production, as local refiners are affected by competitively priced imports.

Global oils/fats inventories to remain ample in 2017/18

In 2017/18, overall production is forecast to essentially match global utilization. Accordingly, global inventories – including the oil contained in stored oilseeds – would remain close to last season’s above-average level. Commodity-wise, palm oil stocks are projected to rise (although inventories would remain below the level observed before El Niño hit production) and more than offset drops in soyoil inventories. As for the other oils, reserves of groundnut oil could climb to record levels while sunflower oil inventories may drop, mirroring the respective crop outturns. Among main stock-holding countries, sizeable draw-downs in inventories are forecast for India, Brazil and Argentina due to reduced harvests and, in Argentina’s case, also in order to support exports. By contrast, noticeable stock replenishments are expected in Indonesia, Malaysia, the United States and the EU.

While the above forecasts would lead to a fractional drop in the global stock-to-use ratio in 2017/18, the stock-to-disappearance ratio for the major exporting countries[4] would inch up, hence remaining at near-record levels.

Growth in oils/fats transactions to slowdown in 2017/18

Global trade in oils/fats – including the oil contained in traded oilseeds – is forecast to expand less strongly than last season, when a rebound in palm oil shipments propelled global transactions upward. Palm and soybean oil, the two most traded oils, would lead the year-on-year expansion in global trade, backed by production gains in palm and record-large opening stocks in soy. On the other hand, sunflower and rapeseed oil shipments could fall on reduced national availabilities. Aided by its more competitive price, palm oil should be able to regain market share lost to other oils, especially soyoil, in the last two seasons.

On the import side, demand growth will remain concentrated in developing countries in Asia, led by China and India, reflecting relatively slow growth in domestic supplies. In India, imports would rise despite recent hikes in the country’s import tariffs, as steady population and income growth underpin food demand. Among developed countries, net purchases by the EU are forecast to drop by almost 1 million tonnes on account of improved domestic availabilities.

Global export growth would rest primarily on record sales of palm oil by Indonesia and a marked rebound in shipments from Malaysia. Modest increases in deliveries are also expected in Argentina, Brazil, the United States and Canada, in part entailing inventory drawdowns. In Argentina, the rise in exportable supplies would also stem from possible cuts in domestic biodiesel production. On the other hand, export contractions are expected in Ukraine and Australia, reflecting prospective declines in oils/fats production.

MEALS AND CAKES[5]

Global meal production to remain flat in 2017/18

Based on current crop forecasts, 2017/18 global meal production is pegged at 151 million tonnes (expressed in protein equivalent), which would be fractionally below last season’s all-time record. Contractions in soymeal and, to a lesser extent, sunflower meal, would be offset by rises in other meals/cakes.

Notwithstanding the portended stagnation in production, global oilmeal supplies would grow by 1 to 2 percent, reflecting a conspicuous rise in carry-in stocks. The most sizeable supply gain would occur in the United States, the world’s leading meal supplier. Underpinned by record-large opening stocks and another bumper crop, US supplies are set to swell to an unprecedented 47 million tonnes (expressed in protein equivalent), marking the fifth consecutive year-on-year growth. Following good crop outturns, moderate expansions are also expected in China, the world’s top consumer, Canada and the EU. Conversely, availabilities could contract in India, Brazil, Ukraine and Australia, mirroring drops in domestic output. Argentina’s supplies are forecast to decrease only marginally, as ample carry-in stocks would compensate prospective production drops.

Meal consumption set to expand further in 2017/18

Tentatively pegged at 150 million tonnes (expressed in protein equivalent), global consumption would expand further in 2017/18, albeit at a lower rate than last season. In many countries, livestock and aquaculture industries are expected to continue expanding, with a parallel expansion in oilmeal uptake. However, global meat production could grow at a reduced pace, which, combined with record-large supplies of competitively priced feed grains, could weigh on growth in meal utilization.

As in previous years, prospective utilization growth would be mainly covered by soybean meal, with smaller gains also forecast for cottonseed, rapeseed and groundnut meal. Developing countries in Asia – led by China – should remain the main engine of overall growth. However, in China, the world’s largest meal consumer, uptake by feed millers could grow less than last season, when domestic soymeal consumption received a boost from the government’s decision to restrict imports of DDGs (distiller’s dried grains). Domestic meal demand could also be trimmed by sluggish growth in the country’s pig and poultry sectors, where oilmeal use is concentrated. Elsewhere in Asia, consumption is anticipated to rise at about average rates, including in India, Indonesia, the Islamic Republic of Iran, Pakistan, the Philippines, Thailand, Viet Nam and Turkey.

In the EU and the United States, the world’s second and third largest consumers, meal consumption is forecast to expand further, sustained by ample domestic supplies. In Brazil, the prospective drop in domestic supplies could constrain meal uptake.

Global meal inventories to remain about unchanged

Based on current forecasts, in 2017/18, global meal output would essentially match consumption, as opposed to last season, when production outstripped demand, triggering a sizeable rise in inventories. Therefore, in the current season, global oilmeal stocks (including the meal contained in stored seeds) are forecast to remain close to last season’s record level, including stable reserves of soymeal, the world’s dominant meal.

In Brazil and Argentina, sizeable stock drawdowns could be required to make up for poor domestic supplies as well as to support higher exports. The above reductions would be offset by additional replenishments in the United States where, boosted by another bumper soybean crop, carry-out stocks are forecast to climb to an 11-year high. In China, where inventories have fallen in the last two years, in part aided by government efforts to cut state reserves, inventories could expand again, given the prospective rebound in local soybean production and further increases in imports.

Based on the above forecasts, both the global stock-to-use ratio and the stock-to-disappearance ratio for the major exporting countries[6] would drop only slightly from last season’s high level.

Expansion in global meal transactions could slow down

International meal trade (including the meal contained in traded oilseeds) is forecast to grow at a below-average pace in 2017/18. As in previous years, soybean meal would continue to drive growth. Sustained by record-high supplies and, hence, competitive prices, soymeal transaction would rise for the tenth consecutive year. Trade in all other meals/cakes would advance marginally, except for global sunflower meal shipments, which could contract following this season’s reduced crops.

With regard to imports, Asian countries would continue to dominate demand. In contrast to past years, China could account for only around one-third of Asia’s anticipated import expansion, with purchases by the world’s top importer forecast to rise by only 2 percent. Factors contributing to such below-average growth include the anticipated rebound in local soy production, relatively weak growth in domestic meal demand, the continued release of state reserves, and a marked acceleration of imports in the final stretch of the 2016/17 marketing season. Elsewhere in Asia, steady growth in import demand is expected, especially in Thailand, Pakistan, the Republic of Korea, the Philippines and Viet Nam. As for developed countries, in the EU, the world’s second largest buyer, imports would record only a small increase, as domestic supply gains would help meet local requirements.

Export growth is expected to concentrate in the United States, Canada and, providing current production forecasts materialize, also in Brazil and Argentina − the world’s four largest suppliers. Compared with last season, sales by the United States and Canada are projected to expand by, respectively, 2.0 million tonnes and 1.2 million tonnes (expressed in product weight and including the meal contained in seed shipments), supported by bumper crops as well as, in the case of the United States, largest-ever opening stocks. South America’s export expansion is pegged at 4.2 million tonnes, divided about equally between Argentina and Brazil. In both countries, the rise in shipments would rest on the release of domestic stocks. Similar to last season, Brazil, the United States and Argentina, the world’s top three suppliers of soybean meal, can be expected to strongly compete for market share. With regard to other suppliers, deliveries by Paraguay, Uruguay and the Russian Federation could remain about unchanged, whereas the contraction in sales forecast for India, Ukraine and Australia mainly reflects poor domestic crops. In the case of India, soy processors continue to face difficulties in exporting soymeal at internationally competitive prices.

[1] Almost the entire volume of oilcrops harvested worldwide is crushed to obtain oils and fats for human nutrition or industrial purposes, and to obtain cakes and meals that are used as feed ingredients. Therefore, rather than referring to oilseeds, the analysis of the market situation is mainly undertaken in terms of oils/fats and cakes/meals. Production data for oils and meals are derived from domestic production of the relevant oilseeds in a specific year, i.e. they do not reflect the outcome of actual oilseed crushing in a given country and period. Regarding oilseed trade, situations where oilseeds are produced in one country but crushed in another one are reflected in national oil/meal consumption figures. It is important to note that data on trade in oils (meals) refer to the sum of trade in oils (meals) plus the oil (meal) equivalent of oilseeds traded. Similarly, stock figures for oils (meals) refer to the sum of oil (meal) stocks plus the oil (meal) equivalent of oilseed inventories.

[2] For details on prices and corresponding indices, see Statistical appendix table 23

[3] This section refers to oils from all origins, which – in addition to products derived from the oil crops discussed under the section on oilseeds – includes palm oil, marine oils as well as animal fats.

[4] Argentina, Brazil, Canada, Indonesia, Malaysia, Ukraine and the United States.

[5] This section refers to meals from all origins; in addition to products derived from the oil crops discussed under the section on oilseeds, also fishmeal and meals of animal origin are included.

[6] Argentina, Brazil, Canada, India, Indonesia, Malaysia, Paraguay, the Russian Federation, Ukraine, the United States and Uruguay.

MEAT AND MEAT PRODUCTS

PRICES

Moderate price increases

After increasing from January to June 2017, international meat prices levelled off. In the first half of the year, the price increases were underpinned by a lively import demand for most meat categories. Short availabilities for export were also behind steeply rising ovine meat price, also providing support to bovine prices. Since July, increased competition and more sluggish import demand have weighed on international meat prices of all meats. Across the various meat categories, the ovine meat prices gained as much as 39 percent, while bovine, poultry and pigmeat prices individually increased by nearly 7 percent. The FAO Meat Price Index gained 9 percent, or 14 points, between January and October 2017, mainly reflecting the price movements of bovine, pig and poultry meats, which have larger weights in the index.

MEAT PRODUCTION AND TRADE

Production to recover growth, but the trade expansion to slow down

After stagnating in 2016, world meat production is forecast to recover in 2017, increasing by 1.1 percent, or 3.5 million tonnes, to 324.8 million tonnes, amid moderate increases in bovine, pig and poultry meats and a modest gain in ovine meat. Much of the global meat output expansion is forecast to originate in the United States, Brazil, the Russian Federation, Mexico and India, but also in Argentina, Turkey and Thailand. After two years of downsizing associated with an on-going process of reforms including farm consolidation, meat production in China, the world’s largest meat producer, is expected to remain stable around the 2016 level, as expansions in ovine, pig and bovine meats are anticipated to compensate for a marked decline in poultry meat, constrained mainly by the spread of the highly pathogenic avian influenza (HPAI).

Global trade in meat in 2017 is forecast to reach 31.5 million tonnes, 1.2 percent above last year, but the growth is slower than the 4.4 percent growth registered in 2016. World trade in bovine meat is expected to record the fastest expansion, followed by poultry, while trade in pigmeat and ovine meat may fall somewhat. On the demand side, Japan, Angola, Cuba and Mexico, as well as the Republic of Korea, Iraq, Chile, the United Arab Emirates and Viet Nam are all expected to step up imports. By contrast, meat imports by China, the EU, Egypt, Saudi Arabia, South Africa and Canada may decline, in some cases a reflection of larger domestic supplies and, in others, of falling demand in the wake of relatively high international prices. Among exporters, the United States, Thailand, India, Argentina, Ukraine and Brazil are all anticipated to step up meat sales abroad in 2017, unlike the EU, Australia, New Zealand, Paraguay and Chile which may see theirs fall.

BOVINE MEAT

Production: growth concentrated in the Americas

After stagnating between 2013 and 2015 and growing by 1.1 percent in 2016, bovine meat output is forecast to increase by 1.7 percent to nearly 70 million tonnes in 2017, adding 1.2 million tonnes to world supply. The United States, Brazil, Argentina, Turkey and China are expected to see the most sizeable gains, while declines are expected in South Africa, the Russian Federation and Australia.

In North America, meat output in the United States is forecast to reach a 9-year high of 12.1 million tonnes, an increase of 5.3 percent. Likewise, Canada may see production rise by nearly 3 percent to 1.2 million tonnes. In both countries, the expansions will be sustained by increases in carcass weight as well as slaughter numbers.

After three years of continuous declines, output in South America is forecast to recover by 2.1 percent to nearly 16 million tonnes, boosted by sizeable gains in Brazil and Argentina. In Brazil, producers have been able to benefit from a competitive production environment, including the availability of feed at relatively cheaper prices, reinforced by this year’s good weather. In Argentina, a period of herd rebuilding lasting nearly four years has resulted in an expanded herd. In addition, even though some regions continue to experience excess water following extensive flooding in 2016/17, pasture conditions have generally improved and feed prices have dropped. In Colombia and Uruguay, output is projected to increase, as the recent cycle in herd rebuilding has ended, offering a basis for increased slaughtering and output.

In Central America and the Caribbean, weather conditions have become generally more favourable in 2017, compared with the extreme conditions linked to El Niño in 2015 and 2016. As a result, output in the sub-region is expected to recover by about 2 percent this year. In Mexico, bovine meat production is expected to be up this year, as heavier carcass weights should more than offset a decline in slaughtered cattle numbers. However, the rather positive outlook for the country and, more generally, for the sub-region might be marred by the recent setbacks, namely hurricanes and earthquakes.

In Asia, India’s bovine meat output is expected to continue growing, but less vigorously than in 2016. The expected slowdown would be mainly driven by the informal sector, the production of which might be negatively affected by the ban imposed on selling cattle for slaughter. The same ban is unlikely to impair production in the relatively large, organized livestock operations, approved by the government. In China, bovine meat production is anticipated to rise by 1 percent to 7.1 million tonnes, supported by stable domestic prices and increased slaughter of uneconomical dairy cows. Moreover, China’s restructuring of its livestock operations has encouraged some small-scale farm owners to exit the sector, providing more cattle for slaughter. Output in Japan is set to decline, as heavier carcass weights will not suffice to offset a decline in slaughter numbers. In the Republic of Korea, a rise in cattle numbers and a drop in cattle prices are expected to result in increased slaughtering and meat output.

In Africa, bovine meat production is unlikely to rebound, as poor pasture conditions persist in some eastern parts of the continent including in Kenya, Somalia, Ethiopia and Tanzania. A sharp production decline is even anticipated in South Africa, where the 2016 drought has fostered the culling of cattle, while the improved rainfall in 2017 encouraged herd rebuilding, all likely to contribute to a reduction of cattle slaughtering and bovine meat output this year. Meanwhile, Malawi, and Zambia, where weather conditions are expected to improve this year, may experience a rebound in production.

In Oceania, bovine meat production is forecast to contract for a third consecutive year, albeit by only 1.2 percent in 2017, compared with a staggering 14.4 percent reduction in 2016. In Australia, notwithstanding the slow growth in national cattle herd, indicating an end to the herd-rebuilding phase, bovine output in 2017 is expected to fall by 1 percent to 2.1 million tonnes. However, much will depend on the weather conditions over the coming months, with current predictions indicating equal chances of dry and wet conditions. Similarly, New Zealand may witness a 1.9 percent reduction of bovine meat output to 604 000 tonnes, as the expected slight increase of carcass weights, especially evident in recent months, is unlikely to offset the reduction of slaughter numbers. Moreover, improved pasture conditions have prompted retention of cattle for longer periods and, in turn, reduced the availability of cattle for slaughter.

In the EU, bovine meat output is expected to remain stable, as relatively high dairy prices are discouraging farmers from selling cattle for slaughter. In the Russian Federation, bovine meat output may drop by about 1 percent to 1 581 thousand tonnes.

Trade recovery likely

World trade in bovine meat is anticipated to recover by 2.2 percent to 9.1 million tonnes in 2017, after two years of decline. The increase would be fostered by an upturn in import demand, especially in China, Japan, Viet Nam, Indonesia and the Republic of Korea, while significant declines are anticipated in Egypt, the United States, Canada and the EU. China’s imports could reach 1.5 million tonnes in 2017, a rise of 6.3 percent, which is far below the 16.2 percent increase of 2016. Meanwhile, bovine imports by the United States are anticipated to decline by 1.9 percent to 1.2 million tonnes, mainly owing to a continuous expansion in domestic output. Among international suppliers, the United States, India, Argentina, the EU and Brazil are anticipated to be responsible for much of the 2017 increase in world bovine meat exports, along with Canada, Mexico and Ukraine. In contrast, exports from Australia, New Zealand, Paraguay and Belarus are forecast to decline. The United States is predicted to record a 6.9 percent growth in bovine meat exports to 1.3 million tonnes, underpinned by more abundant domestic supplies and limited availabilities in Oceania. US market access to Japan, however, will be restricted by the tariff quota triggered by Japan in July and continuing until March 2018. Brazil is also anticipated to witness a lively export growth, supported by its increased production and improved market access to large markets such as China, especially driven by existing bilateral agreements. India is expected to see its exports rise by 3.2 percent, to 1.7 million tonnes, supported by continuing import demand from its traditional markets, including Viet Nam, Malaysia, Egypt and Saudi Arabia, but also from Indonesia, which recently granted quota access. The EU, building on last year’s export expansion, may see bovine meat exports jump by a further 10 percent in 2017, which would bring them back to their 2011 level. Bovine meat exports by Australia are forecast to fall by only 2 percent, following a 20 percent dip in 2016, a reflection of easing production constraints and improved market access through bilateral agreements with, for example, Japan and the Republic of Korea. In contrast, New Zealand’s bovine meat exports are predicted to fall for a second year to about half a million tonnes, 3.4 percent less than in 2016. Bovine meat exports by Belarus may also undergo a contraction following the ban imposed by the Russian Federation on the allegation that Belarus sourced its beef from Ukraine.

PIGMEAT

Production to recover and reach a new record

World pigmeat output is forecast to rise by 1 percent, or over 1.2 million tonnes, to nearly 117 million tonnes in 2017, recovering from a slight decline in 2016 and setting a new record. Expanded output is forecast to originate in China, the United States, the Russian Federation and the Philippines, but also Canada, Viet Nam, Mexico, and the Republic of Korea. However, pigmeat output is likely to decline in the EU, Ukraine and Japan.

China’s pigmeat output is anticipated to rise by 1.3 percent to nearly 53 million tonnes or 655 000 tonnes more than in 2016. The recovery of output, after two years of downsizing, reflects a largely positive outcome of the strict enforcement of environmental and sanitary regulations, especially the need to limit the pollution of water supplies, that have resulted in deep reforms including the closure of many unviable small farms or their consolidation, relocation of farms away from sources of water supply and modernisation of manure management. In the United States, pigmeat output is anticipated to rise by 3.6 percent to 11.7 million tonnes, bolstered by higher slaughter numbers and carcass weights, supported by efficient piggery operations, integrated with those of Canada and Mexico. Similarly, Mexico’s output is expected to grow by 3.2 percent, to nearly 1.4 million tonnes, underpinned by the use of new genetics and economies of scale. In the Russian Federation, the modernization of large operations and new investments into the sector are expected to boost pigmeat output by 3.1 percent to 3.5 million tonnes.

In contrast, EU pigmeat production is likely to stabilize around 23.4 million tonnes, constrained by reduced sow herd numbers and falling import demand, especially from China. In Ukraine, output may contract by 18 percent, to about 623 000 tonnes, due to low profitability, and a sharp drop in its pig herd due to the African Swine Fever.

Trade likely to fall

World trade in pigmeat is forecast to decline marginally, by 0.7 percent, to 8.2 million tonnes, as compared with its hefty 14 percent increase in 2016. The considerable slow down reflects a decline in pigmeat imports by China by nearly 14 percent in 2017, to 2.2 million tonnes, which would still keep China as the most important international market for pigmeat. The reduction of China’s pigmeat purchases would mirror the combination of increased domestic production and depressed consumer demand. Imports are also expected to decline in Viet Nam and the Russian Federation. These reductions are expected to more than compensate increased imports elsewhere, especially by Mexico, Japan and the Republic of Korea, but also Chile, Colombia and the Philippines.

Among exporters, the United States, Mexico, Canada and Chile are anticipated to increase their deliveries to foreign markets, while the EU, Brazil and Thailand may face some contraction. Exports by the United States are predicted to increase by 8.2 percent, to 2.5 million tonnes, centred on rising trade with Japan, the Republic of Korea and Mexico, among others. In contrast, overall shipments by Brazil are set to decline by 2.7 percent to 866 000 tonnes, as softening import demand from China would lead to an overall decline despite higher import orders by the Russian Federation, Angola, Argentina and Uruguay. Exports by the EU are also forecast to decline by 9.6 percent to 2.8 million tonnes, mainly due to production constraints and reduced import demand, especially from China.

POULTRY MEAT

Production: marginal expansion for the second year in a row

World poultry meat output in 2017 is projected to record a growth of 0.9 percent, or 1.1 million tonnes, to 118.2 million tonnes. Outbreaks of HPAI in 2016/17 significantly influenced the global poultry outlook in 2017. In China, closure of the live-bird market to contain the spread of HPAI, along with limited availability of grandparent stock, is expected to prompt its poultry output to drop by 5.2 percent to 16.3 million tonnes in 2017, the lowest level since 2009. Excluding China, aggregate growth in poultry output of the rest of the world would be around 2 percent. The spread of HPAI appears to have had a limited impact on poultry meat output in the EU, which saw a 4 percent growth in 2016 and is now forecast to progress by a further 1 percent to 14.8 million tonnes in 2017.

Much of the expanded poultry output is anticipated to come from the United States, Brazil, the EU, the Russian Federation, India, Thailand and Mexico. In the United States, genetic improvements that favour producing larger birds and raising production efficiencies have bolstered poultry meat output, which is now expected to grow by 1.8 percent in 2017 to a record of almost 22 million tonnes. Production is expected to grow by 2.6 percent in Brazil, fuelled by competitive production costs, stable feed prices and growing external demand, as it is an HPAI-free country. A sizeable increase of production is also forecast in India, as the sector continues to expand in response to a growing domestic demand, driven by an increasingly urbanized population.

Slow trade growth

Trade in poultry meat in 2017 is forecast to grow by 2 percent, to 13.1 million tonnes, far slower than the 4.6 percent growth seen last year. Imports are anticipated to increase in Angola, Cuba, Japan, Iraq and the United Arab Emirates. In Japan, the increase reflects a growing demand for value-added products, mainly sourced from Thailand, an emerging player in value-added, ready-to-eat poultry products. By contrast, poultry imports are anticipated to decline in the EU, China, Viet Nam, Mexico, Saudi Arabia and the Philippines. The EU is expected to see some declines in poultry imports from Brazil and Thailand, which are attributed to voluntary suspension of exports by Brazil to EU member states and Thailand’s preference to export more to Asian markets. In China, high poultry meat prices have weighed on consumer demand, which, in turn, is likely to lower imports. Larger domestic supplies are behind the expected decline in imports by Viet Nam.

On the export side, the United States, Thailand, Brazil, Ukraine, Argentina, the Russian Federation, and China are expected to account for most of the increase in shipments. Competitive international prices, increased output and HPAI-free status since August 2017 have enabled the United States to boost its exports, especially to Cuba, Angola and South Africa. However, its shipments to Mexico, Canada and China might fall. The Islamic Republic of Iran, Chile and the EU are likely to see their export declines.

OVINE MEAT

Production continued modest growth

Ovine meat production is forecast to increase by a modest 0.6 percent, to 14.5 million tonnes, confirming a trend of small year-to-year gains. Asia and Africa account for 80 percent of production, and where traditional systems are largely dominant. China, India, Pakistan, Nigeria, Algeria and countries of sub-Saharan Africa (SSA) are among the largest ovine meat producers, but output in Oceania continues to play the most critical role in world trade. In 2017, as in the preceding two years, outputs in both Australia and New Zealand have come under pressure which may depress their joint output by as much as 3.8 percent, despite a positive performance in the first half of 2017. The contraction is expected to arise from the process of herd rebuilding, which reduced the number of lambs available for slaughtering. Meanwhile, in the EU, output is projected to grow by 2.6 percent.

Trade to contract marginally

World trade in ovine meat is forecast to fall marginally in 2017, to 905 000 tonnes, 0.5 percent less than in 2016. The small decline principally reflects a nearly 2 percent decrease of exports from Australia and New Zealand, primarily due to supply constraints. Import demand is expected to rise slightly across main markets, especially in China, Saudi Arabia and Malaysia, but to fall in the EU.

MILK AND MILK PRODUCTS

PRICES

The price gap between butter and other dairy commodities widens

International dairy prices strengthened between May 2016 and February 2017, primarily on continued concerns about whether export supplies in the EU and Oceania would be sufficient to meet import demand. The situation eased when it became clear that Northern Hemisphere producers have enough to export and that milk output in Oceania would be larger than anticipated. As a result, prices stabilized, with a slight downward adjustment towards March and April 2017. International price quotations for dairy products rallied from May to September, driven by increased demand for butterfat in North America and Europe. Supply constraints in Oceania and South America, together with strong import demand in Asia, also provided support. In October, the index declined by 4 percent as importers held back purchases awaiting the emerging trend for export availabilities from Oceania.

In recent months, butterfat has been the dairy commodity in highest demand in international markets, propelling butter quotations to record highs and widening its price differential relative to the other dairy products. In contrast, quotations for skim milk powder remained subdued, weighed down by slack demand and the availability of ample intervention stocks in the EU.

PRODUCTION

India to drive the expansion in world dairy production

World milk production in 2017 is currently predicted to grow by 12 million tonnes, or 1.4 percent, to 833.5 million tonnes. Output is seen to expand in Asia and the Americas, stagnate in Europe and Africa, and decline in Oceania. Most of the global increase would originate in Asia, principally in India, where production is forecast to progress by nearly 4 percent to 169 million tonnes. Although localized floods have affected some dairying regions in the country, improved water availability and generally normal monsoons have benefitted pasture growth, which should support milk output. Production increases are also anticipated in Bangladesh, the Islamic Republic of Iran, Pakistan and Saudi Arabia. On the other hand, output may still contract in China, where the dairy sector is undergoing reform, but only by 1 percent, as compared with a 4 percent drop in 2016. China’s restructuring of its dairy industry encompasses a consolidation and relocation of dairy farms away from urban centres as well as imposition of stringent environmental regulations and stricter quality controls, a set of measures that have forced some smallholder dairy farmers to leave the sector, reducing dairy animal numbers in the short-run. In Japan and the Republic of Korea, stable to lower milk production is expected, due to the effects of herd reduction.

In South America, milk output is forecast to grow by 3.4 percent to 63.3 million tonnes, with almost all the countries in the region contributing to the increase. In Brazil, average farmgate milk prices were higher in the first six months of the year, providing incentives for producers to raise output. In addition, weather conditions have been generally favourable in the main dairying areas of the central and northeastern parts of the country. Consequently, Brazil’s milk production is expected to recover in 2017 and likely to surpass 34 million tonnes, 5.2 percent higher than in 2016. In Argentina, milk output declined by nearly 12 percent in 2016, depressed by low farmgate prices, poor weather and increased production costs. In 2017, thanks to higher milk prices and more conducive weather conditions, Argentina may see production recover by 0.4 percent, reaching 10.2 million tonnes, which is still short of the average 11.5 million tonnes gathered annually between 2011 and 2015. Elsewhere in the region, more favourable weather and growing demand are expected to boost milk production in Colombia, Uruguay, Chile and Ecuador.

In Central America, the outlook for milk output is generally positive. In Mexico, production is forecast to continue its modest growth in 2017, supported by herd rebuilding, improvements in genetics and more extensive use of technology in dairy operations.

North America’s milk output is anticipated to rise by 2 percent to 107.6 million tonnes in 2017, making a significant contribution to the global expansion. Production in the United States may reach 98 million tonnes, 1.8 percent more than in 2016, underpinned by an increase in the number of dairy cows and yield per cow. In Canada, output is expected to rise by nearly 4 percent to 9.5 million tonnes, as dairy quota limits for milk have been raised in response to increased demand for butterfat.

In Europe, milk output is seen expanding by 0.5 percent to 223.1 million tonnes, underpinned by gains in the EU, the Russian Federation and Belarus, whereas Ukraine could face a contraction. In the EU, milk production is projected to increase by 0.4 percent to 164.5 million tonnes, even though milk deliveries between January and July 2017 were somewhat lower than last year. Improved weather conditions, the availability of forage, and higher international and domestic milk prices are anticipated to boost output over the rest of 2017, resulting in a modest growth for the year as a whole, also offsetting the effects of an expected 1.6 percent reduction in herd size. Milk production in the Russian Federation is forecast to increase by 0.7 percent in 2017, reflecting increased milk production in large-scale dairy operations, moderated by a decline in production performance at small, backyard farms. In Belarus, higher domestic prices are expected to sustain a 1.7 percent growth of output this year.

In Africa, milk production in 2017 is forecast to reach 46.8 million tonnes, marginally above the 2016 level. Increases are expected in South Africa, Algeria, Morocco, Tunisia, Zimbabwe and Egypt, where more favourable weather conditions resulted in pasture improvements. However, the effects of the prolonged drought that afflicted the continent last year are still lingering in some parts of the region. For instance, milk production may fall in some countries such as Sudan, Ethiopia, Somalia and Kenya, amid disruptions stemming from climate-related extreme events, such as inadequate rain and flooding, but also from conflicts.

In Oceania, the 2016/17 cycle came to an end with a 2.9 percent reduction in milk output to 30.7 million tonnes. In New Zealand, milk output over the June/May 2016/17 dairy cycle declined by 1 percent to 21.3 million tonnes. In 2017/18, the country is anticipated to see a recovery due to improved weather and pastures conditions, a larger number of dairy cows and significantly higher average farmgate prices for raw milk. In Australia, milk output plummeted by 6.9 percent to 9.3 million tonnes over the 2016/17 dairy cycle, reflecting the low international prices for dairy products that prevailed in 2015 and 2016, the excessive rainfall and an unforeseen downward adjustment of producer payments. As for 2017/18, relatively lower input costs and a recovery in import demand should provide incentives for farmers to produce more milk. However, much will depend on the rainfall. As of now, weather forecasts suggest equal chances of wet and dry conditions.

TRADE

A second year of modest growth expected

World trade in dairy products is projected to reach 71.6 million tonnes of milk equivalent in 2017, or slightly more than 1 percent above 2016. Asia is anticipated to account for much of world import growth. China, in particular, may step up its purchases by 4.2 percent to 12.5 million tonnes, in response to the expected contraction in domestic milk output and a lively domestic demand for dairy products. Similarly, shipments to the Russian Federation are predicted to increase, reaching close to 4.4 million tonnes, or 3.9 percent more than last year. The country is pursuing a policy of source diversification, which has favoured New Zealand, Kyrgyzstan, Chile and Uruguay. Elsewhere, imports are forecast to rise in Algeria, Australia, the Russian Federation, Mexico, Indonesia, the Republic of Korea, Japan, Thailand and Pakistan. Conversely, imports are foreseen to decline significantly in Brazil, Saudi Arabia, Oman, the United States, the EU, the Philippines, Egypt, Malaysia the United Arab Emirates, Cuba, Belarus and Turkey.

Among suppliers, and based on the export performance for the first six months of 2017, the United States is expected to increase shipments of SMP and cheese, which could boost its overall dairy sales to 10.7 million tonnes, around 8 percent more than in 2016. Despite its muted growth in milk production and a significant rise in domestic demand for some dairy products, the EU is also anticipated to export more this year, with volumes forecast at 19.3 million tonnes, almost 5 percent more than in 2016. Among other important suppliers, Canada and Ukraine are also expected to raise exports, whereas Belarus may see some contraction due to less buoyant prospects for sales to the Russian Federation, its principal market. In contrast, dairy shipments by New Zealand and Australia are expected to drop by nearly 1 percent and 2 percent, respectively, primarily because of supply constraints.

Among the internationally traded dairy products, the volumes of trade in butter and WMP are anticipated to decline in 2017, whereas trade in cheese and SMP may increase.

Trade in whole milk powder (WMP) continues to decline

World trade in WMP is projected to reach 2.4 million tonnes in 2017, 2.3 percent less than in 2016. Declines in WMP imports are likely to be prominent in some middle-eastern oil-dependent economies, such as Saudi Arabia, Oman, the United Arab Emirates, Kuwait and Lebanon, as relatively low oil prices weigh heavily on consumers’ purchasing power. Brazil, which saw imports more than double in 2016, is predicted to buy less this year, as recoveries in milk deliveries and WMP production are underway. Cuba, Bangladesh and Indonesia are also expected to import less in 2017. In China, WMP purchases are projected to reach 538 700 tonnes, barely 0.4 percent above 2016 and far below the 2014 peak of 785 000 tonnes, yet still sufficient for the country to retain the status of largest WMP importer. Algeria, Thailand, Malaysia and the Russian Federation are all predicted to buy more in 2017.

Among WMP suppliers, New Zealand may see its WMP exports rise by about 1 percent to 1.4 million tonnes in 2017, supported by the expected rebound in milk deliveries in the coming months. WMP shipments from Mexico, Australia, Brazil and Canada are also anticipated to increase, while they may contract in Argentina, Uruguay, the EU, Belarus, the United States and Chile.

Trade in skim milk powder (SMP) to recover in 2017

World trade in SMP is forecast to hover around 2.3 million tonnes, an increase of 6.7 percent from 2016, when exports declined by 1.5 percent. Among importers, China, Mexico, Algeria, Thailand, Indonesia and the Russian Federation are foreseen to maintain their generally high pace of purchases throughout the year, while lower relative prices of SMP are likely to encourage other countries to import more. In contrast, a few countries that generally tend to buy large volumes of SMP, such as the Philippines, Malaysia, Saudi Arabia and Egypt, are foreseen to cut their imports.

The EU and the United States are likely to sustain much of the expansion in SMP world exports, with Canada, the Islamic Republic of Iran and Mexico also anticipated to increase deliveries. On the other hand, overseas sales from New Zealand may drop, as producing more SMP is relatively less profitable for producers than alternative product combinations under New Zealand’s processing arrangements and low international SMP prices. Exports from Australia, the fourth major source of SMP after the EU, the United States and New Zealand, are expected to remain stable, at around their 2016 level.

With increased profitability of processing cheese, the EU is expected to reduce the production of SMP in 2017, which, along with increased exports, could lead to a reduction in SMP inventories. However, disposing of the nearly 370 000 tonnes of SMP held in the EU public intervention stocks will require some time.

Butter trade to fall as supplies tighten

World trade in butter in 2017 is forecast to reach around 929 000 tonnes, 3.5 percent lower than in 2016. The decrease is mostly due to limited available supplies and rising world prices, which propelled the FAO Butter Price Index up by 41 percent in the first ten months of 2017, resulting in the widest gap between butter and other dairy commodities prices on record.

Reflecting both price sensitivity and declines in purchasing power, butter imports in 2017 are anticipated to contract in Saudi Arabia, Turkey and the Islamic Republic of Iran. The same factors are likely to depress deliveries to African countries, especially Egypt and Morocco. By contrast, recent trends in China, the largest destination of butter exports, suggest that inflows to the country may rise by 0.8 percent in 2017, reaching 118 000 tonnes. Butter imports by the Russian Federation, Australia, the Philippines and Canada are also forecast to increase.

The EU is predicted to account for much of the fall in this year’s world butter exports, with shipments from the region now forecast at 166 200 tonnes, nearly 20 percent less than in 2016. EU’s contraction would be largely the result of a strong internal demand for butterfat and a reduction in butter processing in favour of cheese, which has become more profitable. Tight export availabilities are also likely to depress butter exports from Australia, Mexico, Uruguay and Argentina. By contrast, despite a drop of nearly 11 percent from January to August 2017, butter exports from New Zealand over the full year are forecast to progress by about 2 percent, to nearly 514 000 tonnes, spurred by improved weather and pasture conditions, and higher international prices.

Lively import demand to boost trade in cheese to a new record

International trade in cheese is forecast to increase by 3.8 percent to a record 2.6 million tonnes. Much of the growth in world demand is forecast to come from Australia, China, Japan, the Republic of Korea, Chile, Mexico and Saudi Arabia, along with some support from El Salvador, the Russian Federation and Kuwait. By contrast, imports by the United States, Brazil, the EU and Algeria are likely to decline.

Of the various sources of supply, the United States and the EU are projected to account for much of the increase in world cheese exports in 2017. Shipments from the United States are expected to expand by as much as 18 percent, supported by a weaker US dollar and strong demand in a number of markets, especially Mexico, the Republic of Korea, Japan, Australia and Canada. As for the EU, its cheese exports may grow by nearly 6 percent this year to a historic high of 848 000 tonnes, underlining the resilience of the EU’s dairy industry. Continuing with the successful re-orientation that began with the imposition of the Russian embargo in 2014, the EU is forecast to expand its cheese exports to several destinations in 2017, namely the United States, Japan, Switzerland, the Republic of Korea, Saudi Arabia, Chile, Australia and Algeria. Cheese exports by the Islamic Republic of Iran, Turkey and Australia are also anticipated to rise, while supply constraints may cause exports to fall in New Zealand and Argentina. Belarus, which has been the main cheese supplier to the Russian Federation since 2014, may also export less this year.

FISH AND FISHERY PRODUCTS

GLOBAL FISH ECONOMY

According to the latest forecasts, global production of fish and fishery products is expected to expand by 2.3 percent in 2017, a faster growth rate than last year. This acceleration is primarily accounted for by a recovery in catches of anchoveta in South America following the end of El Niño and by a further expansion of aquaculture production, which continues to rise at some 4–5 percent a year. Although this growth is expected to slow gradually in the longer term, this year’s OECD-FAO projections estimate that aquaculture will be the world’s primary source of fish for all purposes within five years, while the proportion of fish utilized for human consumption supplied by aquaculture will also continue to rise. Both production and consumption growth will be increasingly driven by developing countries, particularly those in Asia, a region whose already considerable importance as a producer and market will only continue to grow.

In 2017, despite higher production, the demand stimulus resulting from improving economic conditions worldwide has lifted prices for many important seafood commodities. As a result, the total value of world exports is expected to rise by some 8 percent this year in US dollar terms, building on a similar increase in 2016. Higher prices for salmon, shrimp, tuna, cod, cephalopods and some small pelagic species have boosted export revenues for many large producers, particularly India, Norway and a number of Central and South American countries. The FAO Fish Price Index was 10 points higher in August, the most recent available month, with all commodity groups higher than the same month in 2016. On the market side, the most important individual contributors to trade value growth are China, the United States, the EU and Japan. The economic revival of Brazil and the Russian Federation, two large emerging markets, will represent an additional boost to aggregate seafood demand if it continues into 2018 and beyond.

OECD-FAO projections published in 2017 anticipate accelerating world GDP growth in 2017 and 2018 after years of sluggish economic performance in multiple world regions, which is a positive development for the seafood sector. However, this growth is not evenly distributed geographically, as steady but slow economic expansion in the EU and Japan has been contrasted with more robust economic performance in the United States and rapid growth in developing regions, particularly Asia. Seafood demand is highly sensitive to increases in income, and thus it is these economic trends, combined with population growth rates, that will be the major determinants of future trade flows and consumption patterns. While Latin America and Africa are increasing their shares of the world market relative to the United States, the EU and Japan, it is the rapid transformation of large sections of the Asian population into urbanized, middle-class consumers that will be the most important single factor in shaping the global seafood market for some time to come.

International cooperation in protecting the long-term health of marine environments remains a priority. At the Eleventh WTO Ministerial Conference taking place in Buenos Aires on 10–13 December, discussions will continue among participants regarding the need to limit harmful fisheries subsidies. An agreement between WTO members that addresses the issue of overcapacity and overfishing resulting from such subsidy schemes is considered an essential component of Sustainable Development Goal (SDG) 14: Life Below Water, which concerns the wellbeing of the world’s oceans. Another crucially important aspect of SDG 14 is climate change and how to mitigate its negative effects on fisheries and other marine-based resources, which was the topic of central focus at the VI edition of the CONXEMAR-FAO World Congress that was hosted in Vigo, Spain, on 2 October.

SHRIMP

Global farmed shrimp supplies were low during the first half of 2017, in balance with low to moderate demand in the traditional and emerging markets. Starting from July, however, the supply of farmed shrimp from Asia picked up. China, the largest producer of shrimp, saw lower production in 2017 compared with 2016 due to persistent disease issues, while in Indonesia, unfavourable weather has affected harvests. India, Viet Nam and Thailand should see increased production, and in Argentina, a bumper catch of wild shrimp has been reported for 2017 with landings totalling 139 000 tonnes, 34.7 percent higher than last year. November to March is the low farming season in Asia, and overall availability of raw material will be limited until the new season in Asia begins in April 2018. The positive import trend in Japan is likely to continue through the year-end celebration into early 2018. Year-end is also one of the high consumption periods for shrimp in the United States, but the effects of the hurricanes, together with weaker overall demand, stagnant inventories and increased imports may mean lower prices in the coming months. In the EU, prices for Ecuadorian shrimp can be expected to fall if there is a weakening of interest from East Asian buyers.

TUNA

Due to low inventories of raw material at canneries in Thailand and Ecuador, demand for frozen skipjack is likely to increase in the coming months. However, the catch outlook remains unclear until after the fish aggregating device (FAD) and “veda” fishing bans in the Pacific Ocean are lifted in October. As of September, the delivery price of frozen skipjack to Thailand had crossed USD 2 000 per tonne, and if landings do not improve in the last quarter of 2017, particularly in the Pacific Ocean, prices may increase further. On the market side, imports of canned tuna in the US market are likely to improve during early 2018, as buyers take advantage of the annual import quota for canned tuna at the lower tariff rate. In the EU, importers will continue to depend on and favour Ecuador and the Philippines due to their duty-free status to this market. Meanwhile, canned tuna producers in Thailand and Indonesia are focusing more on emerging markets as exports to the EU and United States are trending downwards, although the EU remains the economically logical choice for Ecuador for the time being. Overall, any further rise in raw material prices can be expected to have a negative impact on consumer demand for canned tuna worldwide.

GROUNDFISH

According to figures presented at the Groundfish Forum 2017, total global groundfish supplies, excluding Northern Blue Whiting, are forecast to fall by some 3 percent in 2018. The Barents Sea cod quota is expected to be reduced, with the International Council for the Exploration of the Sea (ICES) recommending a 20 percent cut in the 2018 quota. While such a cut may appear drastic, researchers are confident that the long-term outlook is very positive. The Joint Russian Federation-Norwegian Fisheries Commission, which will set the final quotas in November, is expected to take a cautionary approach, and some price increases can be expected as a consequence. In the pollock market, demand is increasing in Asia, North America and Europe, aided by the high prices for cod brought on by the supply shortage. Overall, pollock prices are expected to edge upwards, as will cod prices, which most likely will continue their upward trend. Meanwhile, the market for surimi also appears to be picking up. It is expected that there will be a general shortage of surimi this year, as production is stagnant and demand is increasing, both in Japan and on the US market.

CEPHALOPODS

Demand for octopus and squid is growing stronger, but poorer landings mean limited supplies. Inventories are also low and observers expect prices to continue increasing over the coming months. With low catches in Morocco and Mauritania, the main market for octopus, Japan, will be looking for supplies from alternative sources such as China, Viet Nam, Mexico and Southeast Asia. For squid, stocks off the coast of Argentina are reported to be in poor condition, contributing to upward pressure on prices, especially for Illex squid. China, which also imports large quantities of squid from the Democratic People’s Republic of Korea, is likely to see a sharp drop in shipments in the medium term as pressure mounts to isolate the Democratic People’s Republic of Korea from international trade. Overall, cephalopod trade volumes are set to contract and prices will remain high.

PANGASIUS

During the first half of 2017, global imports of frozen pangasius fell slightly, mainly due to lower imports into the single largest market, the United States, while demand also continues to weaken in the EU. Imports into Latin America and Asia, however, comprised approximately 51 percent of the world’s total over the same period, increasing from a 42 percent share the previous year. Overall, prices remain relatively strong. In Viet Nam, by far the largest pangasius producing country, the Ministry of Agriculture and Rural Development is actively promoting the consumption of pangasius domestically as well as targeting expansion in international markets, particularly China.

TILAPIA

In total, during the first half of 2017, approximately 170 000 tonnes of tilapia (whole, fillets and breaded) entered the international market. While the US market grapples with weak demand, some recovery in the tilapia market is being observed in the EU market, although prices remain weak. In contrast, the markets in Asia and Latin America continue to exhibit strong growth as more production enters domestic markets, supplemented by imports from China. In order to offset the declining interest from US buyers, Chinese companies are also increasingly seeking opportunities for expansion in Africa, as well as taking advantage of the strong and growing demand for tilapia in the Chinese domestic market. Overall, considering the current demand situation in the major markets, imports are not expected to increase substantially in the near future nor should a significant price increase be expected despite firm demand in Asia, Latin America and Africa.

SEABASS AND SEABREAM

Total farmed seabass and seabream production is expected to grow a further 5 to 7 percent in 2018, and all industry participants will be mindful of the potential impact that this continued growth will have on price levels, which have already been negatively affected by supply growth. That said, it must be recognized that there are a number of positive developments in production, processing, logistics and marketing that will help to boost company margins through demand generation and cost savings. There have also been improvements in the economic outlook for a number of key markets, and a sustained increase in prices for some competing seafood items such as salmon. Together, these developments represent an improved long-term outlook for the sector, but for 2018, it is still not clear that the positive effects will outweigh the downward pressure on prices resulting from continued supply growth.

SALMON

World prices for farmed salmon remain high but have fallen back somewhat due to higher harvest volumes in the second half of 2017. Further stability will depend both on the absence of a severe supply shock and on the ability of producing countries to keep pace with rapid demand expansion in an increasingly diversified range of markets. At present, consensus forward prices suggest downward pressure exerted by the expected increase of 7 to 8 percent in global production next year should be sufficient to keep the average 2018 price for fresh whole Atlantic salmon from Norway at around NOK 60 (USD 7.56) per kg. In the wild salmon sector, meanwhile, total catches are expected to come in above harvest but below the last equivalent year, 2015. On the market side, while consumer sensitivity to price hikes has dampened import growth in the more mature markets of the United States, the EU and Japan, the share of global salmon import volume and value claimed by urbanizing middle-class demographics in developing countries continues to increase. The flattening price trend, if it continues, together with product innovation focused on portion sizing and convenience, will be key in preventing consumers from making a long-term shift towards alternative protein sources, particularly in the larger, established markets.

SMALL PELAGICS

The supply outlook for small pelagics in 2018 is for an increase in global landings, mainly driven by higher landings of Peruvian anchoveta, although the ICES has recommended cuts in the North Atlantic mackerel and herring quotas. For the 2018 mackerel quota, ICES has recommended a 35 percent cut to 550 948 tonnes, and for herring, the recommendation is for a 15 percent cut to 546 472 tonnes. There has been speculation that, as a result of global warming, Atlantic mackerel stocks would move farther north in the Barents Sea. However, while some movement has been observed, the mackerel have not yet moved as far north as expected and the autumn mackerel season started with good catches, pushing prices lower. Total trade volumes of mackerel and herring are expected to go up, but there have been and will likely continue to be shifts in the respective shares of the main suppliers.

FISHMEAL AND FISH OIL

Global supply of fishmeal is expected to be more stable than in previous years in the first half of 2018, due to better climatic conditions and higher projected pelagic catches. Prices are likely to follow an overall downward trend but with seasonal fluctuations. A quota of 2.8 million tonnes for the first anchoveta fishing season in Peru, the highest since 2011, ended with a total catch of 2.37 million tonnes in 2017, representing 85 percent of the total allowable catch (TAC) and clearly giving buyers the advantage in price negotiations. The outlook also looks positive for the second fishing season in Peru, set to begin in late 2017. However, the overall downward trend of Peruvian fishmeal price resulting from more plentiful supply will be softened in the longer term by continued demand growth, particularly from China.

CRAB

The Russian Federation Far East has seen increased quotas for 2017, and supplies are expected to improve. Russian Federation Illegal, Unreported and Unregulated (IUU) crab production appears to have been curbed and total Russian Federation Far East crab catches are expected to reach about 73 500 tonnes for the year. In the United States, the coming months should provide strong supplies from California and possible declining prices for dungeness crab. However, snow crab prices have been high and king crab prices even higher. International trade in crab has declined a bit lately, but the Russian Federation is expecting to export more moving into 2018, especially to East Asia where demand is strong.

BIVALVES

Chilean mussel production seems to have recovered from the difficulties of last year, when red tides hit the main cultivation areas, but global production of mussels, as well as clams, is not growing fast enough to keep pace with the improving market environment. In France, the oyster season for 2018 is forecast to be good, as the mortality of juveniles this year is relatively low. In general, supply competition in the EU can be expected from developing countries, which are seeking to invest in good infrastructure and quality control in order to be able to export to the lucrative EU live bivalves market. At present, this market is only open to a small selection of countries. Overall, demand for bivalve species is likely to stay strong in 2018 and supply will be tight, supporting high prices for the major bivalve species with the exception of scallops and oysters.

LOBSTER

Lobster landings in the United States are forecast to be down by 20 percent in New England this year, and by as much as 30 percent in Maine. Some traders are now worried that a shortage may develop by early 2018, although there seems to be enough lobster meat on the market at the moment. Current high prices for lobster this season are to a large extent due to very good demand in China. Paradoxically, strong Chinese demand is the result of low prices and plentiful supply in 2012, which allowed North American exporters access to the Chinese market.

GLOBAL PROSPECTS FOR MAJOR TROPICAL FRUITS[1]

Short-term outlook, challenges and opportunities in a vibrant global marketplace

Contributed by:

Sabine Altendorf

Sabine.Altendorf@fao.org

Tropical fruits constitute a comparatively new group in global commodity trade, having emerged on the international marketplace in significance only from 1970 onwards, thanks to advances in transportation, trade agreements and shifting consumer preferences in favour of these fruits. Export volumes of the four major fresh tropical fruits – mango, pineapple, avocado and papaya – have displayed the fastest average annual growth rates among internationally traded food commodities, significantly outpacing growth in major food markets, notably cereals, livestock products, vegetable oils, sugar, and other fruits and vegetables. These major tropical fruits are furthermore among the most valuable agricultural food commodities when measured on a value basis, with preliminary estimates for 2017 pointing to a total combined global export value of around USD 10 billion from a volume of around 7 million tonnes.[2]

An estimated 99 percent of tropical fruit production takes place in developing countries, mostly cultivated by smallholder farmers who typically are endowed with, or have access to, less than 5 ha of land. On the back of an average annual increase of 3.6 percent in the past decade, preliminary estimates indicate that the trajectory of total global production of the four major tropical fruits combined could reach 92 million tonnes in 2017, compared to 69 million tonnes in 2008. A great deal of this expansion is explained by sizeable increases in area planted. Viewed by region, currently 58 percent of world tropical fruit production originates in Asia, 25 percent in Latin America and 16 percent in Africa.

In most producing zones, tropical fruits continue to be cultivated mainly at the subsistence rather than commercial level and contribute importantly to food security. In regions that engage more in trade of tropical fruits, these commodities do play a role in the generation of rural employment and income, and they are hence important for GDP growth. With some of the poorest countries located in the tropics, the sector’s capacity to contribute to overall economic development becomes even more pronounced. When countries are in a position to supply international markets, the tropical fruits sector can be important in generating foreign exchange earnings. For example, Costa Rica’s exports of tropical fruits account for approximately one-fifth of its entire agricultural export earnings.

Combined exports of the four major tropical fruits represent only 5 percent of total production volume, with the remainder destined for domestic utilization. This is evident in the large number of countries engaging in the production of tropical fruits in comparison with the very small number of exporting nations. Changing consumer preferences as incomes rise will likely set the share of traded production on a higher trajectory in the future. Indeed, freer trade, and particularly better market access, could stimulate further technological gains in distribution, leading to lower prices and thereby enabling tropical fruits to reach more markets in larger quantities than before. However, the threat of climate change and associated extreme weather events looms heavily over the sector, given that tropical zones have acute vulnerability to the phenomenon.

PRODUCTION

After sustained growth that has been extremely robust over much of the past decade, the pace of global aggregate production of major tropical fruits is expected to slow in 2017. Global production is estimated to reach 92.2 million tonnes in 2017. This translates into a year-to-year increase of 1.9 percent from 2016, compared to an annual average growth rate of 3.6 percent over the previous ten years.

The slowdown in production growth has been observed for all major tropical fruits and is chiefly attributable to adverse – and at times severely disruptive – weather conditions in the main growing regions (see Box 1). However, on the back of fast growing global demand, producing countries have continued to increase the area under tropical fruits, providing an extent of counterbalance to weather-related supply disruptions in susceptible regions, thus averting more serious supply shortages.

In terms of individual production volume by major tropical fruit, mango ranks as the predominant variety, due to the commodity’s popularity in India, where an estimated 40 percent of global production originates. Total production of mango is forecast to reach a volume share of 51 percent of total global major tropical fruit production in 2017. Pineapple ranks second in global production importance, with an expected share of 28 percent in 2017, thanks to robust international demand, largely met by Costa Rica, the world’s leading exporter of pineapple, and by significant domestic consumption in Brazil, the second largest producer of pineapple. Papaya and avocado meanwhile account for significantly lower volume shares, at an estimated 15 percent and 6 percent, respectively, in 2017. Papaya is mainly produced and consumed in India and Brazil, where population growth has sustained domestic demand.

When viewed in terms of producing countries, the leading producer of major tropical fruits is India, accounting for an estimated 28 percent of total global major tropical fruit production in 2017, due to its strong position in the production of mango and papaya. India produces approximately 40 percent of total global mango and papaya production, which is predominantly destined for its domestic market. Other significant producers of tropical fruits include China and Brazil, where again produce is mainly destined for domestic consumption, and Mexico, which is set to rank as the largest exporter of major tropical fruits again in 2017.

TRADE

Seemingly, trade volumes of major tropical fruits stand to be less affected by production shocks on a global level, as only a small fraction of total output is traded in international markets. However, the competitive landscape for major tropical fruits is rather concentrated, with few countries engaging in large-scale global trade. Consequently, supply disturbances for producers who are required to comply with strict certification and phytosanitary standards can lead to short-term disruptions in the supply to international markets. Against this, global trade in major tropical fruits is expected to reach a new peak in 2017 of around 7 million tonnes, up 5.2 percent or 350 000 tonnes from last year. Trade prospects overall would have been higher, had it not been for adverse weather conditions in the leading exporting countries of Mexico (avocado, mango and papaya) and Costa Rica (pineapple), where supply shortages led to subsequent disruptions in the pace of shipments during the first three quarters of 2017 and also in recent months owing to hurricane damage to production.

Globally, avocado and mango are the two tropical fruits that have witnessed the strongest growth in popularity. Between 1990 and 2017, world import demand for avocado increased at an annual average growth rate of 14 percent, significantly outperforming supply and, thereby, driving up export, wholesale and retail prices. Similarly, import demand for pineapple, mango and papaya grew at annual average growth rates of 11 percent, 10 percent and 9 percent, respectively, during the same time period.

In the past, trade flows were governed by the proximity to markets, but this is no longer the case. Demand has been greatly fostered by significant innovations in distribution technology and logistics, where economies of scale have lowered transport costs and delivery time, making tropical fruits available and affordable year-round in major destinations in the world. Policy has also played an important role in the form of lower trade barriers, bilateral and multilateral trade agreements, and the harmonization of sanitary and phytosanitary regulations.

Rising demand in developed country markets has been the predominant factor fuelling the expansion in global shipments, particularly in the United States and the EU, the two largest importing blocs, where increasing health consciousness and more widespread awareness of the nutritional benefits of tropical fruits is contributing to increasing consumption. Campaigns promoting the health benefits of nutrient-rich tropical fruits and the growing availability of ready-to-eat products have further stimulated demand. Indeed, changing consumer preferences are manifest in the year-round availability of tropical fruits once regarded as highly seasonal. As a result, major tropical fruits have started to shift away from niche into mainstream markets, as particularly evidenced in the United States, the United Kingdom and Germany.

Rising incomes and expanding markets in developing countries – most prominently in India and China – are paving the way for higher consumption of tropical fruits, particularly in the increasingly prosperous urban areas of the emerging economies. Tropical fruits have seen fast growth in demand in China, supported by the growing number of affluent consumers displaying a keen interest in novelty products, which are being branded as premium food items. Trade opportunities with China are particularly evident for imports of avocado and pineapple. Against the backdrop of shifting consumer preferences, domestic pineapple production in China has not kept pace with the fast growth in demand, which has resulted in an increase in pineapple imports with an estimated average annual growth rate of 25 percent between 2013 and 2017. More strikingly – albeit from a negligible base – shipments of avocado to China had an estimated 124 percent annual average growth rate over the same period, reaching an estimated 44 thousand tonnes in 2017.

PRICES

Price movements of major tropical fruits are influenced by various factors, but are invariably intrinsic to the supply and demand conditions of the respective commodity. While indicative export prices for mango and avocado display strong seasonal variation and responsiveness to fluctuations in supply and demand, intense competition in the global value chain for pineapple has pressured prices for the commodity. Papaya prices, meanwhile, have trended downwards on the back of fast growing supplies and a more widespread availability of the fruit.

Wholesale prices in the United States, the largest importer of tropical fruits, have shown a tendency to reflect global market developments. As such, wholesale prices of pineapples experienced a strong upward movement between May and August 2017, when supplies from Costa Rica were particularly low and demand in the United States high. Similarly, wholesale prices of avocado have registered a steep rise in response to severe supply shortages from Mexico, reaching USD 6.20/kg on average in September 2017, up from an average of USD 2.00/kg in December 2016.

At the retail level, novelty price premiums are the main driver of retail prices in developing country import markets, notably in China, where recently introduced fruits, such as avocado, are considered luxury items. In developed country markets, the effects of novelty price premiums are being gradually replaced by quality based price premiums. As tropical fruits are becoming more widely available in developed countries, consumers have started to display a higher propensity to spend on tropical fruits that are ripe and ready-to-eat, tree-ripened instead of warehouse-ripened, and organic, allowing for higher price levels and profit margins at the retail level. As with other maturing food markets, demand for organic produce is burgeoning.

OUTLOOK

With around 2 700 species, tropical fruits provide promising potential as a source of nutrition, but also of income generation for those engaged in production beyond subsistence. Projections for world GDP by the IMF point to further growth in income, especially in the major international market destinations of the United States and the EU.[3] Combined with rising incomes and changing consumer preferences – including growing health consciousness in some of the key developing country markets – plentiful opportunities exist for the further commercial development of tropical fruits. Especially given their high export unit value and thus the potential to achieve high profit margins, tropical fruits may represent a viable option for diversification away from traditional export crops, some of which have been exposed to downward trends in prices caused by lacklustre demand and high levels of competition in export markets.

Indeed, recent market developments in global trade of major tropical fruits, particularly on the demand side, point to a strongly positive outlook. Mango and avocado are particularly well positioned to benefit from a sizeable expansion in import demand. Both fruits are being widely promoted as nutritional “super fruits” in developed country markets. Trade volumes in pineapples are likely to continue to be driven by relatively low unit prices, while papaya is expected to benefit from more widespread availability and higher consumer awareness in developed countries.

Marketing strategies tailored towards consumer preferences as well as the positive nutritional characteristics of major tropical fruits should support consumer demand. This also applies to the plethora of minor tropical fruits, for which consumer awareness remains limited in developed countries. Research and development efforts by multinational trading companies targeted to align major tropical fruits to consumer preferences in developed country markets have recently resulted in innovations such as vitamin-fortified mangoes, fat-reduced avocados, and sweeter, small-sized pineapples. In this regard, product diversification in terms of variety and clear positioning will be of increasing importance for small producers to be able to compete in the global market.

Notwithstanding prospects of increased demand in developed countries, exporters should also target potential demand in emerging economies, notably India and China, where increasingly affluent populations could give rise to greater product inflows. Costa Rica and Malaysia signed trade agreements with China in 2015 and 2013, respectively, and recent ratification of these agreements has provided pineapple exporters from both countries with access to a large and fast-growing consumer base. The first Costa Rican pineapple shipments reached China in the the thrid quarter of 2017, diverting volumes away from the exporter’s traditional destinations. Such a shift in export flows may present an opportunity for smaller producers to supply more shipments to the United States and Europe. With regard to pineapple, this could be particularly beneficial to shipments from Côte d’Ivoire and Ghana, potentially enabling both exporters to re-gain share in the European market. Future trade opportunities also present themselves on the backdrop of increasing flows of international migration, which may give rise to higher import demand for exotic or ethnic food items in previously untapped markets.

Mexico, as the largest exporter of tropical fruits globally, faces uncertainty in light of the pending outcome of the NAFTA renegotiations, which threatens to result in the implementation of an ad valorem tariff rate as high as 35 percent to imports from Mexico. Approximately 75 percent of Mexico’s major tropical fruit exports are destined to the United States. The application of an ad valorem tax to shipments from Mexico would have significant implications for price developments in the US, since more than likely any tariff would be conferred to the consumers.

Regarding organic tropical fruits, rising consumer awareness of the potentially harmful effects of pesticide-heavy production methods, particularly in pineapple, is expected to support further substantial growth in the demand for these products. However, a major obstacle to export growth lies on the supply side, notably the considerable costs of compliance involved with obtaining certification, and the associated lower yields and higher costs for inputs and labour. The currently prevailing and highly competitive structure of the global value chain for tropical fruits pushes small producers to weigh the costs of compliance of organic production against earning potential.

Advances in post-harvest technologies will enable more efficient trade of fresh fruits, increasing its share compared with processed fruits. Fresh fruits typically achieve higher unit prices than processed fruits, allowing for enhanced profit margins. Improvements in infrastructure will facilitate access to export markets to a wider number of producing regions, with higher potential to initiate trade flows from more remote locations.

Unpredictable climatic events, the brunt of which are being felt in the tropics, remain a major concern. Because normal temperature ranges in tropical zones fall within a narrower range than those in temperate climates, any deviations in temperature will have more pronounced effects. Consequently, climate change renders tropical fruit supply extremely vulnerable to weather disruptions. More compelling is that the bulk of global production is for subsistence, and tropical fruits are very important for food security for some of the world’s most economically vulnerable countries. Concerted international effort to design and apply adaptation and mitigation measures are vitally advisable, considering that most tropical fruit producing countries do not possess the economic and structural capacities that would allow them to cope with crop damages and subsequent impacts on export earnings. Strategic adaptation may also have positive spill-over effects on importing countries, as improvements in the regularity of supply flows should bring more stability to prices.

COMMODITY BRIEF: MANGO, MANGOSTEEN AND GUAVA

Mango, mangosteen and guava comprise by far the world’s most prolifically produced group of tropical fruits, thanks to the large volumes of mango production. Preliminary estimates for 2017 forecast that world production would reach 47.1 million tonnes, an increase of 2 percent over 2016. This would mark a slowdown from the average annual growth rate of 3.5 percent between 2007 and 2016, mainly due to adverse weather in India, the major producing country, where 2017 production is forecast to show a 1.7 percent decrease from 2016.

Given that international commodity classification schemes for production and trade do not require countries to report the fruits within this cluster separately, official data remain sparse. It is estimated that mango accounts for approximately 75 percent of total production volume, guava for 15 percent and mangosteen for the remaining 10 percent. In terms of regional distribution, approximately 74 percent of mango, mangosteen and guava production originate in Asia, 15 percent in Africa and 11 percent in Latin America and the Caribbean.

With an estimated output of 18.5 million tonnes in 2017, India currently accounts for approximately 40 percent of total global production, almost exclusively mango and guava. Production in India is primarily destined for consumption within the country, thanks to strong domestic demand and remunerative prices for producers. This also applies to guava, of which only a negligible fraction is exported. Mangosteen production remains low in India; nevertheless, it has displayed fast growth in recent years due to the crop’s assumed health benefits and ease of cultivation.

Global exports of mango, guava and mangosteen are estimated to reach 1.7 million tonnes in 2017. This would represent a 6.3 percent increase from 2016, considerably faster than the 4.6 percent average annual growth registered between 2007 and 2016. The expansion follows strong growth in demand in the main import destinations, namely the United States, which has a 31 percent global import share, and the EU, which has a 27 percent global share. Of the commodity cluster, mango’s main importers have found growing consumer interest, thanks to favourable preferences and increased nutritional awareness. Latest available figures indicate that per capita availability of mangoes will reach 1.3 kg in the United States and 0.8 kg in the EU in 2017, up from 0.9 kg and 0.6 kg in 2007, respectively.

In terms of export volumes, mango is estimated to account for 90 percent of global shipments, with guava and particularly mangosteen displaying a low availability in import markets. Mexico is forecast to remain the undisputed leading exporter, with an estimated volume share of 23 percent in 2017, followed by Brazil (13 percent), Thailand (12 percent) and Peru (12 percent). Mexico primarily exports mangoes to the United States (approximately 80 percent of the country’s entire shipments) and is forecast to benefit strongly from higher import demand for the fruit in 2017. Mango exports from Brazil are mainly destined for the EU market and are similarly benefitting from expanding import demand. Brazil maintains its strong position through its ability to produce mangoes perennially, including a number of varieties that are popular in European markets, among them Tommy Atkins, Keitt and Kent. Mango shipments from Thailand primarily reach Southeast Asian markets. Thailand, which also ranks as one of the leading exporters of mangosteen, ships the bulk of its production to foreign markets. Peru exports mainly fresh mango and mangosteen, with approximately 40 percent of shipments going to the Netherlands, 30 percent to the United States and 10 percent to the United Kingdom. The Republic of Korea granted Peru preferential access to its market in 2015, and extended this to India and Brazil in 2017. Shipments from all three exporters to the Republic of Korea are expected to grow at a fast pace in 2017, in response to strong demand for mango in the country.

Indicative export prices of mango, mangosteen and guava strongly reflect seasonal fluctuations in supply and demand, with prices typically peaking between September and May, when there is less competition from locally produced fruits in the main export destinations of the United States and the EU.

While traded volumes are currently very low at the global level, mangosteen has demonstrated the potential for robust demand growth from diverse sources, thanks to its antioxidant properties and versatile uses that span nutritional, pharmaceutical and industrial applications. Consequently, for producing countries, mangosteen may present an attractive crop as its cultivation requires few inputs and displays virtually no susceptibility to pests and diseases.

COMMODITY BRIEF: PINEAPPLE

Pineapple, the second-ranked tropical fruit in terms of importance in world production, is expected to register a 0.6 percent year-to-year increase in output in 2017, smaller than average, due to weather-related crop damages in Costa Rica, the main producer of pineapple in the world. This marks a significant slowdown in global production growth compared to the average annual rate of 3.6 percent seen over the previous decade up to 2016. Overall, global pineapple production is expected to reach a total of 25.9 million tonnes in 2017.

Costa Rica, which is estimated to account for about 10 percent of total global production in 2017, suffered severe disruptions to the harvest in the first half of the year, which would suggest an overall 7.5 percent decline in production in 2017 from 2016. The country’s prolonged and intense 2016 rainy season, which lasted until December, followed by drought in January and February of 2017, caused significant harm to production. While the flooding resulted in delays to the flowering period of the plants, the subsequent drought affected the brix (sweetness) level of the harvest. Other major producers of pineapple include Brazil and the Philippines, with an estimated volume share of 10 percent each in 2017, followed by China, India and Thailand. Production in Brazil, China and India is primarily destined for the domestic fresh market owing to strong internal demand and competitive retail prices. Thailand is the leading producer and exporter of processed pineapple.

Global exports of pineapple are estimated to reach 3.1 million tonnes in 2017, representing a 2.5 percent growth from 2016. Costa Rica’s share in global exports of pineapple is expected to register a 4 percentage point decline from 2016, dropping to 63 percent in 2017, down from 67 percent in the previous year, as adverse weather rendered a significant share of the country’s produce unfit for export. The Philippines, the second largest exporter, is estimated to account for 13 percent of total volume shipments, destined primarily to East Asia, with a large share exported in processed form. African ACP[4] exporters, which previously accounted for a large share of shipments to the EU, continue to experience large reductions in trade volumes due to the difficulty of competing with the very low prices of Costa Rican pineapples.

Shipments from Costa Rica are mainly destined to the United States. Following the supply shortages in Costa Rica, imports by the United States, the largest importer of pineapple globally, are expected to be 0.6 percent lower than in 2016. Imports by the EU (excl. intra-trade) are estimated to see a 3 percent decline from 2016. Per capita availability of pineapple is expected to stand at 3.3 kg in the United States and 2 kg in the EU in 2017.

On the back of supply shortages, indicative export prices have exhibited a slight upward movement in 2017 from the virtually flat trend observed over the previous 36 months. Prices of standard pineapple have been affected by strong competition in the global value chain as the fruit is sold at low prices in key export markets, such as the United Kingdom and Germany. Indicative export prices of organic pineapple are meanwhile displaying a higher responsiveness to global supply- and demand variations and are expected to follow a steady upward movement for the rest of 2017.

COMMODITY BRIEF: AVOCADO

Global production of avocado is estimated to reach 5.8 million tonnes in 2017, which would represent a 3.4 percent increase from 2016. On the back of rapidly growing global demand, avocado, among all the major tropical fruits, has seen the fastest production growth over the last decade, with an estimated 5.6 percent average annual increase between 2007 and 2016, primarily due to increases in harvested area in the major producers. Nevertheless, in global production terms, avocado remains the smallest of the major tropical fruits.

Nearly half of all production takes place in Central America and the Caribbean, largely owing to the strong position of Mexico and the Dominican Republic. Production in Mexico alone is estimated to account for one-third of global output in 2017. Adverse weather conditions in the country have affected both the quantity and quality of the harvest in the first nine months of the year, pointing to a substantial slowdown in production growth. Overall, 2017 Mexican production is forecast to increase by only 1 percent from 2016 – compared to an average annual growth rate of 5.5 percent between 2007 and 2016. Production in the Dominican Republic, hitherto the world’s second leading producer of avocado, experienced significant hurricane damage in October 2017 and is estimated to incur a 35 percent output decline in 2017 compared to 2016. Accordingly, the share of the Dominican Republic in global production is estimated to drop to 6 percent in 2017. Peak harvest period in the Dominican Republic is between October and March, when approximately 80 percent of production is harvested, making the crop particularly vulnerable to hurricane damage. Production in Peru, meanwhile, is expected to register a 22 percent increase over 2016, following a near equivalent increase in area harvested, both stimulated by strong import demand from the EU, the largest export destination for supplies from Peru. Consequently, Peru is forecast to stand as the second leading producer of avocado, with an estimated 10 percent volume share in 2017.

Global exports of avocado are estimated to reach 1.9 million tonnes in 2017, posting an 8 percent increase from 2016. Mexico is forecast to account for 55 percent of global avocado exports, with shipments predominantly destined to the United States. In the period 2010 to 2016, Mexico shipped an average of 77 percent of its avocado exports to the United States. Mexico’s strength lies in its ability to produce avocado in all seasons and also its close proximity to the United States, which gives the country a unique competitive advantage. However, on the back of weather-related production disruptions, 2017 shipments from Mexico are estimated to increase by a mere 2 percent from 2016, a significant slowdown compared to the 15.6 percent annual average growth rate achieved between 2007 and 2016. Other significant exporters are Peru, Chile, South Africa, Israel and Kenya, which all primarily export to the EU and have benefitted from fast growth in its import demand for avocado. Mexico is a less prolific exporter of avocado to the EU, as its prices are not competitive. The Dominican Republic primarily engages in the production of tropical avocados, which are considerably more susceptible to damage in transit than the more resilient Hass variety, due to their softer peel. Furthermore, its exports of tropical avocados have been subject to an import ban in the United States since March 2015, following a Mediterranean fruit fly outbreak. Accordingly, exports by the Dominican Republic represent only a small fraction of its production.

The main export destinations for avocado in the world are the United States, with an estimated share of 51 percent in 2017 and the EU, with a 27 percent share. Between 1990 and 2015, per capita fresh fruit retail availability of avocado grew at an average rate of 7 percent in the United States and is estimated to reach 3.6 kg in 2017. Latest available data for the EU indicate a per capita avocado availability of 1 kg on average in 2017, although the key avocado-consuming markets of France and the United Kingdom outperform this, with an estimated 1.6 kg and 1.3 kg per capita, respectively. Demand for avocado has been supported by the fruit’s assumed health benefits related to its very high nutritional value.

Import demand for avocado has also shown a strong performance in Asia, particularly in China, the Republic of Korea and Japan. Shipments to the Republic of Korea doubled in the first 8 months of 2017 compared with the same period in 2016, albeit from a small base. Imports by China are expected to increase 20 percent above its 2016 imports, reaching an estimated 44 000 tonnes in 2017. In light of the attractive remunerative opportunities that avocado offers, Chinese growers have started to expand the production of avocado for domestic consumption, with the first harvest from new plantations to take place in the autumn of 2017.

As a share of production, trade in fresh avocados is the highest of the major tropical fruits and is estimated to reach 33 percent in 2017. Avocado is also the only fruit for which developed countries account for a non-trivial share of production, with the United States estimated to account for approximately 3 percent of global volume in 2017, primarily for domestic consumption.

Indicative export prices of avocado have proven highly susceptible to changes in supply and demand. They also vary due to seasonality and to the different varieties of avocado, which feature different sizes and quality levels. The significant slowdown in production growth in 2016 and 2017, coupled with fast expansion in demand in the major importers, has given strong upward impetus to export prices since June 2016, with prices reaching over USD 3 000/tonne in May 2017.

COMMODITY BRIEF: PAPAYA

Global production of papaya is estimated to reach 13.3 million tonnes in 2017, up 2.7 percent from the 2016 level. Due to the crop’s stronger resilience to adverse weather conditions, papaya production experienced significantly less disruption from adverse weather events than other tropical fruits in the first nine months of 2017, and it is on course to match the average annual growth rate of 3.3 percent registered over the past ten years. In terms of regional distribution, 55 percent of global papaya production is estimated to originate from Asia in 2017, 34 percent from Latin America and 11 from Africa.

India, the largest papaya producer in the world, with an estimated 43 percent output share in 2017, is forecast to post a 1.1 percent production growth from 2016, largely due to increases in area harvested. Indian papaya production is mainly destined for internal consumption, as domestic demand has been kept on a strong footing by rising incomes and changing consumer preferences. These factors have stimulated India’s fast expansion of papaya production, which saw output double between 2007 and 2017.

Production growth in Brazil, the second largest producer in the world, is estimated to increase by 6.5 percent from 2016, after recovering from a drought-induced production decline estimated at 5 percent in 2016. While the largest share of production in Brazil is also destined for the domestic market, the country ranks as the second largest exporter behind Mexico and has achieved fast growth in export volumes in response to growing demand from the United States and the EU.

Global exports of papaya are estimated to reach 371 000 tonnes in 2017, which would represent an annual increase of 9 percent from 2016. This assessment points to a healthy recovery from the estimated 5 percent decline in export volumes experienced in 2016, caused by weather-related supply shortages in Brazil and Guatemala. Mexico, the leading international supplier, accounts for approximately half of all global papaya sales, with its 2017 exports forecast to increase 7 percent from 2016. Mexican export volumes are almost exclusively destined to the United States. Fast growth in import demand from the United States has given Mexican producers a strong incentive to invest in technological advancements in recent years, resulting in a 6 percent improvement in average yields between 2010 and 2015. However, demand for Mexican papaya in the United States was somewhat disrupted by a widely reported nationwide salmonella outbreak in August 2017.

Of the major tropical fruits, papaya is the least traded fruit, but it has seen promising growth over the past decade. The largest importers of papaya in 2017 are the United States, with an estimated 64 percent volume share, and the EU, with an estimated 16 percent volume share. Estimates based on the latest available data indicate a per capita availability of 0.7 kg in the United States in 2017, up from 0.4 kg in 2005. Per capita availability of papaya in the EU remains negligible at an estimated 0.1 kg in 2017. Promotion of the fruit and its nutritional benefits has supported import demand and will be an important driver for further growth, particularly in the EU, where consumer awareness of the fruit remains low.

Indicative export prices displayed a tendency to decline during 2016 and the first half of 2017. On the back of fast growing export volumes, novelty-based price premiums have started to wear off, enabling a wider availability of papaya.

[1] An overview and analysis of global production and trade in minor tropical fruits as well as processed forms of tropical fruit, including juice, dried and canned tropical fruits, will be published in FAO’s forthcoming Tropical Fruits Market Review, to be released in December 2017.

[2] Data and information used in this outlook were compiled from the responses to the annual questionnaire of the FAO Sub-Group on Tropical Fruits, data from FAOSTAT and COMTRADE, and secondary data from desk research. Predictions for 2017 production and trade data were produced using a seasonally adjusted forecast model and expert considerations on current and most recent market developments.

[3] IMF World Economic Outlook, October 2017

[4] African, Caribbean and Pacific Group of States

Statistical appendix tables

Appendix Table 1 (a) & (b) Cereal statistics

Appendix Table 2 (a) & (b) Wheat statistics

Appendix Table 3 (a) & (b) Coarse grains statistics

Appendix Table 4 (a) & (b) Maize statistics

Appendix Table 5 (a) & (b) Barley statistics

Appendix Table 6 (a) & (b) Sorghum statistics

Appendix Table 7 (a) & (b) Other Coarse grains statistics

Appendix Table 8 (a) & (b) Rice statistics

Appendix Table 9 Cereal supply and utilization in main exporting countries

Appendix Table 10 Total oilcrops statistics

Appendix Table 11 Total oils and fats statistics

Appendix Table 12 Total meals and cakes statistics

Appendix Table 13 Total meat statistics

Appendix Table 14 Bovine meat statistics

Appendix Table 15 Ovine meat statistics

Appendix Table 16 Pigmeat statistics

Appendix Table 17 Poultry meat statistics

Appendix Table 18 Milk and milk products statistics

Appendix Table 19 Fish and fishery products statistics

Appendix Table 20 Selected international prices for wheat and coarse grains

Appendix Table 21 Wheat and maize futures prices

Appendix Table 22 Selected international prices for rice and price indices

Appendix Table 23 Selected international prices for oilcrop products and price indices

Appendix Table 24 Selected international prices for milk products and dairy price indices

Appendix Table 25 Selected international meat prices

Appendix Table 26 Selected international meat prices and FAO meat price index

Appendix Table 27 Fish price indices

Appendix Table 28 Selected international commodity prices

NOTES

General

• FAO estimates and forecasts are based on official and unofficial sources.

• Unless otherwise stated, all charts and tables refer to FAO data as source.

• Estimates of world imports and exports may not always match, mainly because shipments and deliveries do not necessarily occur in the same marketing year.

• Tonnes refer to metric tonnes.

• All totals are computed from unrounded data.

• Regional totals may include estimates for countries not listed. The countries shown in the tables were chosen based on their importance of either production or trade in each region. The totals shown for Central America include countries in the Caribbean.

• Estimates for China also include those for the Taiwan Province, Hong Kong SAR and Macao SAR, unless otherwise stated.

• Up to 2012/13, the European Union includes 27 member states. From 2013/14, the European Union includes 28 member states.

• ‘-‘ means nil or negligible.

• Cereals include wheat, rice and coarse grains. Coarse grains include maize, barley, sorghum, millet, rye, oats and NES (not elsewhere specified).

Production

• Cereals: Data refer to the calendar year in which the whole harvest or bulk of harvest takes place.

Utilization

• Cereals: Data are on individual country’s marketing year basis.

Trade

• Trade between European Union member states is excluded, unless otherwise stated.

• Wheat: Trade data include wheat flour in wheat grain equivalent. The time reference period is July/June, unless otherwise stated.

• Coarse grains: The time reference period is July/June, unless otherwise stated.

• Rice, dairy and meat products: The time reference period is January/ December.

• Oilseeds, oils and fats and meals: The time reference period is October/ September, unless otherwise stated.

Stocks

• Cereals: Data refer to carry-overs at the close of national crop seasons ending in the year shown.

Price indices

• The FAO price indices are calculated using the Laspeyres formula; the weights used are based on the average export value of each commodity for the 2002-2004 period.

COUNTRY CLASSIFICATION

In the presentation of statistical material, countries are subdivided according to geographical location as well as into the following two main economic groupings: “developed countries” (including the developed market economies and the transition markets) and “developing countries” (including the developing market economies and the Asia centrally planned countries). The designation “Developed” and “Developing” economies is intended for statistical convenience and does not necessarily express a judgement about the stage reached by a particular country or area in the development process.

References are also made to special country groupings: Low-Income Food-Deficit Countries (LIFDCs), Least Developed Countries (LDCs). The LIFDCs include 54 countries that are net importers of basic foodstuffs with per caput income below the level used by the World Bank to determine eligibility for International Development Aid (IDA) assistance (i.e. USD 1 945 in 2011). The LDCs group currently includes 48 countries with low income as well as weak human resources and low level of economic diversification. The list is reviewed every three years by the Economic and Social Council of the United Nations.

DISCLAIMER

The designations employed and the presentation of material in this publication do not imply the expression of any opinion whatsoever on the part of the Food and Agriculture Organization of the United Nations concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries.

Futures markets

Contributed by Ann Berg (International Consultant)

Except for a brief upward spike during early July, futures prices for wheat, maize and soybeans traded in a relatively narrow channel over the past six months, as weather threats to global production and trade restrictions hinted by the US did not materialize. US wheat prices remained at the lower end of their five-year average as a result of burgeoning production elsewhere, despite crop year 2017/18 being the lowest US all-wheat production in 15 years. Maize futures prices similarly traded near the low end of their five-year average, tracking slightly above last year’s values, which slid to multi-year lows following a record crop. Soybean prices followed a pattern similar to that of 2015, when they had declined by 30 percent in value before stabilizing.

Record exports from the US for 2016/17 may indicate that prices at these low levels have found their equilibrium values, at least until planting season commences again in spring 2018. At a recent outlook conference, which included the US Department of Agriculture (USDA), the Congressional Budget Office (CBO), the Food and Agricultural Policy Research Institute (FAPRI) and the Chicago Mercantile Exchange (CME), economists forecast a five-year continuation of current prices at around USD 140 for maize and USD 350 for soybeans, while omitting a wheat price forecast, which is increasingly dependent on uncertain global factors.

Exogenous markets, such as foreign exchange and energy, exhibited small adjustments as the USD lost value from a multi-year high reached in late 2016 and crude oil price recovered from its multi-year low around the same time to stabilize at about USD 50 per barrel. Record-setting equity prices in the US have seemingly had negligible effects on commodity prices. All in all, markets could be characterized as rather featureless, tinged by complacency.

FORWARD CURVES

Forward curves for wheat and maize displayed abnormally steep upward sloping (contango) price configurations extending to December 2017. For maize, the December 2017/December 2018 spread exhibited USD 18 per tonne carry versus USD 16 and USD 8 per tonne carries respectively for the previous two years. For wheat, the 2017/December 2018 spread displayed USD 29 per tonne carry versus USD 28 per tonne and USD 14 per tonne carries, respectively, in the previous two years. These wide curves, besides reflecting ample inventories may also reflect three consecutive years of declining farm income. Very low basis levels in the domestic market indicate that producers have been willing sellers of wheat and maize (as well as soybeans) despite low prices, possibly indicative of tight cash flows. The forward curve for soybeans, reflecting the harvest-time norm over the last several years, was slightly inclined – exhibiting a USD 4 difference for the November 2017/November 2018 spread versus a small carry of USD 1 (contango) for the November 2016/ November 2017 spread.

VOLUMES

Trade volumes, which reached record or near record levels for wheat, maize and soybeans in 2016, were poised to match or exceed those levels for wheat and maize but projected to decline by about 15 percent for soybeans. Similar to last year, when prices were seeking market clearing levels while exhibiting low volatility, volumes defied the conventional wisdom that low prices deter trading interest. However, trading has been increasingly generated by algorithmic programs (about 50 percent according to the CME) which often seek small anomalies across several markets and increasingly operate without human supervision. Additionally, open interest (the number of outstanding contracts at a given point in time for a futures contract) increased for maize and soybeans futures markets year-on-year (y/y) and for all three commodities when options on futures were included. Options trading increased y/y by almost 30 percent for maize and soybeans, and 16 percent for wheat. This probably reflects the rising electronic trade in these markets – now representing 70 percent – which have been slow to migrate away from the “open outcry” mode of trading.

VOLATILITY

Volatility levels for maize and soybeans tended to track US crop development, peaking in July and August when hot and dry weather in the US briefly drove prices to one-year highs. Historic volatility (based on 30 days) for wheat, maize and soybeans reached 38, 28 and 23, respectively, during summer months, with each declining by about 10 points by October. Implied volatility (calculated by the level of option premiums on underlying futures contracts) exhibited a similar peaking pattern for July and August, with wheat, maize and soybeans registering by October near historic low levels of 17, 16 and 13, respectively. Overall levels were mostly lower than the previous two years and disassociated from other commodity markets, such as cattle or cocoa futures which exhibited dramatic price swings and bouts of high volatility. Crude oil volatility, often linked with maize markets because of the amount of maize converted into ethanol fuel, remained subdued over the last six months.

INVESTMENT FLOWS

Managed money crisscrossed between long and short positioning as commercial traders took opposite strategies over the course of the past several months. After accumulating a record combined net short positon for wheat, maize and soybeans at the start of planting season in May, managed money swiftly covered its shorts to establish long bets, as weather concerns briefly drove prices 10 to 25 percent higher during July. Except for soybeans, these long bets were again abandoned for a return to short positioning as weather issues abated.

According to the hedge fund tracker Barclay Hedge, agricultural traders managing fund monies showed a return of 2.55 percent year-to-date compared to a loss of 2.40 percent in 2016. A long-term review found that the last double-digit return for these fund managers was 11.74 percent in 2011, and since then, returns have averaged about 2 percent per annum.

Swaps dealers, who manage passive funds that base returns on futures price performance, have gradually lessened their presence in the market over time. In 2010 and 2011, they were the focus of agricultural economists for their outsized net long open interest in maize and soybeans (over 30 percent) and wheat (over 40 percent). Most recently, swaps dealers have reduced their positions to the mid-teens or below as a percentage of open interest in all three commodities. The Deutsche Bank Agricultural Index Fund, which tracks 10 agricultural futures markets and is the largest agricultural fund by asset value, has foundered since 2011, reaching an all-time low of 18.66 in September 2017. By comparison, the most widely watched equity index, the S&P 500, has almost doubled in value over the last 6 years.

Ocean freight rates

Contributed by the International Grains Council (IGC)
www.igc.int

OCEAN FREIGHT MARKET (OCTOBER 2016 - OCTOBER 2017)

The dry bulk freight market posted solid gains over the past six months, although trends were two-sided, with sectors for the largest vessels remaining distinctly volatile. Weakness initially reflected a seasonal slowdown in demand, coupled with uncertainties about global trade. However, markets edged higher since mid-July, with the Baltic Dry Index (BDI) – a composite measure of activity on key routes – reaching its highest since March 2014, on broad-based gains across constituent segments. Reflecting cautious optimism among market participants against a brighter economic backdrop and improved fundamentals, the BDI was up by 86% y/y.

Gains over the past six months were steepest for Capesize vessels, primarily associated with the shipment of heavy raw materials. Pressured by limited activity on key iron ore routes from Western Australia and Brazil, the corresponding Baltic sub-Index bottomed out in mid-July, dropping by more than two-thirds since late April. Values mostly soared thereafter on renewed buying interest from China, highlighted by record iron ore imports in September, with coal deliveries in the same month at a near-three year high. With occasional support from strength on transatlantic routes and an upturn in period fixing, the sub-Index was 92% higher y/y.

Panamax rates also exhibited mixed trends throughout the period. With steep losses in May-June followed by volatile growth, average values firmed slightly since late April, but registered a sharp y/y increase. Initial declines mainly stemmed from limited activity out of South America, particularly for new crop grains and oilseeds. A weaker tone in Australia and Indonesia amid increasing tonnage supply in the Pacific also weighed on sentiment.

Despite occasional pressure from excess tonnage in some regions, the market staged a recovery in the period since, the sub-Index touching a near four-year high more recently. Dispatches from South America and the USA ramped up in recent months, with Brazil a particularly active exporter of maize and soyabeans. Underpinned by robust soyabean demand from China, nominal rates for trips from Brazil and the USA (Gulf) rose by 13% and 18%, respectively, during the past six months.

Ocean freight rates for smaller Supramax and Handysize vessels followed the broader market trend, with initial declines in late spring and early summer being more than offset by increases in more recent months. A build-up of tonnage in the Mediterranean, the USA and South America, coupled with reduced shipments of minerals in the Pacific, weighed on sentiment initially, although markets drew some support from brisk demand for scrap and fertilizers in Europe and the Baltic, as well as firmer interest in soyabean shipments from Brazil and Argentina.

Losses were reversed in recent months on the back of new crop grains business out of the Black Sea region and improved demand at the US Gulf and South America, with occasional support, too, from cement and clinker business in the Mediterranean. Over the past six months, the Baltic Supramax and Handysize sub-Indices rose by 25% and 19%, respectively, translating into increases of around 60% y/y in each sector.

Long-term dry bulk freight market developments

Ocean freight rates have posted notable gains over the past year, including particularly sizeable increases across the grains and oilseeds carrying segments. However, over the same period, average grains and oilseeds export quotations have firmed only slightly, as highlighted by a net 1% gain in the IGC Grains and Oilseeds Index, a trade-weighted composite index of physical cash values, spanning eight commodities. Accordingly, the average share of freight in calculated c&f prices has increased over the past twelve months, to around 10%, making transportation costs an increasingly important consideration in the trade in grains and oilseeds.

Underlying this trend are reports of a shift in soyabean shipments from Gulf to Pacific North West ports in the USA. However, despite higher rates, freight costs as a share of c&f values are still well below the peaks of 2007-2008, as the accompanying graphic illustrates for key selected routes.

Food import bills

World food import bill in 2017 second highest on record

The cost of importing food globally in 2017 could reach USD 1.413 trillion, which would represent a 6 percent, or USD 86 billion, increase from last year, while down some USD 30 billion from the record bill of 2014. The higher bill is driven by not only more expensive freight rates but also generally greater international demand for most foodstuffs.

Rising and volatile freight rates were a prominent feature in 2016 and also have been a characteristic over much of 2017, as evidenced by movements in the Baltic Dry Index that show average shipping charges in the ten months to October 2017 almost twice as high as in the corresponding period of last year. Taking wheat originating from the US Gulf ports as an example, major Asian buyers have now to pay as much as USD 45 per tonne to take delivery of the grain, which is USD 12 or 36 percent more than what they paid last year.

Turning to developments at the product level, the import bills to undergo the largest absolute year-on-year increase are those for livestock commodities and for cereals. At the forefront, the expected rise in global dairy import bill from last year amounts to some USD 38 billion, or 51 percent, on the back of record global demand and considerably higher unit costs. The world dairy bill could approach USD 112 billion in 2017. For similar reasons, the meat import bill looks set to reach an all-time high of USD 176 billion, up 22 percent from 2016.

Stronger international demand in 2017 for maize is expected to drive up global expenditures on cereal imports by USD 25 billion to nearly USD 180 billion. The combination of higher volumes, higher benchmark prices and higher freights is also generally behind greater year-on-year bills for all other imported food categories, except for sugar. International purchases of the commodity are expected to decline this year and sugar prices to remain below the level of 2016, but the hike in shipping costs is likely to have an offsetting effect, with the overall sugar bill rising from last year, albeit modestly.

Of concern are the higher-than-average increases in the food import bills of many economically vulnerable nations. Expenditures by least-developed countries (LDCs), low-income food deficit countries (LIFDCs) and those geographically situated in sub-Saharan Africa (SSA) are set to climb considerably more than the global increase in 2017. For instance, the projected year-on-year rise of 12 percent in the aggregate bill for LIFDCs is twice the world average, while for LDCs, the most vulnerable country group, the food import bill could soar by 10 percent from 2016.

Cereal staples dominate imported foodstuffs for economically vulnerable countries. Improved domestic cereal production prospects, leading to lower purchases on the international marketplace, have not been sufficient to curb the strong growth in cereal import bills in 2017, as higher unit costs have driven up expenditures. However, the US dollar – the currency in which most transactions are priced – has weakened considerably in 2017. This ought to have given some respite to the cost of procuring from international markets for those countries that saw their currency appreciate; but, this has not been the case for several large LIFDCs, as shown overleaf.

Contact:

Adam.Prakash@fao.org

After reaching a 15-year high at the end of 2016, the US dollar has fallen considerably relative to major currencies, with the inflation-adjusted index dipping below 100 points in September and October 2017 for the first time in 34 months. While providing respite to the cost of importing, as most international transactions are priced in USD, numerous major food importing LIFDCs (those buying more than USD 1 billion worth of food annually from international markets), however, have seen their currency slide against the US dollar. Many of them, especially those situated in Africa, have experienced depreciation exceeding double-digit levels in percentage terms.

FAO price indices[1]

FAO Global Food Consumption Price Index higher but steady[2]

The FAO Global Food Consumption Price Index tracks changes in the cost of the global food basket as depicted by the latest FAO world food balance sheet (see http://faostat3.fao.org/download/FB/FBS/E).

After a sustained increase throughout much of 2016, the index has become more variable in 2017. It fell to a 12 month low in the first quarter of 2017 before climbing to a 30 month high of 181 points in July, where it has since stabilized slightly below this level. The index has also shown greater concordance with the trade-weighted FAO Food Price Index (FPI) in recent months. This is because international prices of foodstuffs that carry a large weight in each index - meat and dairy products in the FPI, and wheat and rice in the case of the FAO Global Food Consumption Price Index - have exhibited similar momentum.

FAO Food Price Index edges down in October[3]

The FAO Food Price Index (FFPI) averaged 176.4 points in October 2017, down 2.2 points (1.3 percent) from September. Although at this level the FFPI was up 4 points (2.5 percent) from its value in October 2016, it remained 27 percent below its all-time high (in nominal terms) of 240 points registered in February 2011. With the exception of cereals, all the other indices used in the calculation of the FFPI fell in October.

The FAO Cereal Price Index averaged 152.8 points in October, up a notch from September and 10.5 points (7.4 percent) higher than the same month last year. Among the major cereals, wheat quotations were generally lower, pressured by large exportable supplies from the Back Sea Region and increased competition among exporters. Maize prices increased slightly in the US, although those from South America were weighed down by large supplies. Rice prices strengthened in October, amid seasonally tight Japonica and fragrant supplies, with additional support for Japonica prices stemming from a series of tenders in the Far East.

The FAO Vegetable Oil Price Index averaged 170 points in October, down 1.8 points (or 1.1 percent) compared to the previous month and close to the level recorded one year ago. The index’ retreat was primarily driven by palm and soy oils. Palm oil values weakened on higher than anticipated inventory levels in Malaysia and the expectation of production gains in Southeast Asia, while soyoil prices eased on good soybean harvest progress in the United States and forecasts of ample global availabilities in 2017/18. Lower sunflower oil quotations, facilitated by large export availabilities in the Black Sea region, also weighed on the index.

The FAO Dairy Price Index averaged 214.8 points in October, down 9.4 points (4.2 percent) from September and marking the first drop since May 2017. At that level, the index was 32 points (17.5 percent) above its value in October 2016, but 22 percent below its peak reached in February 2014. International quotations for butter, skim milk powder (SMP) and whole milk powder (WMP) eased in October, while those of cheese remained more stable. Butter and WMP prices fell as importers held back on purchases, awaiting arrival of new supplies from Oceania. Low demand and ample intervention stocks in the EU hastened the decline of SMP prices. A balanced cheese market contributed to more stable cheese quotations.

The FAO Meat Price Index[4] averaged 172.7 points in October, down 1.6 points (0.9 percent) from September and continuing a trend of moderate declines that began in July this year. International prices of pig and ovine meat declined in October, while those of bovine meat increased and of poultry were stable. Intense competition among exporters and sluggish import demand have been behind the declines in pigmeat prices observed in recent months. However, bovine meat prices rose for the third consecutive month due to limited spot offers from Oceania. A seasonal increase in ovine meat supplies in Oceania pushed down ovine prices, while poultry meat markets remained well balanced.

The FAO Sugar Price Index averaged nearly 203 points in October, down 1.4 points (0.7 percent) from September and as much as 112 points, or 36 percent, below the corresponding month last year. Sugar prices fell in October as the potential for higher supplies in 2017/18 was further reinforced with prospects for a larger beet crop in the EU and bigger output in the Russian Federation. Weaker Brazilian Real, increasing the potential for larger export sales from Brazil, also weighed on international prices, especially in view of a significant slowdown in purchases by China because of higher import tariffs.

[1] All changes referred to in this section, in absolute or percentage terms, are calculated based on unrounded figures.

[2] The FAO Global Food Consumption Price Index is published twice a year in Food Outlook.

[3] The FAO food price indices are updated on a monthly basis and are available on: http://www.fao.org/worldfoodsituation

[4] Unlike for other commodity groups, most prices utilized in the calculation of the FAO Meat Price Index are not available when the FAO Food Price Index is computed and published; therefore, the value of the Meat Price Index for the most recent months is derived from a mixture of projected and observed prices. This can, at times, require significant revisions in the final value of the FAO Meat Price Index which could in turn influence the value of the FAO Food Price Index.