ACKNOWLEDGEMENTS

The Food Outlook report is a product of the FAO Trade and Markets Division. This report is prepared under the overall guidance of David Hallam, Director; Concepcion Calpe, Senior Economist; and Abdolreza Abbassian, Senior Economist and Food Outlook Team Leader. It is written by a team of economists, whose names and email contacts appear under their respective market summary contributions. The report benefited from research support by many staff, namely, David Bedford, Claudio Cerquiglini, Julie Claro, Grace Karumathy, David Mancini, Emanuele Marocco, Patrizia Mascianá, Marta Michetti, Marco Milo, Mauro Pace and the fisheries statistical team.

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

The designations employed and the presentation of material in this information product do not imply the expression of any opinion whatsoever on the part of the Food and Agriculture Organization of the United Nations (FAO) concerning the legal or development status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. The mention of specific companies or products of manufacturers, whether or not these have been patented, does not imply that these have been endorsed or recommended by FAO in preference to others of a similar nature that are not mentioned.

ISSN: 0251-1959 (print)

ISSN 1560-8182 (Online)

© FAO 2014

FAO encourages the use, reproduction and dissemination of material in this information product. Except where otherwise indicated, material may be copied, downloaded and printed for private study, research and teaching purposes, or for use in non-commercial products or services, provided that appropriate acknowledgement of FAO as the source and copyright holder is given and that FAO’s endorsement of users’ views, products or services is not implied in any way.

All requests for translation and adaptation rights, and for resale and other commercial use rights should be made via www.fao.org/contact-us/licencerequest

or addressed to copyright@fao.org.

FAO information products are available on the FAO website (www.fao.org/publications) and can be purchased through publications-sales@fao.org

HIGHLIGHTS

Global markets for most foodstuffs are characterized by abundant supplies and less un-certainty than in recent years, a situation reflected in FAO’s Food Price Index falling to a four year low. Major exceptions are markets for animal-based products, which are expected to sustain a 1 trillion dollar world food import bill for the fifth year in succession.

WHEAT

World production is forecast to reach a new record in 2014. Ample supplies have pushed international prices to multiple-year lows. Based on the latest supply and demand outlook for 2014/15, global wheat inventories would reach their highest levels since 2003.

COARSE GRAINS

Prospects for a near record pro-duction in 2014, combined with already high inventories at the start of the season, are portraying a very comfortable world supply and demand balance in 2014/15, evidenced by the rapid fall in maize prices and expectation of even higher ending stocks.

RICE

After two seasons of below trend growth, global rice production may fall in 2014, albeit marginally. However, global rice reserves would still be sufficient to cover more than a third of the 2015/16 projected world consumption. Trade is forecast to hit new records in 2014 and 2015.

CASSAVA

The forecast for global output, while highly provisional, points to yet another record in 2014, driven by sustained growth in Africa, where food demand, particularly for value-added products, has accelerated. Trade is also set to surpass previous records on account of vibrant industrial demand.

OILCROPS

In 2014/15, record soybean crops will likely push up world meal/cake availabilities, while only moderate growth is expected in oil/fat supplies. There is scope for a further easing of international meal prices, but vegetable oil values could stabilize at their current relatively low level.

SUGAR

World production is forecast to increase marginally in 2014/15, but will still exceed projected global consumption, resulting in yet another, albeit small, increase in world sugar inventories. Trade is anticipated to grow, driven by lower prices and improved economic prospects in several traditional sugar importers.

MEAT

World production is anticipated to grow moderately in 2014. The FAO Meat Price Index reached an historic high in April 2014, and has continued to increase since then. While the price situation varies among the different types of meat, there is no sign of an overall decrease.

DAIRY

Milk production continues to increase steadily in many countries. The FAO Dairy Price Index which started the year at an historic peak, fell continuously between March and September, dropping to a level last seen in mid-2012.

FISHERIES

Aquaculture production continues to boost overall supply. The effect of El Niño on South American catches has been fairly modest so far. Most fish prices have dropped sharply since their highs in March on weaker demand and improved supply.

SPECIAL FEATURES

FOOD STOCKS AND PRICES

The experience of three food price spikes in five years highlighted the vulnerability of international markets to supply and demand shocks when stock-to-use ratios are low. The resulting “excessive” price volatility was associated with lower stock levels that were not “adequate” to cushion the impact of shocks, although defining “excessive” and “adequate” is not easy and reliable stocks data are scarce.

CONTENTS

MARKET SUMMARIES

MARKET ASSESSMENTS

Wheat

Coarse grains

Rice

Cassava

Oilcrops, oils and meals

Sugar

Meat and meat products

Milk and milk products

Fish and fishery products

SPECIAL FEATURE

Food stocks and prices

MAJOR POLICY DEVELOPMENTS

Grains

Rice

Oilcrops

Sugar

Meat

Dairy

STATISTICAL TABLES

MARKET INDICATORS

Futures markets

Ocean freight rates

Food import bills

The FAO price index

MARKET SUMMARIES

CEREALS

World cereal production in 2014 is anticipated to reach 2 523 million tonnes, some 65 million tonnes higher than FAO’s initial forecast published in the May issue of this report. A continued upgrading of this year’s coarse grain harvests, maize in particular, has been the main underlying factor. Under current expectations, world cereal production would fractionally decline from the 2013 peak; with wheat production achieving a new record, at 718.5 million tonnes, and coarse grains virtually matching last year’s high of 1 308 million tonnes. By contrast, unfavourable weather conditions have lowered prospects for rice production, which is now forecast to reach 496.4 million tonnes, down 0.4 percent from 2013.

Global cereal utilization in 2014/15 is set to increase by 1.8 percent from 2013/14. Total food use is expected to rise by just over 1 percent, implying a stable per capita basis of 153kg per annum. Feed use, on the other hand, is likely to expand by 2.5 percent, a much slower pace than in 2013/14.

Based on the latest forecasts for production and utilization, world cereal stocks at the close of crop seasons ending in 2015 would surge to 627.5 million tonnes, up 8.3 percent from an already large volume at the start of the season and its highest level in 15 years. Maize would account for the biggest increase, followed by wheat, while rice stocks are forecast to decline, albeit from a record level. The overall positive outlook, if realized, will result in the cereal stocks-to-use ratio increasing to 25.2 percent in 2014/15 from 23.5 percent in 2013/14, and the highest since 2001/02.

This year’s abundant supplies have already resulted in sharp declines in international prices of all cereals, with the exception of rice. However, the lower prices are not expected to stimulate trade, as the major cereal importing countries are holding large supplies, which may depress import demand and result in total cereal trade contracting by 5.0 percent to 337 million tonnes in 2014/15.

Contact:

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

WHEAT

Global wheat production in 2014 is forecast at 718.5 million tonnes, a marginal increase from the 2013 record output. This forecast is slightly higher than was reported in September, largely due to upward revisions in the Russian Federation and Ukraine. Compared with 2013, large production gains are now foreseen for the Russian Federation, as well as China and India, which will more than compensate for smaller crops in Australia, Canada and the United States.

World wheat trade in 2014/15 (July/June) is set to contract to 150 million tonnes, 7.3 million tonnes (4.6 percent) below the record level of 2013/14. The reduction would be mainly attributed to lower import demand in Asia and Africa, more than offsetting a rise in Europe. Despite a record crop, purchases of high quality wheat by the EU are likely to remain large.

Total wheat utilization in 2014/15 is put at around 701 million tonnes, 1.7 percent higher than in 2013/14. Given this season’s prospect for large supplies of feed quality wheat, usage by the livestock sector is likely to show a strong growth after two consecutive seasons of declines. World wheat inventories are forecast to reach 192.4 million tonnes by the end of seasons in 2015, their highest level since 2003. Based on latest forecasts for stocks and utilization, the world wheat stock-to-use ratio increases from 25.2 percent in 2013/14 to 26.9 percent in 2014/15, while the ratio of major wheat exporters’ closing stocks to their total disappearance rises from 14.1 percent to 15.6 percent, reflecting this season’s ample supply situation. Against this background, international wheat prices have come under strong downward pressure in recent months, falling in September to their lowest levels in four years.

Contact:

Natalia.Merkusheva@fao.org
Jonathan.Pound@fao.org (Production)

COARSE GRAINS

Global production of coarse grains is forecast at 1 308 million tonnes for 2014, virtually unchanged from the 2013 record. Maize output is expected to reach 1 018 million tonnes, 0.7 percent above the record output in 2013. The expansion in world maize production mainly rests on anticipated record harvests in China and the United States, as well as significantly higher outputs for the EU and the Russian Federation. By contrast, world barley production is forecast at 140.2 million tonnes, 4 percent below the record level in 2013, mainly reflecting smaller outputs in the EU, North America and Australia. The forecast for global sorghum production stands at 60.1 million tonnes, virtually unchanged from 2013.

Reflecting another good year for global production, especially in many importing countries, world trade in coarse grains in 2014/15 is set to decline to 147 million tonnes, down 6.9 percent from the 2013/14 record level. The sharp contraction, if realized, would be the biggest in over two decades. Maize is responsible for the bulk of this decline, with total maize imports forecast to contract by 4.5 percent to 114 million tonnes. World trade in barley is set to fall slightly, to 21 million tonnes, while global imports for sorghum could dip to 7.5 million tonnes, down 600 tonnes from the previous season’s level.

The latest forecast for global utilization of coarse grains in 2014/15 points to a 1.9 percent increase to 1 260 million tonnes, which compares with a 6.0 percent expansion estimated for 2013/14. Most of this deceleration reflects a slower rise in feed intake in the United States. Based on the latest forecasts for global production and utilization, world stocks of coarse grains in 2015 are forecast to rise to 257.4 million tonnes by the close of crop seasons, 16 percent above their opening levels and their highest level since 1986/87. The anticipated increase in world inventories will result in the stock-to-use-ratio reaching 20.2 percent, a value not seen since 2001/02, and well above the historical low of 13.8 percent registered in 2012/13. Good crop prospects and rising inventories have continued to put downward pressure on international prices with maize futures in September falling as much as 25 percent below their corresponding period last year.

Contact:

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

RICE

International rice prices edged steadily higher between May and August 2014. The price strength mainly reflected concerns about the possible impacts of erratic weather on rice crops and the resumption of purchases by some major importers. Prices, however, started to recede again in September, amid accrued competition among exporting countries, keen to free storage space ahead of upcoming harvests.

Crop prospects deteriorated in the past few months, reflecting erratic weather conditions across all regions, marring the outlook for global rice production in 2014, now anticipated to fall marginally (by 0.4 percent) to 496.4 million tonnes in milled rice equivalent. The major output shortfalls, in absolute terms, are expected in India, Indonesia, Nepal, Sri Lanka and Thailand. Yet, there is still much uncertainty, especially concerning the 2014 secondary crops, which Northern Hemisphere countries will soon start sowing for harvest next year.

Taking advantage of the lower international prices and in anticipation of possible production setbacks, many countries have been actively buying rice from world markets during the course of 2014. This strong import demand, combined with large supplies in major exporting countries, is expected to sustain a 7 percent increase in the volume of rice transactions in calendar 2014 to a record 39.7 million tonnes.

Looking ahead, world rice trade is expected to grow further in 2015, although by only 0.7 percent, to about 40 million tonnes. African countries are predicted to drive the expansion in world imports, while inflows to Asian countries may contract. Ample availabilities in exporting countries are also expected to underpin trade in 2015.

Global rice utilization is forecast to hover around 500 million tonnes in 2014/15, 1.7 percent more than in 2013/14, sustaining a fractional increase in per capita consumption to 57.5 kg. With world production falling short of utilization, world rice inventories ending in 2015 are forecast to be trimmed for the first time in ten years. However, their volume is projected to remain huge, sufficient to cover more than a third of the 2015/16 projected rice consumption.

Contact:

Concepcion.Calpe@fao.org
Shirley.Mustafa@fao.org

CASSAVA

Although the forecast for global cassava production output remains highly tentative, another record is expected in 2014. Cassava’s upward trajectory is firmly set, underpinned by sustained growth in Africa – the largest growing region – where food demand, particularly for value-added products, has accelerated, and also in Asia where industrial applications in the form of ethanol and starch are on the rise. International trade in cassava, mostly confined to Asia and, in particular, Southeast Asia, is also expected to surpass previous records on account of vibrant industrial demand.

World cassava output in 2014 is expected to reach 291 million tonnes, representing a 4.6 percent increase from 2013, which is well above global population growth. The expansion is being driven by rising demand for food across the African continent, especially in the form of flour, and increasing industrial applications of cassava in East and Southeast Asia, notably for ethanol and starch. World trade in cassava products, much sustained by industrial demand, is set to expand significantly, reaching over 20 million tonnes (almost 41 million tonnes in root equivalent) in 2014 - a near doubling of volume in five years. This record outcome would be a result, by and large, of the competitiveness that cassava has maintained over competing products, and also market stabilization policies in Thailand, the world’s leading international supplier of cassava products. International prices of chips, starch and flour have been remarkably stable in spite of strong demand and an appreciating baht.

While highly preliminary, the outlook for 2015 points to a continued expansion of production in Africa, where cassava remains a strategic crop for both food security and poverty alleviation. In Asia, prospects for further expansion of the sector critically hinge on how cassava fares with competitive substitutes. In recent weeks, international quotations of maize have fallen precipitously while, at the same time, the Thai baht has appreciated strongly, causing some uncertainty about near-term prospects.

Contact:

Adam.Prakash@fao.org

OILCROPS

The current outlook for the 2014/15 marketing season points to a further improvement in the global supply and demand balance for oilseeds and derived products.

Global oilseed output is forecast to exceed last season’s record due to further expanding of soybean production. Thanks to record plantings and near-ideal growing conditions, the United States is set to harvest another bumper soybean crop, while further gains in planted area seem likely in South America, considering that relative prices continue to favour soybeans over maize. For oilseeds other than soybeans, a contraction in output is possible. Palm oil production should keep growing, but at a below-average rate.

Record soybean crops will likely result in another conspicuous increase in world supplies of meals/cakes in 2014/15, whereas global oils/fats could grow less than last season. As global meal output is anticipated to outpace world utilization, a conspicuous build-up in stocks is expected. For oils/fats, global output should basically match utilization, precluding significant stock changes. Based on current forecasts, the stock-to-use ratio for meals/cakes is poised to rise strongly, whereas that for oils/fats should remain about unchanged.

The present outlook suggests that there is scope for international meal prices to ease further during 2014/15, thus extending the recently commenced descending trend and abandoning the high levels recorded since mid-2012. Additional downward pressure is likely to come from record global feedgrain supplies. As for the oils/fats market, a balanced supply and demand situation and stable stock-to-use ratios point to a stabilization in prices around their current relatively low level.

International trade in oilseeds and derived products is forecast to expand further in 2014/15, although less strongly than last season. The anticipated slowdown reflects ample domestic supplies, stemming in part from large carry-in stocks in a number of significant importing countries, including China and the EU. It also reflects limited export availabilities arising from poor crops, higher domestic utilization or the need to re-build stocks in several exporting nations, notably the United States, Indonesia, Malaysia and Brazil.

Contact:

Peter.Thoenes@fao.org

SUGAR

FAO forecasts world sugar production to increase in 2014/15 and to surpass consumption for the fifth consecutive season, but the anticipated surplus is likely to be small. Falling sugar outputs in Brazil, China and Pakistan are anticipated to be offset by expansions in India, the EU and the Russian Federation. World sugar consumption is set to grow in line with its long-term trend, reflecting increases in several developing countries that are expected to benefit from falling domestic sugar prices as well as improved economic performance in 2015. This positive economic prospect is supportive to sugar demand, as manufacturing and food preparation sectors, which account for the bulk of aggregate sugar consumption, are highly influenced by the economic environment. Sugar consumption growth will be particularly pronounced in Asia and Africa. Falling international sugar prices are expected to stimulate global import demand and boost world sugar trade in 2014/15, even though imports by China and the Russian Federation, are expected to contract. Exports are anticipated to remain unchanged in Brazil, the world’s largest sugar producer and exporter, but to rise in Thailand. International sugar prices, on a downward trend for most of 2013, recovered modestly in the first half of 2014, underpinned by drought conditions in Brazil. However, by the end of July 2014, sugar quotations began to decline, amid improved production in several major sugar-producing countries. The downgrading of production in Brazil was not sufficient to invert the tendency for prices to fall.

Contact:

Elmamoun.Amrouk@fao.org

MEAT AND MEAT PRODUCTS

World meat production is anticipated to grow modestly in 2014 to 311.6 million tonnes, 3 million tonnes or 1.1 percent above 2013. The expansion is likely to be concentrated in the developing countries, which are also the main centres of rising demand.

At the international level, prices have remained high by historical standards for the past three years, with the FAO Meat Price Index generally oscillating around 185 points. Since April 2014, the Index has registered further upward movement, reaching 208 points in September. Prices rose for all categories, especially bovine meat, although towards the end of the period, some reduction was evidenced for porcine and ovine meat.

Global meat trade is forecast to expand at a moderate rate of 2.3 percent in 2014, to 31.6 million tonnes. The anticipated growth would be less than the average for recent years, due to a variety of factors, including production constraints in some of the principal exporting countries, animal health concerns and trade restrictions. There are diverging projected trade trends for the various types of meat, with growth forecast for bovine, pigmeat and poultry, and decline forecast for ovine meat. Poultry remains the main product traded, representing 43 percent of the total, followed by bovine, pig and ovine meat, respectively.

Contact:

Michael.Griffin@fao.org

MILK AND MILK PRODUCTS

The FAO Dairy Price Index started the year at an historic peak and then fell continuously between March and September. In September it stood at 188 points, a level last seen in mid-2012. Quotations for all dairy products covered in the Index plummeted. The fall reflected both abundant export availability and reduced import demand. Export supplies increased in the EU and there was a favourable start to the new season in Oceania. Already declining prices, caused by a slackening of imports by China, fell further following Russian Federation trade prohibitions introduced in August.

World milk production is forecast to grow by 2.4 percent in 2014, a rate similar to previous years, reaching 792 million tonnes. Asia is expected to account for most of the expansion, but production is likely to rise in all regions.

World trade in dairy products is projected to continue increasing in 2014, linked to a favourable milk production outlook in most of the major exporting countries and continued strong demand. Trade is forecast to grow by 4.6 percent to reach 72 million tonnes of milk equivalent.

Asia is expected to remain the main centre for rising international demand in 2014, with increased purchases forecast for China, Indonesia, Malaysia and Thailand. Elsewhere in Asia, Saudi Arabia, the United Arab Emirates, Japan, the Philippines and Singapore remain important markets, but the level of their imports is not expected to change markedly and, in some cases, could decrease. Reduced international prices may stimulate imports in Africa as a whole. The principal importers that could see growth are Algeria, Egypt and Ghana. In Europe, imports by the Russian Federation are anticipated to fall.

As for exports, two principle suppliers, New Zealand and the European Union, are both anticipated to record an increase in sales. Also, the United States is set for further growth, following an exceptional hike in shipments already last year.

Contact:

Michael.Griffin@fao.org

FISH AND FISHERY PRODUCTS

Despite the weak economic recovery, firm import demand is boosting the volumes and values of international trade in 2014. After reaching record highs in March, price levels weakened during the second and third quarters due to softening consumer demand in many European markets and in Japan, and an improving supply situation for shrimp and salmon. Prices remain above 2013 levels for most species and products.

The short-term outlook for prices is not positive. In addition to the weak consumer demand in many key European markets, the political tensions in Eastern Europe has resulted in the import imposition of bans against a number of key suppliers who will have to find alternative markets for significant volumes of their production. For those countries not targeted by the import restrictions, the bans have created new opportunities, especially for salmon, trout and small pelagics. At the end of the year, some upward movement in prices can be expected because of cyclical demand swings.

Overall supply continues to be boosted by a vibrant aquaculture sector, especially in Asia, but also in Africa and South America. Domestic consumption in many developing country markets is growing rapidly, further encouraging national investments in aquaculture and improved distribution systems.

The El Niño phenomenon which had potential to drastically reduce catches of small pelagics in South America has until now turned out to be fairly weak. Although its impact has been limited, prices on fish meal and fish oil have firmed during the first six months of the year, as uncertainty remains concerning the level of catches towards the end of this year.

Annual fish consumption as food is estimated to reach 20 kg per capita in 2014, for the first time, with the share of aquaculture in food fish consumption overtaking that of capture fisheries. This heralds a new era in the fisheries and aquaculture sector, indicating that the aquaculture sector will increasingly be the driver in product and distribution development, pricing strategies, marketing and the development of domestic and regional markets. Nonetheless, the capture sector will remain dominant for a number of species and vital for domestic and international food security.

Contact:

Audun.Lem@fao.org

MARKET ASSESSMENTS

WHEAT

PRICES

Wheat prices plunge on large world supply

After a sharp increase between February and May 2014, international wheat prices dipped in June on improved crop prospects. By September, the benchmark US wheat, No.2 Hard Red Winter, f.o.b. Gulf, averaged around USD 279 per tonne, the lowest monthly average in 4 years and 11 percent below the corresponding period last year. Wheat prices rose briefly in August, mainly in response to quality concerns in a number of growing areas in Europe and North America but, overall, international prices remained under downward pressure on expectation of a record global output for the second consecutive year. Contrary to earlier fears, shipments from the Black Sea region also proceeded regularly, which also contributed to the price decline.

Similarly, wheat futures retreated from the high levels they reached earlier in the year, with wheat quotations for December delivery at Chicago Board of Trade (CBOT) falling to a 4-year low of USD 185 per tonne in September. In addition to the large world supply, expectation of a record maize crop and increasing strength in the value of the US dollar also weighed on wheat values.

PRODUCTION

Second year of record wheat production

Following recent upward revisions in the Russian Federation and Ukraine, FAO’s latest forecast for 2014 global wheat production stands at 718.5 million tonnes, marginally higher than the record output in 2013. Strong year-on-year production gains are estimated in European countries, notably the Russian Federation, while larger crops are foreseen in India and China. These increases have more than compensated for the lower output in North America and an expected decrease in Australia.

Production in Europe is put at 236.3 million tonnes for 2014, about 5 percent (11 million tonnes) up from the 2013 estimate and the highest level since the record in 2008. The bulk of the increase is accounted for by the Russian Federation’s 13 percent rise, to 59 million tonnes, following favourable weather that contributed to higher yields. More modest gains are estimated in the EU (2 percent), while improved yields in Ukraine more than offset a smaller area planted, resulting in a 5 percent production increase in 2014. In the United States, despite increased plantings, production fell by 5 percent to 55.2 million tonnes, reflecting lower yields caused by dry weather. Production in Canada is sharply down, decreasing by 26 percent (nearly 10 million tonnes) to 27.7 million tonnes, as lower prices contributed to an 11 percent contraction in 2014 plantings, and lower yields further reduced the output.

In Asia, with harvesting complete, the aggregate wheat output in 2014 is estimated at 321 million tonnes, slightly above last year, as increases in India, China and Pakistan were partly offset by an overall contraction in the Near East. In China, production is forecast to expand to a new record of 125.3 million tonne, mainly attributed to higher yields, following good rains. Similarly, India and Pakistan collected record volumes of 95.9 million and 25.3 million tonnes respectively, underpinned by higher plantings and improved yields. By contrast, the wheat crop in Turkey, which accounts for about half of the Near East production, was hindered by drought conditions and cold weather, resulting in a 10 percent fall. Compared to last year’s record level, wheat production in North Africa, which is mainly rainfed, fell overall. Dry weather at the start of the season in Morocco resulted in a smaller planted area and a consequent 27 percent decrease in the national output to 5.1 million tonnes. Unfavourable weather also caused a small reduction in Algeria, while production recovered strongly in Tunisia and remained relatively unchanged in Egypt.

The 2014 wheat harvest, which is underway in the Southern Hemisphere countries, will only be completed early next year. In South America, production prospects are positive, with the aggregate output forecast to grow for a second successive year, reaching 23.8 million tonnes, which is up 25 percent from 2013. In Argentina and Brazil, farmers responded positively to higher domestic wheat prices and increased plantings. Production is forecast to rise by 25 percent over last year’s below-average output in Argentina, to 11.5 million tonnes, and by 38 percent in Brazil to 7.9 million tonnes.

Wheat output in 2014 is forecast to decline in Australia, where dry weather has reduced yield prospects, particularly in Western Australia, the largest producing state. Despite an increase in the area planted, production is expected to decline by 10 percent to a below-average 24.2 million tonnes. In Southern Africa, aggregate production is estimated to fall by 8 percent to just over 2 million tonnes, with declines expected in the two main producing countries, South Africa and Zambia, on account of reduced plantings.

TRADE

World trade to decrease on weak import demand

FAO’s forecast for world wheat trade (including wheat flour in wheat equivalent) in 2014/15 (July/June) has been raised by 2 million tonnes since September and now stands at 150 million tonnes, almost 4.2 million tonnes (2.7 percent) below the 2013/14 record level.

In Asia, total wheat imports are likely to approach 74 million tonnes, nearly 2 million tonnes less than the previous season’s estimated level, yet almost 1 million tonnes higher than had been anticipated. China (Mainland) accounts for the bulk of the anticipated fall in wheat imports, which, given China’s prospect for a bumper harvest this year, could plunge by 2.7 million tonnes to 4 million tonnes in 2014/15. Wheat imports by the Islamic Republic of Iran are expected to reach 5.5 million tonnes, down 500 000 tonnes from the unusually high level of the previous season. Other countries where this season’s imports could be reduced include Pakistan, Yemen and Uzbekistan. By contrast, a number of countries, such as the Republic of Korea and Israel, are seen to import more feed wheat, given its abundant supplies, especially in Europe. Wheat purchases by Indonesia are likely to increase further in 2014/15, following an upward trend which is very much a reflection of the country’s increasing demand for wheat-based products.

In Africa, aggregate imports are anticipated to fall to 41 million tonnes, down 3 million tonnes from the record set in 2013/14. In North Africa, deliveries to Algeria, Egypt and Morocco are estimated to decrease slightly below the previous season. Because of lower than anticipated domestic production, the forecast for imports by Algeria has been raised since September to 6.5 million tonnes, which still falls 1 million tonnes short of last year’s estimate. Total imports by Egypt are forecast at 10 million tonnes, down by 0.5 million tonnes compared with the previous season, due to higher domestic supplies. Following a strong rebound in domestic wheat production, imports by Tunisia could fall by 0.4 million tonnes to 1.6 million tonnes in 2014/15. Given the above-normal inventory level in Morocco, imports are set to decline in spite of this year’s reduced domestic production. In sub-Saharan Africa, imports by most countries are likely to remain close to the previous season’s levels with Nigeria, the region’s largest wheat importer, purchasing at least 4.5 million tonnes this season. In Sudan, imports could rise to 2.2 million tonnes, sustained by stronger demand and the need to reconstitute depleted stocks.

In Europe, total imports in 2014/15 are put at 8.1 million tonnes, up 1.6 million tonnes from the 2013/14 estimate. The increase is mostly attributed to the EU where, notwithstanding this year’s record crop, quality concerns and a shortage of milling wheat are expected to encourage larger purchases. Aggregate imports in Latin America and the Caribbean are forecast to be lower than in the previous season. Imports in Brazil are expected to decrease by 0.6 million tonnes, to 6.3 million tonnes, helped by the prospect of a bumper crop this year. Mexico is also expected to purchase slightly less, around 3.7 million of tonnes, as a result of good domestic production this year.

Regarding exports, the biggest decrease is expected for the United States, whose shipments may drop by 6.6 million tonnes compared with the previous year, given the anticipated contraction in world import demand and a continued strong US dollar, which is undermining the country’s competiveness. By contrast, in Argentina, following the exceptionally low level of shipments registered in 2013/14, this season’s sales are likely to rebound sharply (up at least 4.5 million tonnes) to 6 million tonnes, driven by improved domestic supply. Supported by good crops and a weakening currency, shipments from the Russian Federation are heading toward a record, at 22.5 million tonnes, up 4 million tonnes from the already high level registered in 2013/14. Exports from Ukraine could fall short of last season’s record but a bumper crop could still keep sales at an above average level of 9 million tonnes. By contrast, exports from the EU are forecast to return to more normal levels, falling by 4 million tonnes from the peak of 30.6 million tonnes reached in 2013/14. Shipments from Australia could also decrease slightly, on anticipated decline in production. In Canada, despite a sharp fall in production, large carryover stocks following last year’s record crop, combined with improved logistics, will help keep shipments stable. Among other exporters, exports from India could fall by as much as half, to 2.5 million tonnes, given the rising domestic requirement under the newly established National Food Security Act.

UTILIZATION

Wheat utilization to increase mostly on higher feed use

Total wheat utilization in 2014/15 is projected to reach 700.7 million tonnes, up 1.7 percent from 2013/14 and slightly higher than was anticipated earlier in the season. Total feed use is forecast to grow by 3.1 percent to 133 million tonnes, largely driven by stronger demands in Asia and Europe. In the EU, total feed use of wheat could reach 50 million tonnes, up 5 million tonnes from last season, supported by large supplies of low quality wheat due to excessive moisture in a number of important growing areas affecting this year’s wheat quality. In Asia, most of the anticipated rise in wheat feed use is expected to occur in China, where it could reach 19 million tonnes, up 5.6 percent compared with the previous season. By contrast, wheat usage by the livestock sector is likely to decline in the United States, given the prospect for ample supplies of maize, and in Canada, which is expected to face a tighter domestic wheat supply situation this season.

Total wheat use for direct human consumption is expected to hover around 486 million tonnes, 1 percent higher than in 2013/14. Most of the increase will be concentrated in developing countries, which are forecast to consume 352 million tonnes of wheat as food. Globally, on a per capita basis, wheat consumption is estimated to remain unchanged, at around 67 kg per annum worldwide, with an average of 60 kg per capita in the developing countries and 96 kg per capita in the developed countries. The most populated countries, China and India, are expected to account for 25 percent and 22 percent, respectively, of total wheat food utilization in developing countries.

As for other uses of wheat, as of September 2014, the International Grains Council forecast total industrial utilization at just over 19 million tonnes, slightly above last season, reflecting a stronger demand for starch and ethanol production. Most of the projected increase is expected in the EU, where 5.5 million tonnes of wheat could be used for starch and 3.2 million tonnes for ethanol.

STOCKS

Global wheat inventories highest since 2003

A record wheat harvest this year is expected to boost inventories which, by the close of the marketing seasons ending in 2015, could reach 192 million tonnes, up almost 16 million tonnes from their already high opening levels and the highest since 2003. This month’s stock forecast is 5 million tonnes larger than was anticipated in September, with most of the revision reflecting upward adjustments in production estimates in several countries.

Wheat inventories are projected to increase the most in India, by 5.4 million tonnes, followed by China where stocks are seen to rise by 3.5 million tonnes. Larger inventories are also anticipated in the EU, the Russian Federation and the United States. By contrast, stocks in Canada are expected to return to more average levels, after the peak registered last season. The latest forecasts for this season’s ending stocks and anticipated utilization will result in a world wheat stock-to-use ratio of 26.8 percent, its highest value since 2009/10 and well above the historic minimum of 20 percent registered in 2007/08.

The ratio of major wheat exporters’ closing stocks-to- their total disappearance (defined as domestic utilization plus exports), which is considered a better measure of availabilities in the global market, is also set to increase, from 14.1 percent in 2013/14 to 15.6 percent in 2014/15. Among major exporters, Argentina, Ukraine, the EU, and the United States are all expected to accumulate larger stocks, offsetting a decline in Canada.

COARSE GRAINS

PRICES

Prices fall amid piling supplies

Good crop prospects for coarse grains, in general, and for maize, in particular, have continued to put downward pressure on international prices. While during the first half of the year, prices received some support from rising wheat values and fears of trade disruptions because of escalating tensions in the Black Sea region, large plantings and favourable climatic conditions, combined with an abundance of feed wheat have since then led to sharp declines in prices of major coarse grains. International prices of maize and barley (feed) have fallen significantly below their values of the corresponding period last year. The benchmark US maize price (yellow, No. 2, f.o.b.) averaged USD 164 per tonne in September, down 22 percent from September 2013 and 18 percent since the start of this year.

In futures markets, continued upgrading of this year’s production forecasts has been the main driving factor for the steep decline in prices. This is especially due to another record maize crop predicted for the United States, the world’s largest producer and exporter. By end September, the Chicago Board of Trade (CBOT) maize futures for December delivery were quoted below USD 130 per tonne, down 25 percent from the corresponding period last year.

PRODUCTION

Bumper crops worldwide – record maize production in the United States

FAO’s latest forecast for 2014 global coarse grain production stands at 1 308 million tonnes, virtually unchanged from the record of 2013, with declines in South America and Ukraine expected to be largely offset by an expected record maize harvest in the United States. The global maize output is put at at 1 018 million tonnes, 1 percent above the 2013 record and marginally higher than earlier forecasts, reflecting a recent 9 million tonne upward revision in the United States, on the back of improved yield prospects.

In the Northern Hemisphere, harvesting of the 2014 maize crop is underway or about to commence. Maize production in the United States is forecast at 366 million tonnes, nearly 12 million tonnes (3.4 percent) up on the record crop of 2013. The rise reflects an 8 percent increase in yields which are expected to reach new highs, more than compensating for a reduction in the area planted. By contrast, production in Canada is foreseen to fall by 20 percent, reflecting a reduced area, as farmers opted to sow more profitable crops, mainly soybeans. In China, maize production is forecast to continue its increasing trend, but at a more moderate rate in 2014, largely in response to rising demand for feed grains. The latest forecast for China stands at 220 million tonnes, about 1 percent higher than 2013. In Europe, a near 8 percent production gain is forecast in the EU, as maize yields were bolstered by favourable climatic conditions. The Russian Federation is expected to register a significant production increase of 12 percent, to a new high of 13 million tonnes. These gains are projected to more than compensate for a 14 percent decrease in Ukraine on account of lower yields. This is despite a small upward revision to the maize crop in the past months, following the resumption of favourable rains in the country.

In Western Africa, the aggregate maize output is forecast to contract by 7 percent from 2013’s record level following dry-weather conditions in June and July in several parts of the Sahel belt, notably in Senegal, the Gambia, Mauritania and Guinea-Bissau. In Nigeria, the largest African producer, output could fall by 9 percent to near-average levels. The overall output in Eastern Africa is forecast to fall by 7 percent from the record level of 2013, to 18.6 million tonnes, mainly on account of dry weather, but is still anticipated to remain well above the five-year average. Reduced monsoon rains in India contributed to a smaller area planted and this, combined with a likely return to average yields (from the high levels in 2013), could result in a 14 percent production decline from the 2013 peak.

In Southern Hemisphere countries, the main 2014 maize crop was harvested earlier in the year. The output in South America declined by 3 percent from the 2013 record level, largely reflecting Brazil’s 4 percent contraction to 77.4 million tonnes. Decreased outputs were also estimated in the other South American countries, with the exception of Argentina and Bolivia. Aggregate maize production in Southern Africa increased sharply (by 21 percent) to 27.4 million tonnes. Significant gains were registered in South Africa, the subregion’s main producer, where white maize production recovered by 37 percent from the drought-affected 2013 harvest. Production rebounds were also estimated in Zambia and Zimbabwe, as good weather contributed to improved yields.

World barley production in 2014 is forecast at 140 million tonnes, 4 percent below the record in 2013, mainly reflecting smaller outputs in the EU, North America and Australia due to a fall in yields. In contrast, improved yields and larger plantings are projected to boost outputs in the Russian Federation and Ukraine.

The forecast for global sorghum production stands at 60.1 million tonnes, virtually unchanged from 2013. In the United States, better yield prospects pushed the forecast 11 percent higher to 10.9 million tonnes. Harvesting is underway in East Africa, and an improved output is foreseen, with production in Sudan expected to recover strongly from the drought-affected harvest in 2013. In Western Africa and Asia production declines are forecast, offsetting the gains elsewhere.

TRADE

World trade down sharply in 2014/15

FAO’s forecast for world trade in coarse grains in 2014/15 (July/June) stands at 147 million tonnes, 11 million tonnes (7 percent) below the 2013/14 record level. The sharp contraction, if realized, would be the biggest in over two decades (since 1993/94). This month’s forecast is 2.5 million tonnes higher than in September, mostly to account for upward adjustments to import in several countries in Asia and South America.

Falling maize trade is responsible for the bulk of the expected decline in world trade in coarse grains. World imports of maize are currently anticipated at 114 million tonnes, down as much as 5.3 million tonnes, or 4.5 percent, from 2013/14, although still the second highest on record. The largest declines are forecast for the EU, where maize imports could decrease by as much as 5.5 million tonnes (nearly 37 percent) from the previous season’s record, to 9.5 million tonnes, given good production prospects and, even more importantly, large availabilities of feed wheat. On the other hand, weaker international prices, combined with generally sustained demand for feed, could keep import volumes close to the previous year’s levels in most countries. In Asia, total maize imports are set to increase slightly to 57 million tonnes. China (Mainland) is seen to take in at least 3.5 million tonnes of maize this season, 400 000 tonnes more than in 2013/14, notwithstanding large inventories and another year of record production. Elevated domestic prices – amid the government’s continued policy of purchasing surplus maize from the market to sustain farm incomes – are making imports of cheaper maize from international markets an attractive option for traders. Taking advantage of this season’s lower prices, purchases by Japan, the world’s largest maize importer, could rise by 400 000 tonnes, to 15.5 million tonnes. Deliveries to the Islamic Republic of Iran are anticipated to increase slightly to 4.8 million tonnes, reflecting strong feed demand and improved access to international financial markets. Aggregate maize imports in Africa may fall to 17.2 million tonnes, down 900 000 tonnes from 2013/14. The drop would be mainly on account of a 1 million tonne contraction of purchases by Egypt, the region’s largest buyer, to 7 million tonnes. A decline in imports by Zimbabwe, due to higher domestic production, is likely to offset an increase in Kenya, where production is lower than in 2013. Slightly larger imports are projected for Latin America and the Caribbean, especially in Mexico, the region’s largest importer. Deliveries to Mexico could reach 10.5 million tonnes, slightly higher than in the previous season, driven by continued strong demand for feed.

World trade in another major coarse grain, barley, looks set to decline slightly from the previous season to nearly 21 million tonnes. Among the leading destinations, Saudi Arabia, the world’s largest barley importer, is anticipated to cut its purchases by 500 000 tonnes to 8.5 million tonnes in 2014/15, due to large carryovers from the previous season. China (Mainland) could also reduce its imports by 700 000 tonnes to 3 million tonnes, on large supplies of other coarse grains, maize in particular. By contrast, barley inflows, most notably to the EU, Islamic Republic of Iran and Morocco, are anticipated to be larger.

World imports of sorghum are forecast at 7.5 million tonnes in 2014/15, down 600 000 tonnes from the previous season’s level. The anticipated decrease would be mostly on account of lower imports by Sudan and China more than offsetting an increase by Mexico.

Based on the prospect of a weaker world import demand in 2014/15, exports (July/June) of coarse grains from most of the major exporting countries are anticipated to fall below the previous season’s levels. The contraction of exports will concern, in particular, the United States, where they may dip by around 3 million tonnes to 44.5 million tonnes, Brazil, down 3.5 million tonnes to 20 million tonnes and Ukraine, down 2.5 million tonnes to 19.6 million tonnes. Shipments from Australia, Canada, the EU and the Russian Federation could also fall by around 1 million tonnes each, to 6 million tonnes, 4 million tonnes, 7.8 million tonnes and 7.6 million tonnes respectively.

By contrast, shipments from Argentina could increase to 19.6 million tonnes, up 3.7 million tonnes from the sharply reduced outflows in 2013/14, reflecting this year’s larger supplies. Exports from the Republic of South Africa may also increase, by 500 000 tonnes, to 2.3 million tonnes.

UTILIZATION

Utilization increasing at a slower pace than in the previous season

The latest forecast for global utilization of coarse grains in 2014/15 points to a 2 percent increase to 1 260 million tonnes; this compares to a 6 percent expansion estimated for 2013/14. Most of this deceleration stems from a slower rise in feed intake in the United States.

Total feed utilization of coarse grains in 2014/15 is forecast to reach 725 million tonnes, some 2.4 percent (17 million tonnes) above the 2013/14 estimate but well below the 8 percent growth in 2013/14. However, this is largely a result of developments in the United States. Total feed use of coarse grains (mostly maize) in the country in 2013/14 is estimated to have reached 137.4 million tonnes, up 19 percent from the previous season, while, in 2014/15, the country’s feed use is expected to increase by 3 percent to 141.4 million tonnes. Among the other leading countries, the strongest rise in feed use is forecast for China, where large domestic supplies would again support a strong growth of at least 5.5 percent, to 156 million tonnes. Brazil is another country where feed use is forecast to soar by almost 7 percent to 47 million tonnes, taking advantage of continued large domestic supplies amid rising demand for livestock products.

World food consumption of coarse grains is expected to remain steady at around 204 million tonnes in 2014/15, resulting in a slight decline on per capita basis, to 28.3 kg at the global level. Most of the human consumption of coarse grains occurs in Africa (81 million tonnes), followed by Asia (68 million tonnes) and the Latin America and Caribbean (32 million tonnes).

Similarly, industrial use of coarse grains is expected to remain steady, at around 300 million tonnes, with maize accounting for most of the use among the coarse grains. The International Grains Council projects total industrial use of maize (for ethanol, starch and sweeteners) to approach 260 million tonnes this season, slightly above the estimated value for 2013/14. Maize used for ethanol production in the United States constitutes the bulk of the industrial utilization of maize. Declining prices and strong ethanol demand continues to keep maize-based ethanol production at high levels, at some 130.2 million tonnes, nearly at par with the estimated level in 2013/14.

STOCKS

Largest stocks since 1986/87

Another year of bumper crops is expected to boost the level of world coarse grains inventories to their highest since 1986/87. Based on the latest forecasts for global production in 2014 and utilization in 2014/15, by the close of crop seasons in 2015, world stocks are forecast to reach 257.4 million tonnes, up 16 percent (36 million tonnes) from their opening levels and the highest volume since 1986/87. The stock figure has been raised by 9 million tonnes in recent months, following upward revisions in the Russian Federation and the United States, mainly in line with higher production forecasts in both countries. The anticipated increase in world inventories will result in the stock-to-use-ratio reaching 20.2 percent, its highest level since 2001/02 and well above the historical low of 13.8 registered in 2012/13. Likewise, major exporters’ stock-to-disappearance ratio (domestic utilization plus exports) is forecast to increase significantly, from 11.1 percent in 2013/14 to15 percent in 2014/15, indicating even more abundant supplies of coarse grains in the new season compared to 2013/14.

Most of the anticipated expansion in inventories would be due to the rise in maize stocks, which are forecast to increase by as much as 36 million tonnes (20 percent) to 211 million tonnes. Barley stocks are also expected to increase, by 2.2 million tonnes (7.8 percent) to 31 million tonnes. The largest build-up in stocks of coarse grains is expected in the United States, where this season’s maize carryovers could reach 51 million tonnes, some 21 million tonnes (69 percent) above their opening levels and the highest in ten years. Two consecutive seasons of record crops are the main reason for the build-up of inventories in the United States. Similarly, with production rising for the fifth consecutive year, maize inventories in China (Mainland), could reach 84 million tonnes, up at least 8 million tonnes (11 percent) from the previous season. Boosted by higher production, coarse grain inventories in the Russian Federation could more than double to 8.6 million tonnes.

RICE

PRICES

Contrary to the tendencies observed in the wheat and coarse grains markets, international rice prices have edged steadily higher between May and August 2014. The price strength reflected concerns about the possible impacts of erratic weather on rice crops, lingering fears of an El Niño recurrence in the coming months and the resumption of purchases by some major importers. Failure by Thailand’s government to release sizeable quantities from its huge public stocks for sale on the market also sustained world quotations. Prices, however, started to subside again in September, reflecting accrued competition among exporting countries, keen to free storage space ahead of their impending harvests. The strength of the US dollar, the numerator of international prices, also exerted downward pressure on world quotations. Between January and September 2014, however, the FAO All Rice Price Index averaged 236 points, the same value as in the 2013 corresponding period. Yet, comparing the two periods, movements were not uniform across all market segments, as prices of the Lower Quality Indica and of the Higher Quality Indica were down by 13.0 percent and 5.7 percent, respectively, with a more modest retreat of 1.3 percent for Aromatic rice. By contrast, Japonica prices averaged 12.9 percent higher year-on-year, reflecting the tightness of tradeable supplies and a prevailing export ban in Egypt. Looking at actual quotations, the Thai white, 100%B rice benchmark averaged USD 436 per tonne in the first nine months of 2014, 22 percent less than in the same period in 2013. Most rice originated in Thailand tended to be substantially cheaper than in 2013, a weakness that extended to rice from India and Pakistan’s origins. By contrast, prices in Viet Nam, which had been particularly weak in 2013, recovered somewhat in 2014. In the Americas, prices in the first nine months of the year were steady to higher and continued to display a large premium over Asian rice.

PRODUCTION[2]

Erratic weather stalls global rice production growth again in 2014

With only a few weeks left before several of the major producing countries start harvesting their main crops, FAO’s forecast for global rice production in 2014 remains subdued. Even more, the outlook has deteriorated substantially, especially if compared with the projection presented in the May 2014 issue of Food Outlook. Since that publication, several nations have endured erratic weather conditions, including late arrival of rains or lingering droughts that in many cases were followed by heavy downpours and floods in August and September. These, together with expectations of an El Niño weather anomaly arising in the coming months, have lowered prospects for global rice production in 2014, now estimated to reach only 496.4 million tonnes in milled rice equivalent, which compares with an earlier forecast of 501.1 million tonnes reported in the May issue of Food Outlook and of 500.4 million tonnes forecast in September. Under current prospects, global rice production would be marginally (0.4 percent) lower than the 2013 estimate, marking a third year of below trend growth. Yet, there is still much uncertainty, especially concerning the 2014 secondary crops, which Northern Hemisphere countries will soon start sowing for harvest next year. The outcome of the 2014 season is more definite in Southern Hemisphere countries, which mustered their main crops in the first semester and have closed, or are about to close, their 2014 paddy seasons.

Prospects for a disappointing 2014 season at the world level are mostly linked to the poor performance of crops in Asia, where production is now forecast to fall by close to 3 million tonnes, or 0.7 percent. If confirmed, this would be the first contraction (albeit rather contained, in percentage terms) registered by the region as a whole since 2009, when the El Niño weather anomaly last manifested. Numerous producing nations in the region have been affected by erratic weather conditions since the onset of the season, especially India, the world second largest rice producer, where the irregular pattern of the monsoon is currently anticipated to bring production down by 2.4 percent in 2014 to 104 million tonnes. This forecast by FAO is higher than the official figure currently portended by the Ministry of Agriculture, which projected 88.02 million tonnes for the main Kharif crop, which combined with a 14 million tonne target for the Rabi crop, would yield a total output of 102 million tonnes in 2014. However, the Ministry’s estimate for Kharif was acknowledged to be prone to subsequent upward revisions, especially as it did not take into consideration the abundant precipitation received in September. Unfavourable weather conditions have hindered crops in Indonesia, Cambodia, Republic of Korea, Nepal, Pakistan, the Philippines, Sri Lanka and Thailand, all of which are expected to witness a contraction of output. In the case of Thailand, the anticipated 1.6 percent decline would be associated with a late arrival of the rains due in April-May, but also with the February 2014 abolition of the rice pledging scheme, which had guaranteed high prices to farmers since 2011. The closure of the programme, which is to be replaced by indirect support to farmers through preferential access to credit and inputs, also have contributed to reduced plantings. Weaker price incentives are also expected to foster a contraction of the rice area and production in Japan. Although adverse climatic conditions also affected crops in Bangladesh (floods) and China (drought in the northeastern region; cold and excess rains in the south), prospects for output in those countries still indicate an increase from last year. On the other hand, favourable growing conditions are anticipated to underpin production in Viet Nam, despite a small, price-driven, reduction in plantings.

In Latin America and the Caribbean, the production outlook remains positive overall, in spite of rainfall deficits, which impaired crops in the central part of the continent. Under current prospects, about 18.9 million tonnes are expected to be collected in the region, up 0.6 percent from 2013. Much of the expansion would rely on a good performance in the southern cone, where the bulk of the season’s rice was harvested earlier this year. Larger crops are estimated to be garnered in Brazil, the largest regional producer, but also in Guyana and Paraguay. By contrast, heavy floods are foreseen to keep production in Bolivia well below average for the second consecutive year, while water shortages may curb output in Colombia. Peru and Venezuela. Across Central America and the Caribbean, rice cultivation was affected by delayed and insufficient precipitation, which may result in falling production in El Salvador, Guatemala, Nicaragua and Panama. However, much of these countries’ shortfalls are expected to be compensated by increases in Costa Rica, Cuba and Mexico.

The outlook for crops in Africa has also been scaled back since September, but as a whole remains positive: the production forecast for the region was lowered to some 18.0 million tonnes, which still represents a 0.8 percent increase from 2013. Part of the downward revisions concerned Egypt, where the area planted to rice was reported to have shrunk, as well as Western African countries, where several important producers suffered from the rain’s late arrival and erratic pattern. As a result, production is anticipated to fall, especially in Benin, Chad, Guinea Bissau, Nigeria and Senegal. On the other hand, Cote D’Ivoire, Ghana, Guinea, Mali, Niger and Sierra Leone may harvest larger crops, even though the unfolding of the season was uneven in several of them. Although crop-related activities in those countries affected by the Ebola outbreak may be disrupted by labour shortages and by the measures taken to prevent its spreading, it is difficult at this stage to assess the impact on production. In Southern Africa, forecasts were also lowered substantially mostly on account of Madagascar, where recurring drought, locust problems and rundown infrastructure prevented a full recovery of production from last year’s sharp drop. In Eastern Africa, good results in Tanzania will sustain an increase in the subregion, in spite of anticipated declines in Burundi, Ethiopia and Rwanda.

In Oceania, Australia harvested the 2014 crop at the beginning in the year. According to the latest official forecast, the country garnered 28 percent less rice than in 2013, as insufficient availability of water reduced plantings by 33 percent. In North America, production in the United States, which is now in the process of gathering its crop, is officially anticipated to rebound by 14 percent from the poor 2013 outcome, a favourable outturn, although less buoyant than predicted last month.

In Europe, production in the European Union is anticipated to remain near the 2013 relatively poor result, reflecting less than favourable conditions in most producing members. The outlook for the Russian Federation is more upbeat, with production forecast to rebound by 10 percent.

TRADE

After soaring by 7 percent in 2014, international trade in rice to grow further in 2015

Taking advantage of the lower international prices and in anticipation of possible production setbacks associated with El Niño, many countries have been actively buying rice from world markets during the course of 2014. Strong import demand, combined with ample supplies held by major exporting countries, is expected to sustain a 7 percent increase in the volume of world rice transactions in calendar 2014, reaching a record 39.7 million tonnes.

Despite the disappointing 2014 production outlooks, world rice trade in 2015 is forecast to be only 0.7 percent higher year-on-year, at about 40 million tonnes, which is 300 000 tonnes larger than expected in September. Indeed, while the relatively poor results of the season would require several countries to step up imports in calendar 2015, part of the production shortfalls is likely to be filled by drawing supplies from national reserves.

According to current forecasts, African countries will step up their imports by 3 percent in 2015, coming out as the major source of trade growth. Overall, countries in the continent are expected to import 14.4 million tonnes, or 36 percent of the world total. Most nations are foreseen to buy more, in particular Nigeria, which is predicted to purchase about 3 million tonnes, 7 percent above 2014, facilitated by a lowering of import duties. Likewise, significantly larger volumes are foreseen to enter Cote D’Ivoire, Senegal and South Africa, but also Benin, Cameroon, Kenya, Mozambique and Guinea Bissau, as most will need additional supplies to compensate for the expected 2014 production shortfalls and to meet the steady rises in domestic consumption.

Although remaining the leading destination of rice trade, Asian countries are forecast to cut rice inflows by 1 percent to 18.5 million tonnes in 2015, largely reflecting declines in Bangladesh, Indonesia, the Philippines, Sri Lanka and Turkey, from the relatively high import levels anticipated for 2014. By contrast, official imports by China are likely to remain on the rise, sustained by lingering high domestic prices, which render importing rice particularly profitable. At the same time, the volumes of rice entering China unrecorded may be contained by a recent tightening of border controls and by the clinching of a new trade agreements with Cambodia and the granting of official access to rice from Myanmar. As for countries located in Near East Asia, which together absorb close to 20 percent of international supplies, virtually all are expected to increase their rice purchases in 2015. This also concerns the Islamic Republic of Iran, where imports may rebound in 2015, after falling in the current year following the temporary raising in July 2014 of tariffs on Basmati rice imports, from 22 percent to 40 percent.

Rice deliveries to countries located in Latin America and the Caribbean are anticipated to hover around 3.7 million tonnes in 2015, 1.7 percent higher than estimated for 2014. Much of the expansion would be on account of Haiti, but also Nicaragua, Panama and Venezuela, which need to compensate for the 2014 production shortfalls. Brazil may also have to import more next year, in order to maintain an average volume of exports. However, the possibility of an El Niño resurfacing in the coming months casts much uncertainty over the region import prospects, as the period will often coincide with the planting and growing period of the 2015 main crops. Should the weather anomaly be more intense than currently anticipated and cause havoc to the sector, imports to the region could be far bigger than currently portended.

In North America, the good 2014 harvest should enable the United States to reduce its purchases next year. In Europe, imports by the EU are anticipated to remain steady around the 2014 level of 1.3 million tonnes, especially as producer calls for the adoption of a safeguard to check duty-free imports from Cambodia have so far not been endorsed by the EU Commission. On the other hand, the good 2014 crop should enable the Russian Federation to buy less from abroad in 2015.

Despite anticipated declines in production this season, availabilities in the major exporting countries are expected to remain ample in 2015, which would enable them to sustain a record volume of exchange of 40.0 million tonnes next year. Thailand is forecast to recoup its prime position among exporters, on the expectation that supplies from the huge public stocks will be offloaded and put on sale, as originally announced. Already in 2014, the decline of domestic prices to competitive levels boosted Thai sales to an expected 9.6 million tonnes, 45 percent above the poor 2013 performance. Thailand’s recovery of markets is forecast to continue in 2015, when the country may ship 10.6 million tonnes. With the exception of India and Uruguay, all the regular exporting countries are predicted to step up international sales in 2015, including in Asia, Cambodia, China, Myanmar, Pakistan and Viet Nam and, in the rest of the world, Argentina, Australia, Brazil, Guyana and the United States. On the other hand, India is forecast to cut its exports from an estimated 10 million tonnes in 2014 to 8 million tonnes next year, consistent both with the expected drop of production in 2014 and expanding domestic requirements as the National Food Security Act gets implemented. Deliveries by Uruguay may also shrink in 2015, as the high costs born by the sector may hinder its ability to compete internationally.

UTILIZATION

Per capita rice consumption to increase slightly in 2014/15

Global rice utilization is forecast to hover around 500 million tonnes in 2014/15, 1.7 percent, or 8 million tonnes, more than in 2013/14. Human food consumption is to absorb about 83 percent of the total, while feed and other utilization (which includes seeds, industrial non-food uses and post-harvest losses) are to account for 3 percent and 14 percent, respectively. The volume of rice consumed as food is to increase by 1.3 percent to 415 million, slightly faster than population growth, lifting the anticipated per capita food intake from 57.4 kg in 2013/14 to 57.5 kg in 2014/15. Although per capita food consumption is on a declining trend in several countries where rice is a staple, including China, demographic shifts are still keeping the world average on the rise. In addition, support programmes put in place by many governments to ensure affordable rice to consumers are prominent in several regions. In India, the slow take over by states of additional rice allocations under the National Food Security Act limited the scope for heightening the distribution to consumers, reducing the impact of the programme on India’s per capita rice consumption in 2013/14. In 2014/15, the positive effect may be small again, with per capita food intake estimated to rise by 0.9 percent to 74.5 kg, although much will also depend on the prevailing domestic prices. Indeed, in several countries, particularly in Asia and Western Africa, prices have continued to increase in 2014, dampening consumption growth. In western Africa, localized shortages arising from the introduction of measures against the spreading of Ebola have already been reported in the areas most affected. In Latin America and the Caribbean, rice market prices have also edged slightly up in recent months, while they have trended downwards in several eastern African countries.

STOCKS

Global rice inventories to fall in 2015 for the first time in ten years

Due to the deterioration of prospects for 2014 world rice production, the harvest is now forecast to fall short of utilization, which will require countries to draw from their existing reserves to fill the gap. Accordingly, FAO has revised down its forecast of world inventories carried-in in 2015 by 1.7 million tonnes to 177.7 million tonnes, a level that would imply a 2 percent decline from the 2014 estimate, the first in ten years.

Although inventories are predicted to fall in virtually all regions, Asia is to account for the bulk of the contraction, with sizeable draw downs foreseen in India, Indonesia, Myanmar, Sri Lanka and Thailand. In some instances, the scaling down of inventories would be intentional, with governments fretting about their excessive size, cost of maintenance and lack of inventory space for the new harvest. In the case of Thailand, it would be associated with the suspension of the rice pledging programme in February 2014 and the progressive release of supplies from public stocks. In China, the modestly expanded production in 2014 would be just sufficient enough to meet consumption in the country, but large imports would still result in a 2 million tonne further stock accumulation. Because the lack of grain storage space is also a concern in China, the government recently launched a programme to expand the capacity by 50 million tonnes by 2015. At the same time, the offloading of public reserves remains a difficult option for the country because of the depressive effect it would have on domestic prices, which would go counter to the long-standing policy of ensuring price incentives are sufficiently high to keep producers on farms. In the region, aside from China, Bangladesh, Cambodia, the Republic of Korea and Viet Nam are also foreseen to end their 2014/15 marketing years with larger inventories.

At the regional level, stocks in Africa, Latin America and the Caribbean and Oceania are expected to decline below their opening levels, with particular sharp falls anticipated in Egypt, South Africa and Australia. On the other hand, closing inventories are expected to change little in Europe, while the good 2014 crop should facilitate accumulation of stocks in the United States.

Seen from a trade status perspective, both importing and exporting countries are foreseen to witness a decline of stocks. Based on the current estimates, the drop in world carryover stocks would reduce the world rice stock-to-use ratio from 36.2 percent in 2014 to 34.8 percent in 2015. Overall, the end-of-season inventories in the five major rice exporters (India, Pakistan, Thailand, United States and Viet Nam) are projected to contract from 48.4 million tonnes in 2014 to 44.6 million tonnes in 2015, resulting in their stock-to-disappearance ratio dipping from 27.7 percent to 25.1 percent over the two years.

[2]All figures are reported in milled rice equivalent

CASSAVA

PRICES

International quotations of cassava remain subdued

Monthly reference prices of internationally traded cassava, a market that is mostly confined to East and Southeast Asia, have registered little movement or are in decline. Notable falls concern Thai starch quotations (Super High Grade, f.o.b. Bangkok), which after reaching a 24-month peak in May 2013, lost 16 percent of their value, dropping to USD 430 per tonne in September 2014. Prices of Thai chips (f.o.b. Bangkok) have remained remarkably flat over the past 12 months, fluctuating within a narrow band of USD 220 and USD 238 per tonne, and are currently being traded towards the lower end of the band.

These price developments have come at a time when regional demand for Thai cassava products has been at an all-time high, despite the strengthening baht, and Thai domestic root prices of cassava have exhibited notable variability. The stability of international cassava chip quotations is related to the release of official stockpiles that have been made available to private traders at a discount, a move that provides greater price certainty to regional buyers while also ensuring the long-term commercial viability of cassava-based ethanol, the principal market for chips. The introduction of options contracts for cassava chips at the Agricultural Futures Exchange of Thailand (AFET) has also added to stability, again bringing about greater price certainty for buyers.

Regarding cassava starch, recent falls in quotations have followed the declines observed in the international price of maize, which constitutes cassava’s main substitute.

The continuing slump in the demand for pellets for animal feed in traditional import markets has increasingly exposed internationally traded cassava products to the rapidly changing dynamics of industrial sectors. Cassava blended with protein-rich meals, such as soymeal, is an effective substitute for coarse grains and wheat in feed, but throughout much of 2014, adequate grain supplies in the EU once again limited its need to import cassava feed ingredients.

PRODUCTION

Global cassava production provisionally forecast to reach 291 million tonnes in 2014

With the global harvest far from being concluded, the forecast 5 percent increase in global production is highly tentative, with uncertainty further compounded by a widespread lack of data on harvest expectations and virtually no information on planting intentions. However, in the major growing regions, cassava has been placed on a firm upward trajectory in terms of output growth on account of greater investment in the crop to enhance food security, energy security and rural livelihoods or to bring about wider economic goals, especially lower import bills or higher export earnings. Indeed, in the past five years alone, global cassava output registered an average annual growth rate of almost 4 percent, outperforming most other staple crops and far exceeding world population growth.

Much of the world cassava production growth is centred in sub-Saharan Africa, which is forecast to harvest 167 million tonnes in 2014 and would account for some 57 percent of the global total. However, the region is particularly at fault when it comes to the provision of information on cassava production forecasts. In almost every country where the crop plays an important role in diets, value chain initiatives are underway. They typically involve coordinating the distribution of superior planting material to producers, with private sector entities investing in processing facilities for the production of value-added products, such as flour. Because production is invariably dominated by smallholders and the crop is below ground, obtaining a national picture of output can be problematic. Yet, investment decisions require these data and, as a result, further commercialization opportunities are possibly being stifled. Nigeria, the world’s largest cassava producer, has established programmes for its greater commercialization, especially as a strategic commodity to reduce cereal imports, notably in the form of High Quality Cassava Flour (HCQF). Preferential loans to producers, grants to processors for the expanded uptake of domestic cassava, as well as the continued propagation of improved varieties could lead to a 2014 cassava harvest of around 55 million tonnes, around 2 percent higher than the 2013 harvest. These prospects are also supported by the introduction of mechanization to curb weed infestations in cassava fields, the control of which traditionally requires intensive labour input, often by women. In Congo, cassava production is forecast to reach 17 million tonnes, with prospects looking up following the recent announcement of a Chinese enterprise to procure 30 000 ha of land for cultivating the crop towards starch production. Elsewhere in West Africa, the 2014 outcomes of the crop are highly uncertain following the outbreak of the Ebola virus. The situation is particularly critical in Guinea, Liberia and Sierra Leone, where cassava cultivation is reported to have been significantly disrupted owing to limitations on the movement of labour. The price of cassava in Monrovia, Liberia, for instance, has more than doubled since the outbreak, but it is not clear whether this particular increase reflects shortages in production or disruptions in distribution. In Eastern and Southern African countries, which have been affected by widespread droughts, the root tolerance to erratic weather conditions – especially as a crop in climate change adaptation strategies – has put cassava high on the agenda for expansion. In Mozambique, official prospects point to a 2014 cassava harvest of some 14.7 million tonnes, firmly establishing the crop as the second most important staple in the country.

In Asia, 2014 cassava production is set to increase by around 3 percent to almost 92 million tonnes. The industrial utilization of cassava in the form of alcohol, ethanol, starch and animal feed has underpinned cultivation of the crop in the region, particularly in Southeast Asia. In Thailand, Asia’s largest producer, cassava production continues to rebound from an outbreak of pink hibiscus mealybug that devastated the national crop earlier in the decade. Despite some localised outbreaks of the pest, official forecasts point to an output in 2014 of some 31 million tonnes which, if materialized, would constitute a record for the country. Until recently, cassava producers in Thailand benefited from significant government assistance, principally in the form of price support under a “pledging scheme”. However, in 2013, with root prices registering strong gains, authorities decided to abandon the scheme and to focus, instead, on stabilizing prices through releasing official stocks and introducing the commodity in the country’s futures and options exchange. Direct assistance to producers is limited to an “agro-zoning scheme” that targets productive lands and equips farmers in those lands with better technological knowledge, advice on financing and improved marketing tools. In China, cassava production is forecast to remain unchanged at around 4.5 million tonnes, as the country continues to source the material in processed form (mainly dry chips and flour) from neighbouring countries, where it has made significant investments to ensure long-term supplies. This has been the reason behind recent large-scale expansions of the crop in Lao People’s Democratic Republic and, to some extent, in Viet Nam. However, growth in Viet Nam has been moderated by policy measures to limit cassava area to no more than 450 000 ha in response to concerns about deforestation and land degradation. Also, a lack of diversified output markets, together with highly competitive procurement in export markets that brings considerable downside price risk exposure has also capped production in Viet Nam. However, with under-filled capacity in the country’s fuel ethanol sector, measures are in place to ensure more utilization of the feedstock, which could boost cassava production in the near term. In contrast, cassava sectors in Indonesia and the Philippines are more important for food security than for industry. Dietary diversification programmes in the two countries have targeted cassava as a substitute for rice. Plans are underway in Indonesia to significantly boost cassava yields over the next five years, which would result in considerable gains over the current crop of 25 million tonnes. In the Philippines, cassava is a priority commodity under its Food Staple Sufficiency Program (FSSP) that aims to strengthen national resiliency by focusing on food staples that can withstand climate change. The programme provides farmers with subsidized inputs as well as equipment. Unofficial estimates put the crop at 2.5 million tonnes in 2014, an increase of around 6 percent from 2013. In South Asia, cassava also plays a role in food security. In India, stable producer prices in the major growing state of Tamil Naidu are expected to sustain production to 8.5 million tonnes in 2014, but 1 million tonnes below the record of 2009.

The cassava production outlook for Latin America and the Caribbean points to an increase in 2014, largely owing to Brazil, the region’s largest producer. Production in the country, which is dominated by family farms (83 percent of national output) is expected to rebound from last year’s crop that suffered when drought afflicted the major growing zone of Bahia. Officials foresee a crop of 23.3 million tonnes, an increase of 10 percent over 2013. High root prices during the first half of the year have also been supportive. Little is known about production prospects in the region’s other sizable producing countries, including Paraguay, Colombia and Peru, but recent trends point to a moderate increase in production.

UTILIZATION

Rising demand from food and fuel sectors

Food

Cassava as a foodstuff for human consumption constitutes the crop major end use utilization of cassava at the global level. Many countries have launched initiatives that promote cassava to meet rising dietary needs, especially in sub-Saharan Africa. The consumption of cassava in the form of fermented and non-fermented granulated and flour-based products continues on an upward trend in the region, with fresh root demand still an important driver. The expected overall production increase in 2014 could boost per capita food availability in sub-Saharan Africa by almost 3 kg, to around 139 kg per year in fresh root equivalent.

Flour

Measures to promote domestic cassava flour over imported cereals through blending remain active throughout the world and play an important role in boosting cassava food consumption. Blending cassava flour with wheat flour provides a multitude of new market openings for cassava. Brazil, for instance, mandates blending 10 percent cassava flour with wheat flour for bread making, an initiative estimated to absorb over 50 percent of the country’s cassava crop. In Nigeria, legislation for a 10 percent blending mandate took effect in 2005 but only 5 percent was enacted, owing to a shortage of cassava flour. However, in an effort to deepen the blending ratio, Nigeria imposed a further levy on imported wheat flour in 2012, bringing the overall duty to 100 percent and, in tandem, bakeries were asked to apply blending rates of 20 percent. However, as Nigeria still imports substantial quantities of wheat grain that can be milled into flour, and the country’s legislature has failed to enact the 20 percent ratio, there remains a significant hurdle in the more widespread intake of cassava. Given the importance of cassava to Nigerian diets, producers began bio-fortifying the crop to counter vitamin A deficiency, which is common in the country.

Ethanol

The demand for cassava from ethanol sectors, especially in Asia, continues to be a major driver of growth in world cassava utilization. A typical ethanol distillery potentially produces around 280 litres (222 kg) of 96 percent pure ethanol from 1 tonne of cassava roots with 30 percent starch content. In China, based on the quantity of imported chips and domestic cassava availabilities, well over 1 billion litres of ethanol could be produced from cassava in 2014. The utilization of cassava-based ethanol is also prominent elsewhere in the region, especially in Thailand and Viet Nam. In Viet Nam, a national mandate requiring 5 percent of all gasoline sold in the country to be blended with ethanol, will come into force towards the end of 2014. Given current cassava production levels and gasoline demand, the mandate will require converting the totality of the country’s cassava crop to ethanol. The Philippines, Cambodia and Zambia also have recently announced initiatives to use cassava-based ethanol in petroleum blending. In Thailand, consumption of gasoline blends with 20 percent and 85 percent ethanol has increased with wider distribution and more E85-equipped cars on the road. Ethanol is principally made from cassava and molasses, and the production of fuel ethanol is expected to reach 3 million litres per day this year, up 15 percent from 2013, and thus requiring 1.6 million tonnes of cassava roots.

Animal feed

Utilization of cassava as animal feed, in the form of dried chips and pellets, is mostly concentrated in Latin America and the Caribbean, especially Brazil. Elsewhere, demand for cassava feed ingredients remains weak, exemplified by the total collapse of the international market for cassava pellets. In Asia, the use of roots as a direct animal feed ingredient has also been in decline, given the higher returns obtained from processing cassava roots for industrial applications. However, compound feed demand involving cassava in Thailand is on the rise owing to an expanding poultry sector.

TRADE

Thailand propels world trade to new heights

Mostly confined to Southeast and East Asia, the volume of world trade in cassava is expected to exceed 20 million tonnes (chip and pellet weight equivalent) for the first time, 25 percent more than last year’s volume and a near doubling of the volume exchanged in 2010. In recent years, international cassava transactions have mainly been driven by industrial demand for the product, particularly from China, and 2014 is no exception.

The anticipated expansion in trade is due to increased exports of Thai cassava. Based on the pace of shipments to date, the country’s deliveries of chips and pellets (predominantly chips) are expected to increase by around 36 percent from 2013, while exports of flour and starch are set to rise by 20 percent. These outcomes would give Thailand an 80 percent share of world cassava trade. The increase in Thailand’s export share has come at the expense of its rival exporter, Viet Nam, where deliveries are expected to be down by 5 percent from last year on account of falling competitiveness and lower export availabilities. Viet Nam has also made efforts to divert local cassava chips to its ethanol industry, the capacity of which is far from being filled.

Imports of chips and pellets continue to be driven by the need to fulfil capacity in the burgeoning ethanol sector of China. With chip demand at around 10 million tonnes, China is set to monopolize international trade in this product in 2014. As for cassava starch and flour, growth in global transactions looks set to expand substantially in 2014, rising to 8.7 million tonnes, which is some 1.3 million tonnes higher than in 2013. Cassava-based starch and flour has competed favourably with its maize-based counterpart, notably in terms of price stability, and is largely behind the expansion in trade of these cassava products.

Prospects for a wider international market beyond Asia remained largely elusive up until 2012, when Nigeria entered the global arena securing an order to supply China with 1 million tonnes of cassava chips. Nigeria also signed a memorandum of understanding with China to export 3.2 million tonnes in the future. However, the country’s participation in trade is shrouded with uncertainty as China is offering prices well below the product cost of production in Nigeria.

OILCROPS, OILS AND MEALS[2]

PRICES[3]

International meal prices likely to continue falling, while oils/fats values could stabilize

During the first half of the 2013/14 (October/September) marketing season, international prices for oilseeds, oils and meals appreciated, mainly reflecting concerns over the United States’ increasingly tight soybean balance and the poor weather conditions in Southeast Asia and South America that threatened, respectively, palm oil and soybean production. By May 2014, FAO’s price index of oilseeds had risen to a 12-month high, while the indices for oils and meals recorded 18-month peaks.

Eventually, around June 2014, international quotations started to plummet, marking the start of a steep slide in all three price indices. Regarding oils/fats, palm oil was responsible for much of the trend reversal – i.e. the onset of beneficial rains in Southeast Asia, which drove up palm oil production, coincided with a slowdown in global import demand for palm oil. This, together with lower than anticipated palm oil uptake by biodiesel producers in Indonesia and Malaysia led to a significant stock buildup in the world’s two leading suppliers. With respect to oilseeds and oilmeals, the decline in prices was triggered by the arrival of South America’s large soy crop, which ended the temporary tightness in global supplies. The prospect of another record-breaking soy crop in the United States together with a record rapeseed harvest in the EU provided additional price relief. As a result of these developments, by September 2014, FAO’s price indices for oilseeds, oils and meals had dropped to, respectively, four-, five- and two-year lows.

Preliminary forecasts for 2014/15 suggest a further improvement in the global supply and demand balance. For meals/cakes, a sizeable surplus in supplies could push global inventories to historical highs. This, along with likely improvements in stock-to-use ratios, suggests that there is considerable scope for international meal prices to soften further. In addition, further downward pressure could arise from abundant global supplies of feedgrains. The recent easing in CBOT futures for soybeans, which now stand well below the corresponding values of the last two years, seems to point in the same direction. Regarding oils/fats, the prospect of adequate global supplies, ample world reserves and stable stock-to-use ratios suggests international prices could remain close to their current low level.

OILCROPS

Another record-breaking soy harvest projected for 2014/15

After the last two season’s record-breaking harvests, global oilcrop production is tentatively forecast to expand by another 5 percent in 2014/15, possibly topping 535 million tonnes. The increase would be almost entirely on account of soybeans, given that, for the other main oilseeds, a repeat of last season’s record outputs seems unlikely.

With a current forecast of 311 million tonnes, global production of soybeans, would outstrip last season’s result by 10 percent. The surge should arise from both record plantings and best-ever average yields. In the Northern Hemisphere, where crops will soon reach the harvesting stage, production is set to rise, especially in the United States but also in Canada, the Russian Federation and Ukraine. In the United States, output is currently pegged at 106.5 million tonnes – a whopping 19 percent increase from last season – thanks to both record area planted and unprecedented yield levels. Record sowings (again at the expense of grains) were followed by near-ideal growing conditions that allowed average yields to exceed 3 tonnes per hectare. In Canada, where weather conditions were less favourable, production should rise strongly thanks to a record harvest area. Output in the Russian Federation and Ukraine, where production expanded strongly in recent years, should continue growing on additional increases in sowings. In India, the recent pick-up in rainfalls will likely boost yields, allowing production to recover from last year’s drop. By contrast, another contraction in output is reported from China due to both continued reductions in area and below-normal rainfall. In South America, where 2014/15 soybean plantings are about to start, another record-breaking crop may be realized – assuming normal weather conditions. With prices continuing to favour soybeans over maize, soy plantings are likely to expand further, particularly in Brazil, but also in Paraguay and Uruguay. Prospects in Argentina are still uncertain, as farmers’ planting decisions will also depend on how the country’s economic difficulties evolve.

Global rapeseed production is currently projected at 70.3 million tonnes, which is less than last season but still the second-highest output on record. Countries likely to see production decline include Canada, Ukraine and Australia. While Canada’s crop has been affected by excessive rainfall, Ukraine and Australia reported lower plantings. Conversely, in the EU, crops have benefitted from good weather, which propelled yields to 3.5 tonnes per hectare, on average. In China, where the public procurement system for rapeseed remains in place, farmers kept plantings unchanged and production has been reported stable around last year’s level.

Global sunflowerseed production is also predicted to fall, although, based on current forecasts, it would be just shy of last season’s all-time record. In Ukraine, the world’s top producer, output is expected to match last year’s level. Contractions are expected in the Russian Federation, the EU and in Turkey, but these could be partly offset by an increase in Argentina, where a recovery in plantings and a return to average yields are anticipated. Concerning cottonseed, global production could contract further, possibly falling 3.5 million tonnes (or 7 percent) below the 2011/12 record. Drops in China and Australia, which are mainly attributed to below-average crop areas, should be partly offset by higher plantings and production in India and the United States. Global groundnut production could dip by 4 to 5 percent from the record set last season, mainly on account of reduced harvests in the two top producers, China and India. Good production prospects in the United States and Argentina would not be sufficient to offset the drops reported in Asia.

It should be noted that the production outlook for Southern Hemisphere countries remains subject to El Niño activity. Reportedly, a weak El Niño weather event could occur from November onward and, if it develops, could mean below average rainfall in Asia and Australia (possibly hurting oil palm in Southeast Asia and rapeseed in Australia) and above average rainfall in South America (possibly benefitting the soy and sunflowerseed crops).

OILS AND FATS[4]

Expansion in global oils/fats production to slow down in 2014/15

The above crop projections translate into a year-on-year rise in global oils/fats production of 2 to 3 percent – well below the growth recorded in 2013/14. The preponderance of soybeans – a low oil-yielding oilseed – in oilseed growth in 2014/15, combined with falling production of other, high oil-yielding seeds (notably rapeseed, sunflowerseed, groundnut, and cottonseed) explains the slowdown. In addition to soyoil, palm oil production is anticipated to continue expanding, although at a below-average rate of 3.5 percent. The anticipated deceleration is due to unusually low rainfalls in key parts of Malaysia and Indonesia during the course of this year, which could impair palm oil productivity next year. It also remains to be seen whether and to what extent an El Niño weather pattern will develop in the coming months. Given these weather-related uncertainties, much of next year’s production rise should stem from further growth in mature oil palm area in Indonesia.

Global 2014/15 oils/fats supplies (comprising 2014/15 production and 2013/14 ending stocks) are tentatively pegged at 242 million tonnes, which amounts to a year-on-year rise of 3 to 4 percent, as compared with over 5 percent in 2013/14. Domestic availability of oils/fats should improve in several major producing countries, notably Indonesia, Argentina, Brazil, the United States, the EU and the Russian Federation. Large carry-in stocks will contribute significantly to these improvements, except in the United States and Indonesia, where the rise in domestic availabilities should stem from production gains. Conversely, poor harvests are expected to cause only modest supply improvement in China and Malaysia, and lead to decreased supply in India, Canada, Australia and Turkey.

Oils/fats consumption to continue expanding in 2014/15

Global consumption of oils/fats is forecast to increase by about 8 million tonnes, or 4 percent, in 2014/15. With regard to individual oils, soyoil should contribute strongly to overall consumption growth, based on bumper soybean crops. Utilization of rapeseed oil should also expand, thanks to the availability of large carry-in stocks from the 2013/14 crop. By contrast, palm oil may – for the second consecutive year – contribute less than usual to total expansion, in line with subdued production growth.

Utilization for food and traditional industrial uses continues to be driven by both rising populations and economic growth in some of the main consuming regions, in particular Asia, and the gradual fall in world oils/fats prices. On the other hand, demand from the biofuel sector continues to depend strongly on government policies. Programmes supporting production and consumption of vegetable oil-based biodiesel remain in place in several countries. During 2014, Indonesia, Malaysia, Thailand, Argentina and Brazil introduced new support measures or announced ambitious increases in their annual consumption targets or mandatory blending rates. However, in a number of cases, governments reported delays in programme implementation, referring to regulatory problems and logistical/infrastructural difficulties or inadequate domestic supplies and high local vegetable oil prices. Furthermore, Australia started phasing out its biofuel support programmes, while in the United States and the EU, uncertainty persists regarding future consumption targets and related rules. Overall, the above listed developments make it difficult to anticipate the pace at which demand from biodiesel producers worldwide is likely to grow in 2014/15.

Country-wise, developing nations in Asia continue to be key drivers of growth in global oil/fats consumption. In India and China, consumption is projected to expand by no more than 3 percent, keeping per capita consumption levels at, respectively, 17 kg and 27 kg of oil. In Indonesia and Malaysia, consumption may expand less than last season, reflecting lower-than-expected demand from the biodiesel sector. By contrast, in Brazil and Argentina, the rise in consumption should stem primarily from higher domestic biodiesel production – either for local use (in Brazil) or for export (in Argentina). In the United States, consumption should begin to increase again, thanks to the anticipated rebound in domestic availabilities. Also in the EU, larger supplies should allow continued growth in oils/fats consumption.

Closing stocks of oils/fats expected to remain ample

After last season’s relatively ample supplies, total oils/fats production in 2014/15 is projected to surpass total demand by a thin margin of 0.9 million tonnes, which should allow global inventories to remain around last season’s comfortably high level. Based on current forecasts, world stocks would increase slightly and, for the first time, top 35 million tonnes (including the oil contained in stored oilseeds). This outlook rests heavily on the projected surge in world soybean production, which would elevate global soyoil inventories (including the oil contained in stored soybeans) to an all-time high of 16 million tonnes, up a stunning 17 percent from last season. For all other oils, a drawdown in inventories seems inevitable, given negative or below-average production growth coupled with steady demand expansion. This applies in particular to palm oil, where global reserves could contract for the second consecutive time, falling to a 5-year low of 7.4 million tonnes.

At country-level, the above forecast is based on a stunning rise in the United States and less marked improvements in Brazil and Argentina, while a year-on-year contraction in stocks appears likely in Canada and Malaysia. The largest inventories will continue to be held by China, mainly in the form of whole soybeans.

Based on the current projections, the global stock-to-use ratio could fall slightly in 2014/15, whereas a marginal improvement is expected in the stock-to-disappearance ratio for the major exporting countries.[5]

Growth in oils/fats trade to slow down markedly

Although international prices for oils/fats softened considerably during the last three seasons and currently fare at 5-year lows, world trade in oils/fats is projected to expand by no more than 2 percent in 2014/15, well below the pace observed in recent years. The slowdown reflects limited export availabilities in some exporting nations, as well as ample domestic supplies in a number of key importing countries.

In line with developments in seed production, soyoil trade should climb to a new record, while trade in sunflower and rapeseed oil may contract somewhat. Palm oil transactions are expected to recover only partly from last season’s exceptional fall. For the second consecutive year, exports by Indonesia, the world’s top palm oil supplier, are anticipated to expand at a below-average rate, as domestic consumption, in particular by the oleo-chemical and bio-energy industries, is likely to expand further. Exports by Malaysia will be constrained by both rising internal demand and subdued production growth. Brazil, the United States and Argentina, the world’s key soybean/soyoil suppliers, are forecast to raise their combined exports of oils/fats by 1.1 million tonnes, about 4 percent more than last season. In Canada, large supplies of rapeseed are available for export – in part carried over from last season. By contrast, in Australia, oil/fat shipments are projected to contract.

On the import side, China’s oil/fat purchases (including the oil contained in imported oilseeds) are pegged to rise by 3 percent, which is less than its average rate, partly because the country maintains record-high inventories. The EU and the United States should import less than last season, thanks to abundant domestic harvests. By contrast, India’s import pace is expected to accelerate on stagnating domestic supplies and steadily rising consumption. The country may need to increase oils/fats imports (mostly palm oil) by 8 percent, a 1 million tonne increase from 2013/14.

MEALS AND CAKES[6]

Global meal/cake supplies to expand further in 2014/15

Current crop forecasts indicate global meal/cake production will expand further, setting a new record. Like last season, production growth will be driven entirely by soy: incremental soymeal output is estimated at 9.8 million tonnes (expressed in protein equivalent), while production of all other meals should shrink, except for a small rise in palmkernel meal and a stable fishmeal production.

Global supplies, which comprise 2014/15 production and 2013/14 carry-out stocks, are forecast to surge by 8 to 9 percent. Assisted by large opening inventories, total supplies are anticipated to climb to a record 159 million tonnes. In the world’s top consumer, China, meal supplies from domestically grown oilseeds should fall slightly due to poor crop outturns. By contrast, in the United States, Brazil and Argentina, the three leading soymeal producers, meal supplies are likely to expand sharply due to record domestic harvests. The steepest year-on-year rise is expected in the United States (18 percent), where domestic availabilities are finally recovering from the recent decline and are expected to hit an all-time high. Other areas where supplies could expand include the EU and the Russian Federation. In the case of the EU (as well as Argentina), high opening stocks should contribute to this season’s supply growth. Only in Canada are domestic availabilities expected to contract sizeably, although large carry-in stocks should help mitigate the drop.

Growth in meal consumption to accelerate

Year-on-year, global meal/cake consumption is projected to expand by 6 percent, which would imply an acceleration compared to recent years. Underpinning this forecast are growing demand by the livestock sector (arising from further economic growth in several countries) and the fact that international meal prices finally seem to have embarked on a downward trend. It should be noted however, that in 2014/15, large oilmeal supplies are bound to coincide with ample supplies of grain-based feeds, a circumstance that might dampen demand for oilmeals in some countries.

Soybean meal should play a dominant role in overall consumption growth. Weak increases are expected for all other meals with the exception of cottonseed and groundnut meal – the consumption of which may fall. As in previous years, developing nations should contribute strongly to overall growth, with countries in Asia playing a central role. In China, the world’s largest consumer, meal demand is projected to grow by 5 to 6 percent, which is about-average. While demand from the poultry industry might remain depressed due to persisting disease problems, China’s bovine and pork sectors should expand further, enhancing meal consumption. Further growth in demand is also expected in other countries in Asia as well as in Africa. In Brazil, Argentina and other South American countries, the anticipated boost in domestic meal availabilities together with new export opportunities for meat producers should spur feedstuff demand, including for oilmeals. Also among developed countries, higher domestic supplies and lower prices should stimulate demand, especially in the United States where, after contracting strongly for the past two seasons, meal consumption is expected to return to past levels, mainly driven by higher demand from the poultry sector. By contrast, in the EU, the world’s second largest meal consumer, utilization may grow only minimally, partly because of large availabilities of feedgrains.

Extraordinary rise in global meal/cake inventories possible in 2014/15

Based on current forecasts, global meal production would exceed consumption by around 6 million tonnes (in protein equivalent). Such production surplus would facilitate a pronounced rebuilding of inventories, chiefly of soymeal. Total meal stocks are anticipated to increase by a stunning 19 percent or over 4 million tonnes (including the meal contained in stored oilseeds). The sharp rise – which follows on a similarly strong rise last season – is to be attributed in part to large availabilities of feedgrains, which compete with oilmeals in the international feedstuff market. This season’s stock build-up should be concentrated in the United States and, to a lesser extent, Brazil and Argentina – the world’s main suppliers of soybeans/soymeal. The United States ended its 2013/14 season with exceptionally low carry-out stocks due to a brisk export pace, but now can expect a massive replenishment of inventories – which would lift reserves to an 8-year high. According to official estimates, some 9 million tonnes of beans (in product weight) – more than half of this season’s incremental production – could be earmarked for stock re-building. In Argentina, the farmers’ slower than usual release of soybeans into the market might continue this season, possibly raising domestic stocks to unprecedented levels. By contrast, a moderate drop in inventories is possible in China, following the government’s decision to discontinue public procurement of soybeans and thus dismantle public reserves.

Current forecasts would lead to a further and sharp improvement in stock-to-use ratios in 2014/15. Projected at, respectively, 20 percent and 13 percent, the global stock-to-use ratio and the stock-to-disappearance ratio for major exporters[7] would hit multi-year highs, which should provide scope for the recent downward trend in international meal prices to continue.

Growth in global meal trade to slow down sharply

After rising conspicuously last season, world trade in meals/cakes (including the meal contained in traded oilseeds) is projected to grow by only around 3 percent in 2014/15. Commodity-wise, record-high transactions in soybean meal are anticipated to offset falling sales of most other meals, in particular rapeseed meal.

Regarding imports, Asian countries will continue to dominate demand, with China alone accounting for one-third of global purchases. China’s imports (mostly in the form of whole soybeans) should keep growing, although less than last season, when import demand was underpinned by a sharp expansion in domestic crush capacity. Purchases by other developing countries in Asia are anticipated to expand further, led by Thailand, Turkey and Pakistan. In the EU, the world’s second largest buyer, imports should contract slightly from last season as incremental demand can be met by higher domestic supplies, including of feedgrains. The United States (a net exporter of meals) had a surge in imports last season, due to temporary shortages in domestic supplies, but in 2014/15, overseas purchases are expected to be scaled back to average levels.

Export growth, concerning primarily soybeans/soymeal, will be concentrated in the United States and – provided current production forecasts materialize – South America. A sizeable rise in shipments is expected in the United States, although the need to re-build inventories is expected to constrain exports. In 2013/14, total US shipments (including the meal contained in soybean exports) soared by 7.5 million tonnes while this season, exports could increase by a mere 1.5 million tonnes – despite this year’s 17 million tonnes surge in domestic production. In Brazil, further expanding soybean production should sustain export growth while, in Argentina, higher shipments are possible on account of both large carry-in stocks and higher production. In India, soymeal exports are expected to recover, underpinned by increased domestic supplies.

[2]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 which 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. Please note that data on trade in and stocks of oils (meals) refer to the sum of trade in and stocks of oils or meals plus the oil (meal) equivalent of oilseed trade and stocks. Furthermore, please be aware that production data for oils and meals are derived from domestic production of the relevant oilseeds in a given year, i.e. they do not reflect the outcome of actual oilseed crushing in a given country and period. Oilseed trade (including situations where oilseeds are produced in one country but crushed in another) is fully reflected in national oil/meal consumption statistics.

[3]For details on prices and corresponding indices, see appendix Table 24.

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

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

[6]This section refers to meals from all origins. In addition to products derived from the oil crops discussed under the section on oilcrops, this also includes fish meal and meals of animal origin.

[7]Argentina, Brazil, Canada, India, Indonesia, Malaysia, Paraguay, Ukraine and the United States.

SUGAR

PRICES

Sugar prices ease amid improved production prospects for 2014/15

International sugar prices, as measured by the ISA daily prices for raw sugar, followed a declining trend for most of 2013, extending the steady fall that had characterized the market since 2011. The slide is attributed to a large expansion in production between 2008/09 and 2010/11. However, by January 2014, prices began to recover, amid concern over the severe drought conditions that affected sugarcane crop development in Brazil, the world’s largest sugar producer. Between January and July 2014, international sugar prices averaged US 17.5 cents per pound, 2 percent lower than in the same period in 2013. Shortly after that period, reports of improved production prospects in India, as well as the European Union and the Russian Federation, coupled with lower than expected import demand by China, put downward pressure on international prices, which declined by 6 percent in August and fell further in September. The downgrading of production in Brazil was not sufficient to reverse the tendency for prices to fall. Early indications of a smaller global production surplus for the 2014/2015 and a possible deficit in the 2015/16 season could support prices, although the plentiful global inventories accumulated over the past four years will limit the extent of the price recovery.

PRODUCTION[8]

World sugar production to increase modestly in 2014/15

World sugar production is forecast by FAO to reach 183.9 million tonnes in 2014/15 (October/September), a modest 0.9 percent increase over the 2013/14 season, but still the second largest harvest in history. Favourable weather conditions, along with expanding planted areas, are expected to lead to higher output in most countries, with the exception of Brazil, China and Pakistan. The limited increase in world output means that production and utilization are foreseen to be more closely balanced than in the previous three seasons, when production largely outweighed utilization. In 2014/15, and in contrast with recent years, the bulk of the increase in world production is expected to take place in the developed countries, where production is forecast to expand by 1.1 million tonnes, which compares with 0.6 million tonnes for the developing countries. Under the current forecast, world production in 2014/15 will surpass consumption by about 2.1 million tonnes, far lower than the surpluses of 9.0 million tonnes and 4.7 million tonnes registered in 2012/13 and 2013/14, respectively.

In South America, production is expected to remain close to last year, amid generally unfavourable weather conditions, notably in Brazil. In fact, Brazil’s sugar output is forecast to decline as a result of extreme drought conditions in early 2014. The country’s production is now estimated at 39.6 million tonnes, 0.5 million tonnes below the volumes reached in 2013/14. About 53 percent of the sugarcane harvest is expected to be diverted for the production of ethanol, slightly less than last season, when sugar mills converted about 54.5 percent of the crop into ethanol. Brazil’s sugar output is influenced by changes in the ethanol/sugar price ratio, which eventually determines how much of the two products will be produced out of sugarcane. The higher the price ratio, the larger the amount of cane converted into ethanol at the expense of sugar. The decline in the share of sugarcane devoted to ethanol reflects a loss of profitability, as reportedly 44 sugar-ethanol plants ceased operations over the past five years while 12 other plants suspended their activities. On the other hand, sugar production is expected to increase in Colombia, the second largest producer in the region, and in Argentina, on the expectation that more favourable growing conditions than in 2013/14 prevail in the main producing region of Tucuman.

In Central America, estimates for 2014/15 indicate that sugar production in Mexico will remain at about the same level as last year, or even decline slightly, as large supply availabilities in 2012/13 and 2013/14 reduced the incentive to expand sugarcane areas for the new season. In Guatemala, higher than expected sugarcane yields boosted sugar output in 2013/14, but no further increase is anticipated for 2014/15. In Cuba, sugar production is expected to continue its recovery, driven by investments aimed at increasing sugar productive capacities at both farm and factory levels. A series of policy measures, including higher official price support to cane, also helped incentivise farmers. As a result, Cuba had its highest sugarcane yields in two decades last season, with production now also expected to expand in 2014/15.

In Africa, 2014/15 sugar production is set to rise on the back of continued area expansion and improved processing capacities. The forecast also assumes the prevalence of favourable weather conditions. South Africa, Swaziland, Sudan, and Morocco are anticipated to harvest larger crops, while output is expected to remain at last year’s level in Kenya. The bulk of Kenya’s sugarcane production is rainfed and based on low-yielding varieties. Recently the Government of Kenya has been encouraging farmers to switch to high-yielding varieties to improve their competiveness, especially as the country is to grant duty free access to sugar sourced from COMESA after February 2015. In Zambia, sugar production has been increasing by an average of 9 percent per year over the past ten years, driven by investment in irrigation and the price incentives introduced under the 2009 EU Economic Partnership Agreement (EPA). Sugar production is estimated to increase further in 2014/15. In South Africa, after benefiting from good rains in 2013/14, which resulted in the largest sugarcane harvest since 2005/06, sugar output is expected to increase further over the current season, as rainfall during the critical early part of 2014 was favourable.

In Asia, sugar output is expected to grow by 0.8 percent compared with the 2013/14 marketing season, due to expansions in India and Thailand. At the same time, production is set to fall in Pakistan, China and Indonesia. In India, improved monsoon rainfalls in August are expected to boost yields and result in a total estimated sugar production of 27.1 million tonnes, 1.1 million tonnes higher than in 2013/14. Also, remunerative sugarcane prices have led farmers to substitute sugarcane for rice or wheat. It is expected that the recent partial deregulation of the sugar industry, which abolished the required 10 percent levy on sugar mills and deregulated sales in the open market for the next two years, will give sugar mills some financial flexibility to repay cane arrears. Moreover, it is foreseen that the new measures will help reduce the amplitude of the production cycles which characterize the sugar subsector in India. Latest estimates indicate that sugar output in Thailand, the world’s second largest sugar exporter, will increase, reflecting an expansion in planted area. However, the low precipitation recorded at the beginning of the season may limit the output gain.

In contrast, sugar production in China is expected to decline in 2014/15, due to a reduction in planted area in response to falling domestic prices and rising input costs. In 2013/14, despite unfavourable weather conditions, namely frost, which hit some producing regions in the southern part of the country, overall sugar production increased, as planted area was reportedly higher by close to 1 percent. Over the past couple of years, financial assistance and subsidized inputs that sugar mills provided to farmers helped boost plantings. However, with limited available areas for expansion due to competition with other crops, increased output will need to originate from high-yielding varieties as well as better crop husbandry and productivity gains. Production is also foreseen to contract in Pakistan, following an estimated 6 percent decline in planted area. In 2013/14, sugar production expanded in response to the relatively high sugar returns witnessed over the past three seasons. Remunerative prices also encouraged the use of fertilizers and other inputs, which boosted sugar crop yields. Sugar output is also set to contract in Indonesia, amid unfavourable weather. Due to dry growing conditions, production in Turkey is likely to remain at the level of 2013/14, or even decline, despite an estimated 8 percent increase in sugar beet area.

In Europe, the latest estimates for the EU point to an increase in sugar production, supported by a 3 percent expansion in total area. Beet areas were especially up in Germany, Spain, and Italy. Good weather conditions also boosted yields, notably in France, Germany and the Netherlands. As expected, in June 2014, the EU Commission, Parliament and Council came up with a compromise solution for the 2014–2020 Common Agriculture Policy. This included the elimination of sugar production quotas and minimum sugar beet prices as of September 2017. With the elimination of quotas, the EU is projected to become more self-sufficient in sugar in the medium-term. The impact of the abolition of domestic sugar quotas on the Economic Partnership Agreements (EPAs) and “Everything But Arms” EBA countries is still uncertain and further analysis is warranted. It is likely these reforms will lead to further consolidation of the sugar industry in the EU. At this stage, it is also uncertain to what extent sugar will be displaced by isoglucose in the EU sweetener market following market liberalization.

Production in 2014/15 is expected to grow significantly in the Russian Federation, on the back of remunerative domestic sugar prices that are prompting an increase in plantings. However, the expansion is constrained by competition from grains and oilseeds. Growth in sugar production is also likely to be limited by more expensive imported inputs, such as seeds and fertilizers, given the depreciation of the Russian currency with respect, notably, to the United States dollar. Sugar production is also expected to expand in Ukraine, where cultivated area is reportedly significantly higher than last year. However, rising imported input costs, the result of a significant depreciation of the Ukrainian currency, are likely to weigh negatively on beet yields. In Australia, sugar output is anticipated to increase following gains in area harvested and higher sugarcane yields, assuming favourable weather conditions. In 2013/14, floods and the spread of canopy disease had negative impact on plantings.

In the rest of the world, production in the United States is forecast to fall modestly from its 2013/14 level, as planted area declines. In 2013/14, ample supplies have put pressure on domestic sugar prices, forcing the USDA to purchase sugar and re-sell it at a loss to bioenergy producers as part of the Feedstock Flexible Program (FFP). The USDA has announced that for the new season, it is not planning to make use of the FFP.

UTILIZATION

Falling domestic sugar prices to support growth in consumption

Global sugar consumption is anticipated to reach 181.8 million tonnes in 2014/15, 4.2 million tonnes, or about 2.4 percent more than in 2013/14, in line with the 10-year trend. Large supply availabilities and lower international and domestic prices are expected to support increases in per capita sugar intake in 2014/15. Falling domestic sugar prices were recorded in major markets, including Brazil, India, China, the EU and the NAFTA region. Under current prospects, world per capita sugar consumption is to rise slightly, from 25.0 kg in 2013/14 to 25.3 kg in 2014/15. In developing countries, aggregate sugar utilization is estimated to expand by 4.2 million tonnes, to 131 million tonnes, equivalent to 72 percent of global consumption, underpinned by increases in Asia, Africa and Latin America and the Caribbean. In the generally more mature markets of the developed countries, consumption is forecast to remain relatively unchanged.

Sugar consumption in the long-run is mostly driven by per capita income and population growth. According to the latest World Economic Outlook of the IMF, the global economy is expected to grow more strongly in 2015, with a rebound expected in the developing and emerging economies. This positive economic prospect is also likely to boost further sugar demand, as manufacturing and food preparation sectors, which account for the bulk of aggregate sugar consumption, are highly influenced by the economic environment. However, the depreciation of the currency against the US dollar – which makes imports in domestic currency more expensive – could lead to weaker intake of sugar in several major sugar importing countries, including Indonesia, the Russian Federation, Egypt, Syrian Arab Republic and Nigeria.

TRADE

Trade to increase in 2014/15 sustained by lower international sugar prices

The forecast for world sugar trade in 2014/15 (October/September) stands at 55.4 million tonnes, a 3.7 percent increase over the previous season. The main feature of the sugar international market in the 2014/15 season is the greater availability of supplies in some traditional importing countries, including China, the EU and the United States. Although not expected to export more than in 2013/14, given its lower sugar production, Brazil is set to supply 49 percent of world trade in 2014/15. The bulk of the Brazilian shipments is in raw form and mainly shipped to China, Indonesia, Algeria and Egypt. However, the final volume it sells abroad will depend on the quantity of sugarcane production processed into ethanol, especially considering the increase in the mandated blend ratio in 2013/14 from 23 percent to 25 percent. Also, any further depreciation of the Brazilian real against the US dollar could stimulate Brazil’s exports beyond the current forecasts.

The second largest world exporter, Thailand, is expected to consolidate its position, with deliveries rising from 7.0 million tonnes to 8.1 million tonnes, amid ample domestic supplies and competitive export pricing. About 60 percent of the country’s export is forecast to be shipped in raw form to neighbouring countries, including Indonesia, Malaysia and the Republic of Korea. Thai exports to ASEAN countries are expected to increase further, following the reduction of import tariffs under the existing ASEAN economic community free trade agreement. Sugar imports will be subject to duty free access in most ASEAN countries. However, because of a reduction in import demand, deliveries from Thailand to China are likely to decline.

Amid expected increases in sugar output, shipments from India are estimated to remain relatively strong, driven by large inventories and the newly introduced export subsidy programme. The objective of the subsidy is to provide sugar millers with additional cash flow, as part of a series of measures to address the issue of arrears due to sugarcane growers. Exports are composed of raw sugar and geared to markets in Asia and Africa. Deliveries from Australia are set to continue to perform well, just below the country’s historic high of 3.61 million tonnes, supported by greater exportable surplus. In April 2014, Australia and the Republic of Korea signed a free trade agreement, under which Australian raw sugar exporters benefit from duty free access. The Republic of Korea existing import tariff (35 percent) on refined sugar will be eliminated within an agreed period of 18 years. This is likely to further consolidate the country as the major destination for Australian sugar. South Africa is expected to export about 500 000 tonnes of sugar, in light of sufficient domestic inventories, with the bulk of shipments directed to the Southern Africa Customs Union (SACU) market, and to the United States to fill its 2015 TRQ allocation.

Exports by Guatemala, the second largest exporter in Latin America and the Caribbean, are foreseen to expand, given ample stock availabilities and competitive pricing. Sugar has become a key source of foreign exchange earnings for the country, with large investments targeting refined sugar export markets, especially in the United States, the Republic of Korea and Canada, the main destinations of Guatemala’s sugar export. The country is now the fifth largest global sugar exporter and is focusing on increasing its exports of refined sugar. Expected production gains in 2014/15 are also anticipated to enable Cuba to boost exports, with about 0.4 million tonnes directed to China, as part of an export agreement between the two countries. On the other hand, sales by Mexico are anticipated to decline for the new season, with inventory levels falling and production remaining relatively unchanged from 2013/14. However, the final amount of shipped sugar will depend on the realized production for 2013/14 and the extent to which high fructose corn syrup (HFCS) substitutes for domestic sugar use. Mexico’s exports to the United States, under NAFTA, are anticipate to fall, which will be likely compensated by larger deliveries to other markets. Outside of the United States, other destinations for sugar export from Mexico include Canada, Burkina Faso, Columbia, Chile and the Netherlands.

Imports by Asian countries are forecast to rise in 2014/15, despite a notable contraction in purchases by China. In the latter, domestic sugar prices have been decreasing to the level of import parity prices, as the Government has suspended its reserve purchase programme, rendering out-of-quota imports unprofitable. In contrast, purchases by Indonesia are set to remain strong, driven by robust domestic utilization, particularly from the beverage and food processing sectors.

In Europe, shipments to the EU are forecast to stay relatively unchanged, on the back of adequate domestic production. With new free trade agreements with Peru, Colombia and six central American countries, namely Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama, being fully implemented, imports actually may end up rising further. An additional 20 000 tonnes of sugar from Ukraine is also available to enter the EU market, on the basis of newly negotiated free trade agreement. The EU is expected to remain the world’s largest sugar importer. As a result of expanding domestic production, imports by the Russian Federation, once the world’s largest sugar importer, are anticipated to fall in 2014/15. Also, any further depreciation of the Russian currency against the United States dollar (beyond current levels) could further dampen purchases. Likewise, shipments into Kenya are estimated to retract, while imports into Malaysia are to increase and those of Turkey are to remain unchanged from the previous season.

In the rest of the world, purchases by the United States, about half of which are managed through a TRQ system of 1.4 million tonnes, are anticipated to stay unchanged, or may increase slightly, as the season advances. Despite anticipated gains in sugar output in 2014/15, African countries are foreseen to buy more, in general, to meet a strong increase in domestic consumption.

[8]Sugar production figures refer to centrifugal sugar derived from sugar cane or beet, expressed in raw equivalents. Data relate to the October/September season.

MEAT AND MEAT PRODUCTS

Limited production growth; trade mixed

World meat production is anticipated to grow modestly in 2014 to 311.6 million tonnes, 3 million tonnes or 1.1 percent above 2013. Growth is anticipated to be concentrated in the developing countries, which are also the main centres of rising demand.

At the international level, prices have remained high by historical standards for the past three years, with the FAO Meat Price Index generally oscillating around 185 points. Since April 2014, the Index has registered further upward movement, reaching 208 points in September. Prices rose for all categories, especially bovine meat, although towards the end of the period, some reduction was evidenced for porcine and ovine meat.

Global meat trade is forecast to expand at a moderate rate of 2.3 percent in 2014, to 31.6 million tonnes. The anticipated growth would be less than the average for recent years, due to a variety of causes, including production constraints in some of the principal exporting countries, animal health concerns and trade restrictions. There are diverging projected trade trends for the various types of meat, with growth forecast for bovine, pigmeat and poultry, and decline forecast for ovine meat. Poultry remains the main product traded, representing 43 percent of the total, followed by bovine, pig and ovine meat, respectively.

BOVINE MEAT

Production: limited growth

Bovine meat production is forecast to remain largely unchanged at around 68 million tonnes, only 0.8 percent more than in 2013 – continuing a trend of limited growth that has been evident for several years.

The small increase in world production is being led by developing countries, which collectively account for almost 60 percent of the total. As a group, developing countries are forecast to record 2.3 percent growth, concentrated principally in Latin America and the Caribbean, and Asia. The developed countries are predicted to experience a 1.3 percent decline in output, mainly due to a fall in North America.

In South America, cattle availabilities and slaughter have been rising, particularly in Brazil,. The country, which is the second largest producer after the United States, is anticipated to account for most of the regional growth, with production projected to rise 3.4 percent to 9.9 million tonnes. The Brazilian cattle herd is in an expansion phase, supported by improvements in productivity and genetics. Additionally, favourable prices on the export market have stimulated the use of feed to maintain cattle weight during the dry season. In Argentina, government export restrictions have obliged the industry to focus increasingly on internal demand, which absorbs over 90 percent of production. Preference for younger, lighter animals for the domestic market means that production is growing at a relatively slow rate. In neighbouring Paraguay and Uruguay, strong production growth is anticipated, spurred by international demand and sustained cattle prices, and supported by an expanding herd and productivity increases.

In Asia, India, the fifth largest bovine meat producer, continues to see the industry grow, supported by government programmes to utilize male buffalo calves from the country’s expanding dairy herd. Output is forecast to drop in the Republic of Korea, where low profitability has led to herd reduction. In China, production is anticipated to show moderate growth to 6.8 million tonnes. High slaughter rates are reported among small-producers, prompted by strong cattle prices and difficulties in meeting new production standards. Most parts of Africa received adequate rainfall during the current season, which improved pasture conditions and led to a moderate increase in bovine meat production. However, due to a delay in the onset of seasonal rains in parts of East Africa, pasture and fodder and feed supplies in the subregion suffered. As a consequence, production growth may be constrained in Ethiopia, Kenya, Somalia, northern Tanzania and eastern Uganda. Furthermore, outbreaks of foot-and-mouth disease (FMD) in east-central Kenya could have a negative impact on production, although a mass vaccination programme has been initiated and the movement of livestock curtailed in the affected areas. Egypt is expected to show continued limited growth in production – based on dairy cattle (including buffaloes). The sector is benefiting from a government-run FMD vaccination programme and legislation limiting calf slaughter. Output in southern Africa is set to increase as a result of favourable rains which have promoted pasture growth and feed and forage production. Furthermore, in South Africa, a rise in cattle prices should underpin improved profitability and boost production.

Overall, bovine meat output in developed countries is forecast to fall by 1.3 percent, to 28.7 million tonnes. In the United States, the world’s largest producer, prolonged and extensive dry conditions caused a fall-off in the production of calves which led to an herd reduction. Consequently, beef output could decline by 4.5 percent, to 11.2 million tonnes this year, its lowest level since 1994. The long-term decline in the cattle herd in neighbouring Canada, evident since 1992, is expected to continue. In Oceania, the after-effects of drought are impinging on production. In Australia, slaughter rates increased markedly in 2013 and early 2014, prompted by a reduced availability of pasture and fodder. Diminished herd size and rebuilding will result in lower output for 2014 overall, with a decline of 1.4 percent to 2.3 million tonnes anticipated. In New Zealand, production is foreseen to be moderately higher, at around 608 000 tonnes. The beef industry in New Zealand is highly dependent on the dairy sector which provides 80 percent of the total supply in the form of culled cows and male calves for fattening. In the Russian Federation, improved productivity and slaughtering facilities may be sufficient to counterbalance long-term herd reduction, resulting in a small increase in output overall. In the EU, the world’s third largest beef producer at 7.5 million tonnes, the prolonged reduction in the cattle herd has reversed as a result of dairy sector expansion. Bovine meat production is anticipated to rise by 1.4 percent in 2014, mainly owing to a rise in the number of male dairy calves for fattening.

Trade: United States and China underpin import demand; India becomes the leading bovine meat exporter

World trade in bovine meat is anticipated to grow by 3.4 percent, to 9.3 million tonnes, despite international prices being at their historic maximum. Consumer demand, rising incomes and a shortage of domestic supplies in some countries are important contributors to trade expansion.

China is expected to record a significant increase in imports, although not to the same degree as in 2013, when they doubled. Total imports could exceed 1.1 million tonnes in 2014, 6 percent more than last year, confirming China’s position as the main world market for bovine meat. Demand continues to be stimulated by rising incomes and growth in meals outside the home. Additionally, following outbreaks of avian influenza, some consumers have switched from poultry to other meats. Elsewhere in Asia, imports by the Islamic Republic of Iran, the Republic of Korea and Malaysia could increase, as domestic production is forecast to be either stable or decrease. The United States, the world’s second largest importer, is also forecast to step up its purchases, to compensate for a short-fall in national production. By contrast, high international prices and increasing domestic production are expected to result in falling purchases of bovine meat by the Russian Federation. In the first four months of 2014, deliveries to the country were 23 percent down, year-on-year. The Federation’s ban on bovine meat imports from a number of countries introduced in August is not expected to have any significant impact on world trade, as this group of countries collectively supplied less than 10 percent of the Federation’s imports in 2013 (Table 2). Purchases by the EU may decline slightly, stemming from growth in domestic production. A number of other importers may see trade fall or stagnate in response to high international prices, including Egypt, Canada and Mexico.

Strong demand and elevated prices are projected to stimulate bovine meat exports, despite production constraints in some countries. Much of the expected expansion in trade is anticipated to be met by India, Brazil, Australia and New Zealand. India, in particular, may see a strong rise in its sales of buffalo meat (carabeef), in the order of 10 percent. As a consequence, for the first time, India would become the leading exporter of bovine meat, shipping 1.9 million tonnes, compared to second-placed Brazil’s 1.8 million tonnes. India’s main markets are Asia and North Africa. The popularity of carabeef rests on its price competitiveness – where quotations are 30 percent less than for beef - plus its low fat content, excellent processing characteristics and halal certification. The favourable market conditions for bovine meat are expected to stimulate exports from Canada, the EU, Paraguay and Uruguay. On the other hand, reduced domestic production is anticipated to depress exports by the United States. Sales by Argentina are also expected to fall, as government-imposed limitations on trade favour supplying the domestic market.

PIGMEAT

Production: Asia sustains growth

World production of pigmeat is anticipated to grow by 1.4 percent to 116.1 million tonnes in 2014, aided by lower feed costs. The increase in output is forecast to stem from developing countries, where over 60 percent of production originates, while little change is expected in the developed countries. Asia is the leading pigmeat producing region, accounting for more than half of the world total. Strong consumer demand and government support policies are anticipated to combine to boost China’s output by 2.3 percent, to 56.7 million tonnes, equivalent to almost half of the world total. Elsewhere in Asia, Vietnam, the Philippines and Indonesia are foreseen to register similar rates of growth. Conversely, in Japan and the Republic of Korea, production is anticipated to fall, reflecting the diminished breeding herds and outbreaks of porcine endemic diarrhoea (PED), which have reduced piglet numbers.

In the Americas, Brazil, the world’s fourth largest producer, is set to increase output to a record 3.5 million tonnes, stimulated by reduced feed costs and favourable export prices. Steady growth is also anticipated for Mexico, underpinned by improved genetics and productivity which translate into more piglets per litter and higher animal weights.

Production in the EU, the second largest producer after China, is forecast to be unchanged at 22.1 million tonnes, even though compliance with animal welfare regulations relating to the housing of sows led to a fall in the breeding herd in some member-states. In the United States, PED is projected to cause a 1.9 percent fall in pigmeat output, despite heavier slaughter weights. Canada’s production is forecast to increase only slightly, due to some smaller producers ceasing operations. In the Russian Federation, government policies favouring large-scale farms have resulted in production doubling over the past decade. The trend towards increased output may be amplified in 2014, following prohibitions on pork imports from the EU and Canada, which together supplied two-thirds of the Federation’s imports in 2013 (Table 2). African swine fever (ASF) in Belarus has caused a marked decline in the pig population and, consequently, production is forecast to fall substantially.

Trade: animal diseases and trade prohibitions take centre stage

Trade in pigmeat is expected to recover by 2.1 percent to 7.5 million tonnes in 2014, following a decrease in 2013. Three countries – the United States, the EU and Canada – account for three-quarters of the world pig meat exports. Adding Brazil and China to the group brings the total to more than 90 percent. Despite reduced production, high international prices are expected to boost sales by the United States, where exports for the first six months of the year were up by 7.4 percent. Also, in the case of the EU, strong sales to Asia – especially to China and Japan – are expected to largely counterbalance the lost trade with the Russian Federation, its main market in 2013. The Federation banned imports of EU pigmeat at the end of January, consequent on a small number of cases of African Swine Fever (ASF) in the wild-boar population in Lithuania and Poland. Canada, which in recent years has maintained a share of around 15 percent of world trade, is expect to maintain a similar level of sales this year. Largely unchanged deliveries are also foreseen for Brazil, where exports up to the end of July were the same as the previous year’s. While Brazil has increased its exports of pigmeat to the Russian Federation following the ban on imports from the EU – March–July 2014 sales were a third higher than the same period in 2013 – there was a proportionate drop in sales to China (Hong Kong SAR).

Rising demand, in China and Mexico, and PED-reduced domestic production in Japan, the United States and the Republic of Korea, led five of the six main importing countries – which account for three-fifths of world trade – to increase their purchases by an average of 10 percent during the first half of 2014. While this momentum may not be fully maintained for the remainder of the year, their combined demand is anticipated to be sufficient to compensate for a substantial fall in imports by the Russian Federation, following the ban imposed on imports by a group of countries which had collectively supplied 70 percent of its foreign purchases in 2013. Trade data up until April shows imports by the Federation were down by a third – reflecting in part improved domestic supplies. By way of context, growing domestic production meant that the Federation had already cut imports heavily, by 26 percent, in 2013. Imports by Canada are also expected to fall, as a result of a substantial price rise in the United States, its principal source of supply.

POULTRY

Production: China weighs on world total

A second year of limited growth is foreseen for poultry production in 2014. Output is expected to rise by 1.1 percent to 107.6 million tonnes, much slower than the 3 percent per year trend observed over the past decade. While falling feed prices have supported growth in many countries, industry challenges in China continue to weigh on the world total. In China, concern over H7N9, including a fresh outbreak among the human population at the start of 2014, has depressed demand for poultry and also limited the availability of live birds for direct consumption. Poultry production is expected to fall by 4.8 percent, or 877 000 tonnes, in 2014. As a consequence, poultry is the only category of meat where output is anticipated to increase more in absolute terms in the developed countries than in the developing countries. Excluding China, the tendency in all the other largest producing countries is expected to be positive. Production in the United States, the principal producer, could grow by 1.8 percent, to 20.6 million tonnes. Elsewhere, the other major producers likely to witness gains include the EU, Brazil and the Russian Federation, Mexico, India, the Islamic Republic of Iran and Turkey.

Trade: Slow growth

Poultry, the most traded meat category, accounts for almost 45 percent of total meat trade. Its popularity stems from its price competitiveness compared with other types of meat and its wide acceptance and adaptability to national cuisines. Although poultry trade volume has increased by 55 percent over the past decade, growth has slowed since 2012. This trend is expected to continue in 2014, when exports could reach 13.5 million tonnes, an increase of 2.6 percent, mainly reflecting augmented production in importing countries. The two major importing countries, China and Japan, are projected to maintain purchase levels similar to the previous year. In the case of China, a fall in imports by mainland China is expected to be counterbalance by increased imports by Hong Kong SAR, in part a result of prohibitions of traffic in live birds from the mainland. Stable to positive growth in imports by other major markets, including, Saudi Arabia, the EU and Vietnam, is expected to contrast with a substantial fall in purchases by the Russian Federation. In the Federation, imports are provisionally estimated to fall by 30 percent, stemming from abundant domestic production, which led to a fall in prices, and the August 2014 ban on imports from certain countries. In the case of poultry, this group of countries had supplied approximately three-quarters of the Federation’s overseas purchases in 2013, which means identifying alternative sources of supply will cause some disruption. In Africa, imports as a whole are forecast to rise by 4.6 percent. Among the main importing countries, Angola, Ghana and Benin are anticipated to purchase more, as income growth strengthens demand, while imports by South Africa, the major trade destination in the region, are forecast to grow by 2.6 percent.

The four leading exporters, Brazil, the United States and China, which together account for almost three-quarters of global poultry exports, have seen little expansion in sales in recent years. This situation may change for 2014, when excess supplies and depressed prices in China, associated with H7N9, are anticipated to stimulate exports by as much as 7 percent. Also, sales by Brazil may receive a fillip from the opening up of opportunities in the Russian Federation. Leaving aside the current exceptional situation, the main drive in poultry exports has tended to come from second-tier exporters, including Thailand, Turkey and Argentina, all of which are projected to record further growth in 2014. Interestingly, each has focused on a different region or market segment: Thailand mainly supplies Japan and the EU with boneless poultry cuts, including prepared dishes; Turkey has focussed on the export of halal-certified whole birds to the Middle East, in particular Iraq, where it enjoys a logistical advantage; Argentina has made inroads in the Venezuelan market and, more recently, widened its focus to include China and South Africa, among others. As the main area of rising demand is the Middle East, this has particularly favoured Turkey, where exports for the first half of the year were up by 13 percent, having risen by 220 percent between 2009 and 2013.

OVINE MEAT

Production growth slows

Production of ovine meat is expected to be constrained by falling output in Oceania, despite moderate growth elsewhere. As a result, world output in 2014 may rise by only 0.6 percent, to 14 million tonnes. Developing countries account for three-quarters of the total, with the largest producers being China, India, Sudan, Nigeria and Pakistan. Generally satisfactory pasture conditions have set the basis for flock rebuilding in many of the major producing areas of Asia and Africa. In developed countries, drought-imposed herd reduction in Australia and New Zealand are forecast to lead to a fall in production in 2014. In the EU, the second largest producer, the long-term decline in output stabilized last year and limited growth is forecast for 2014.

Trade to fall, following surge in 2013

With Australia and New Zealand accounting for almost 85 percent of world ovine meat exports, trade in ovine meat is set to fall as a result of restocking in New Zealand, following exceptionally high, drought-induced slaughter in 2013, and protracted dry to drought conditions in 2013/2014 in Australia. Overall, trade may drop by 1.8 percent to 959 000 tonnes. In dealing with reduced availabilities, it is possible that Oceania exporters will maintain provision to the highest value markets, such as the EU and the United States, while seeking, to the extent possible, to meet the requirements of growing markets, albeit lower priced ones, including China, the United Arab Emirates, Qatar and Malaysia. Among the small-scale exporters, India is expected to see sales grow this year, mainly to the Middle East, especially the United Arab Emirates and Saudi Arabia. Likewise, exports by Uruguay are forecast to move higher, focusing on China and Brazil.

MILK AND MILK PRODUCTS

PRICES

Fall sharply

International dairy product prices started the year at an historic peak and then fell continuously between March and September. The decline reflected both abundant export availability and reduced import demand. Export supplies increased in the EU, and there was a favourable start to the new season in Oceania. The introduction of Russian Federation trade prohibitions in August further weighed on the market.

The FAO Dairy Price Index (2002-2004=100) stood at 188 points in September, a decline of a third over its February peak, and a level not seen since mid-2012. Quotations for all dairy products covered in the Index fell. Compared with the start of the year, September prices for the main dairy commodities were: whole milk powder (WMP), down USD 2 196 per tonne, or 43 percent; skim milk powder (SMP), down USD 2 031 per tonne, also 42 percent; butter, down USD 1 552 per tonne, or 32 percent; and cheddar cheese, down USD 925 per tonne, or 19 percent.

Substantial price swings illustrate the extent to which the international market is exposed to sudden changes in milk production and availability of milk products for export, in particular as publicly financed inventories are at minimal levels in the EU and the United States, and almost nonexistent elsewhere.

PRODUCTION

Steady growth in 2014

World milk production in 2014 is forecast to grow by 2.4 percent to 792 million tonnes. While Asia is expected to account for most of the increase, production should rise in all regions. Output in India, the world’s largest milk producing country, is set to expand by 4.9 percent, or 6.8 million tonnes, to 145 million tonnes. Rising population and disposable incomes are the two main dynamics behind the development of India’s milk sector. Expansion in herd size and improved productivity are important engines underpinning production. Increased output is also anticipated in Pakistan and Turkey, spurred by steady growth in consumer demand while, in the Republic of Korea, production is slowly recovering from the 2011 foot-and-mouth disease outbreak. Output in China is forecast to show a modest increase, as a shortage of forage and high beef prices caused dairy cattle slaughter rates to rise. In Africa, a moderate increase in milk production is anticipated for 2014, assisted by generally favourable weather conditions. Expansion is foreseen for Egypt and Morocco. Several countries in East Africa experienced a delay in the onset of seasonal rains, and pasture and fodder and feed supplies suffered. As a consequence, production growth in some countries, including Kenya, Uganda and Tanzania, may be constrained. Furthermore, outbreaks of foot-and-mouth disease in east-central Kenya have had a negative impact on yields. A mass vaccination programme has been initiated and the movement of livestock curtailed in the affected areas.

Rising incomes and firm regional and international demand have favoured dairy production growth in several countries in Latin America and the Caribbean. Hot and dry conditions experienced by some southern-cone countries at the end of 2013 ran over into 2014, stressing pastures. However, this was followed by abundant rainfall in March and April. Overall, pasture conditions have recovered during the year, which could underpin a 2.3 percent rise in subregional milk production, to 70 million tonnes. Gains are forecast for Brazil, Chile, Colombia, Ecuador, Paraguay and Uruguay, where the overall positive consumption outlook has stimulated investment in new technology and improved animal genetics. In Argentina, production is expected to register a small increase; however, the sector is constrained by stagnant domestic demand and government-imposed limitations on exports. In Central America, milk output in Mexico, the largest producer in the subregion, could recover following prolonged dry weather which constrained growth in 2013. Production in Costa Rica is expected to show a moderate increase.

In North America, output in the United States is recovering from the chronically dry conditions of the previous two years and is forecast to increase by 3 percent to 93.9 million tonnes. Production in Canada is set to remain stable at 8.3 million tonnes, within the limits set by the milk quota system.

In Europe, EU milk production is forecast to grow by 2.5 percent to 160.8 million tonnes, stimulated by favourable milk prices and reduced feed costs, and facilitated by clement weather during the year to date. Several EU member-states are seeking to maximize their production by fully utilizing quota allowances in preparation for the abolition of the system in 2015. Expansion in 2014, aided by a 1 percent annual rise in the quota, has resulted in the EU dairy herd increasing for the first time in many years. Milk production in the Russian Federation is anticipated to move lower in 2014, as poor profitability has caused a contraction in the dairy herd. In neighbouring Ukraine, production is on an upward trend, assisted by government incentives which promote farm-level efficiency and the use of modern technology.

In Oceania, New Zealand’s milk production during the first two months of the current June-May season has been running at 10 percent above last year, and it is anticipated to finish 6 percent higher – at a record level of 22 million tonnes. In Australia, generally favourable weather and stable feed costs could result in output for the current July-June season rising by 2 percent.

TRADE

Excess export supplies and trade sanctions take centre stage

Trade in dairy products is projected to rise by 4.6 percent, slightly up on last year, to reach 71.9 million tonnes of milk equivalent. The two principal exporters, New Zealand and the European Union, which together account for 50 percent of world trade, are both anticipated to record an increase in sales. Also, the United States, with a 15 percent share of the world market, is set for further growth, following an exceptional hike in sales last year.

Asia remains the main centre for rising international demand, with substantially increased purchases forecast for China, Malaysia, Vietnam and Thailand. Elsewhere in the region, Saudi Arabia, Indonesia, the Philippines, Singapore, Japan and the United Arab Emirates remain important markets, but the level of their imports may not change markedly and, in some cases, could decrease. The fall in international prices may stimulate import demand in Africa as a whole, after purchases had decreased for the previous two years. The principal importers that could experience growth are Algeria, Egypt and Ghana. In Latin America, increased domestic production could displace imports in Mexico and Brazil, while Venezuela is projected to substantially increase its level of international purchases. Finally, imports by the Russian Federation are anticipated to fall, perhaps by as much as 10 percent for the year as a whole, following the ban, introduced in August 2014, on imports of dairy products from Australia, Canada, the EU, Norway and the United States. For the Federation, this would constitute a reversal of its decade-long trend that saw imports increase by an average of 10 percent per year. Of the countries not banned, only New Zealand would be in a position to make up a substantial share of the shortfall – and then for only some products. Trade in cheese is expected to be particularly affected by the ban; however, market adjustment, including price reductions, may be sufficient to absorb any resulting excess supply.

Whole milk powder (WMP) – prices plummet

World exports of WMP are projected to rise by 9.8 percent in 2014 to 2.7 million tonnes. This compares with limited growth of 1.6 percent in 2013, when a milk production shortfall constrained trade. Rising export availabilities together with adequate stocks in China, the main market, caused prices to fall steeply between April and September. China’s imports of WMP for 2014 are provisionally estimated to increase by 35 percent, in which case they would approach 1 million tonnes – and account for almost 40 percent of total trade. Elsewhere in Asia, lower prices may stimulate demand in several major markets, including Malaysia, Indonesia and Thailand. Additionally, importers in North Africa and Latin America and the Caribbean, including Algeria and Venezuela, may return more fully to the market, while in the case of Brazil, rising domestic production is expected to displace imports. The market for WMP is very geographically diverse, stemming from its wide use in both the processing industry and for direct retail sale. A number of the principal exporters including New Zealand, the EU and Australia are expected to increase the level of sales for 2014 as a whole.

Skim milk powder (SMP) – Prices also down sharply

Trade in SMP is predicted to grow by 7.1 percent, a rate close to the average seen over the past decade, to 2.0 million tonnes. Along with those of WMP, SMP prices have dropped sharply. SMP is central to the milk processing industry in many countries and, as such, market demand is more widespread. The principal markets are (in order of volume) China, Mexico, Indonesia, the Russian Federation, Malaysia, Algeria, the Philippines and Vietnam, followed by Egypt, Thailand, Saudi Arabia and Singapore. While China is anticipated to remain the main market, with a share approaching 20 percent of total trade, a rise in purchases is also anticipated for some other major importers, including (in order of volume) Indonesia, Malaysia and Vietnam. Conversely, sales to Mexico, Algeria and the Philippines are foreseen to fall. Imports by the Russian Federation were 15 percent down for the first four months of the year compared with the same period in 2013, and are projected to continue to slide, mainly as a result of a decline in demand.

Eighty percent of world SMP exports are supplied by the United States, the EU, New Zealand and Australia. With the exception of New Zealand, all are predicted to increase sales, with the EU and Australia recording the strongest growth. In the case of the EU, high butter prices in domestic markets make it more profitable to produce SMP/butter than WMP. New Zealand’s focus on supplying WMP to China meant that half-year sales of SMP were down by 16 percent compared with the same period in 2013. In 2013, India entered the world market for SMP in a significant way, with sales leaping 250 percent to 130 000 tonnes. Trade data for the first six months show exports down by 27 percent compared with the same period in 2013, and sales for the year are anticipated to fall as the domestic market absorbs supplies.

Butter – Prices fall along with powders

Trade in butter is forecast to increase by 3.8 percent to 946 000 tonnes. International butter prices have fallen, affected by milk powder prices and, more recently, by uncertainty over future sales to the Russian Federation, the main market. Demand for butter comes mainly from Southeast Asia, the Middle East and the Russian Federation, although, as with many other milk products, China has substantially increased purchases in recent years. Additionally, as a result of trade agreements and duty-free access for inward processing (where products are imported duty free for additional processing and export), the EU is both an important butter importer (ranking fourth) and exporter (ranking second). While many of the principal markets, such as China, Saudi Arabia and Singapore, are expected to maintain or increase imports in 2014, the origin-specific import ban by the Russian Federation has raised doubts about its level of purchases for the remainder of the year. For the year up to April, imports of butter by the Federation were up 12 percent compared with the previous year. The group of exporters to which the ban applies have in recent years supplied 25 percent of the Federation’s import demand. The main supplier affected by the ban is the European Union, followed by Australia.

Three of the four principal exporters – New Zealand, the United States and Belarus – are anticipated to see an increase in sales in 2014. Additional market opportunities may be created for New Zealand due to the Russian Federation’s ban on imports from some other suppliers. Conversely, exports by the EU, 25 percent of which are directed to the Federation, are expected to be constrained by the ban. However, sales for the year as a whole may be unchanged, given the strong export performance during the first half of the year. The ban may principally affect EU imports for inward processing and re-export to the Federation, the main source of which is New Zealand. EU internal prices for butter are substantially above those prevailing in the international market. This, combined with the fact that exports represent only 5 percent of domestic production, is expected to limit the effect of the ban on the EU market, overall. In the case of Australia, where the Federation has accounted for around 10 percent of its export sales in recent years, limited domestic supplies and a wide range of alternative markets are anticipated to mitigate any market loss.

Cheese – Prices follow other dairy products down

Initially, cheese prices were not as affected as other products by the general decline in dairy commodity prices during the year; however, following the announcement of the Russian Federation’s country-specific import ban, they too dropped substantially – by 20 percent between July and September The Russian Federation is the main international market for cheese, accounting for almost 20 percent of total sales. Unlike the other dairy commodities, cheese is a highly differentiated product and is used mainly for direct consumption rather than as an ingredient in the food industry. Thus, the sudden loss of the Federation’s market has caused difficulties for some suppliers, in particular the EU, which supplied 55 percent of the Federation’s imports and where sales to the Federation accounted for a third of total EU cheese exports. Some EU member-states have been particularly affected by the ban, including the Netherlands, Germany, Finland, Lithuania and Poland. The European Commission has opened Private Storage Aid (PSA) for some types of cheese, along with butter and SMP, but to date this has not been extensively used by processors – implying that they may rely on price discounts to sell any surplus, either on the internal market or externally, or favour butter/SMP production instead. For the EU as a whole, cheese exports represent only 8 percent of internal production. Therefore, even if the ban were long-term, market adjustment and reorientation of exports could be sufficient to mitigate its effects. In this regard, the Commission has announced that additional funds will be allocated to promotion measures in 2015.

In terms of the overall cheese market, trade is estimated to fall by 4 percent in 2014 – mainly as a result of the Russian Federation’s ban, with the Federation’s imports projected to be down 15 percent for the year. Elsewhere, imports by the second largest market, Japan, are anticipated to show moderate growth, as are those of the United States, Saudi Arabia, Mexico and the Republic of Korea. A particularly strong increase is anticipated for China, where imports have doubled over the past 5 years. Sales by the world’s largest exporter of cheese, the EU, are projected to decline, following the loss of its major market in August. The next placed exporter, the United States, is expected to significantly increase its level of sales – exports for the first seven months of the year were almost a third higher than the same period in 2013. The United States has benefitted from the focus of Australia and New Zealand on milk powder and has seen substantial growth this year in its main markets including Mexico, the Republic of Korea and Japan.

FISH AND FISHERY PRODUCTS

GLOBAL FISH ECONOMY

The overall supply of fishery products continues to rise in 2014, with annual growth an estimated 1.9 percent over 2013. Aquaculture remains the major contributor, with production moving quickly and steadily in the direction of surpassing wild fisheries. According to the latest edition of FAO’s The State of World Fisheries and Aquaculture (SOFIA), fish farming holds tremendous potential for responding to the surging demand for food that is taking place due to global population growth. Aquaculture’s expansion can contribute to food and nutrition security as fish helps to improve the diets of many people and can provide viable livelihood opportunities. Yet, despite aquaculture’s tremendous potential, investments in research and new technology will be vital to sustain growth as competition for space and scarce water resources put growing pressure on ability to increase in yields. The forecast for aquaculture production for 2014 is 73.9 million tonnes, up by 4.9 percent compared with 2013, while capture fisheries has been more or less stagnant at around 90 million tonnes for years.

The ever increasing fishmeal and fish oil prices have encouraged feed manufacturers to seek alternative ingredients such as soymeal. Nevertheless, fish utilization for feed production expects a mild increase. However, most of the additional fish produced this year will likely be consumed directly, due to the broadly recognized health effects of fishery products.

The export value for fish and fishery products is expected to reach USD 145 billion this year, a 6.5 percent increase from 2013 and a new record. The FAO fish price index hit a historic high in March, mainly driven by the limited supplies of species such as salmon, shrimp and tuna. This demonstrated that the substitution of product by buyers in the short-run is less feasible than many had expected. Prices of aquaculture products also reached record high levels, pushed up by higher costs and by supply constraints for some species. During the second quarter, prices started falling, particularly for salmon and shrimp. Although the long-term outlook remains positive, prices can be expected to remain weak with an upturn during the final months of the year. It is foreseen that 2014 will be the year fish consumption from aquaculture will overtake that from capture, with world food fish annual per capita consumption eventually reaching an average of 20 kg.

REVIEW BY FISH PRODUCT

Tuna

Prices of frozen skipjack began to recover strongly in the second quarter of 2014, a trend expected to continue into the second half of the year. The rising raw material prices, of concern to tuna canners and marketers, are mainly the result of low catches in many parts of the Indian and Pacific oceans. Catch levels of sashimi-grade tuna have also been lower this year. Meanwhile, value of canned tuna exports from Thailand declined by almost 4 percent in the first half of 2014 to THB 28.3 billion (USD 868 million), mainly as a consequence of the low prices earlier in the year. In Japan, tuna imports dropped marginally in the first half of 2014, with falling consumption and the weak yen both contributing factors. The US canned tuna market continued declining as a result of weakening household demand, while demand for non-canned tuna in the US remained stable during the first half of 2014, with total imports up marginally to over 22 000 tonnes. In the EU, last year’s positive market growth disappeared this year, demonstrated by a fall of around 5 percent in canned tuna imports during the first half of 2014 to 247 000 tonnes. The European Commission (EC) has warned the Philippines and Papua New Guinea of the possibility of being banned from the EU market unless they make efforts to curb illegal, unreported and unregulated (IUU) fishing.

Bivalves

Rising prices and high demand characterize the global market for mussels. European producers, Spain and Denmark, substantially boosted their export volumes in the first half of 2014 compared with last year’s figures, as did New Zealand. Despite being a relatively more expensive product, EU imports were flat year-on-year at approximately 78 200 tonnes, while sales were up in the US. The oyster market has been affected by supply shortages and prices are high. Judging by early 2014 volumes, production in the Gulf of Mexico will be exceptionally low this year, and high disease-related mortality rates continue to devastate oyster beds in France. The world’s main scallop supplier, China, exported 20 000 tonnes in the first 6 months of the year, 30 percent more than the same period in 2013, and demand appears to be firm in the US, its major market. China also continues to cement its position as by far the dominant exporter of clams, posting a total export volume of 68 800 tonnes in the first half of the year.

Small pelagics

Norwegian exports of pelagic fish increased slightly during the first half of 2014, reaching NOK 2.6 billion (USD 423 million). Mackerel supplies in general are good and Norwegian frozen mackerel exports increased 20 percent by volume, to 71 700 tonnes at an FOB value of NOK 857 million (USD 141 million). Frozen mackerel prices have been on an upward curve since mid-2012, but in view of the expected availability of mackerel in the months to come, prices will probably not come back up for some time. Norwegian herring exports, on the other hand, fell in volume during the first half of 2014 due to poorer landings. The Russian Federation is the main market for Norwegian frozen herring and exports will be affected by the Russian import ban. Since the beginning of 2012, prices for frozen fillets and whole frozen herring have been on a downward trend, but they stabilized in the second quarter on the back of tightening supply and are expected to remain relatively flat. Peru’s catches of anchoveta have been slow this year, well below the 2.53 million tonne quota, whereas Chile’s pelagic catches have been exceptionally good. Supplies of sardines are generally tight and imports of canned sardines into the EU have declined slightly in the first half of 2014. Sardine prices are slightly higher this year and this is expected to continue.

Tilapia

Total tilapia export volumes from China, the global market’s top supplier, increased by 8 percent in the first half of 2014 compared with the same period in 2013. A trend of increasing Chinese exports of whole frozen tilapia has been observed over the past few years, particularly to African markets, which offer more competitive pricing than other markets. The tilapia industry in Hainan province is turning its attention to domestic sales, though these efforts have been hampered by poor logistics. Tilapia continues to be among the most popular tropical fish in the US, with an 11 percent increase in total import volumes during the first half of 2014 compared with the same period in 2013. China, Indonesia and Honduras, the top three suppliers, all saw increases in their US-destined exports, and domestic demand growth has also been observed in Latin America. In general, the global market for tilapia is expected to remain firm with steady demand.

Cephalopods

Octopus landings in Morocco, the top supplier to the EU market, are down this year as a result of a fishing ban extending into mid-February, and prices have risen significantly. On the Japanese market, octopus prices have also risen due to a combination of tight supplies and strong demand. The limited supplies saw Japan’s import volumes fall significantly in the first half of 2014 compared with last year’s record levels, down to 29 000 tonnes. Octopus consumption is also rising in the US. Illex squid catches in the Falkland Islands (Malvinas) region reached record levels in the first half of 2014, and squid prices fell as a result. Despite increased supply from this fishery, imports into Japan, the US and major European markets were down in the first half of 2014 compared with last year. Cuttlefish imports are also moderately down in all major markets, partially due to reduced availability. Supplies are limited, but there is also relatively little activity on the buying side and the effect on prices so far has been minimal.

Fishmeal and fish oil

Global fishmeal production in the first six months of 2014 was 21 percent higher compared with the same period in 2013. Higher production in Chile, Denmark and Norway was sufficient to make up the shortfall in volumes left by Peru, where raw material supplies were down in the first half of this year as a result of the El Niño weather conditions. Despite an extension of the first fishing season, only two-thirds of the Peruvian anchoveta quota were landed, and prices for Peruvian fishmeal are now spiking again after a brief drop in late 2013. Peruvian fishmeal exports more than doubled in the first half of 2014, but only relative to what was an exceptionally low baseline in early 2013. However, high prices saw many buyers temporarily holding back to wait for further developments. Fish oil production was up by some 34 percent in the first half of 2014, with Chile the main contributor to the increase. Prices are still rising, as aquaculture producers face competition for the limited supplies from direct human consumption markets. The demand for both fishmeal and fish oil will remain strong in the long term, but short-term price development will depend in large part on the second anchoveta season from November to January.

Groundfish

After a period of lower production, the Barents Sea cod stocks are now considered to be in good shape. However, the International Council for the Exploration of the Sea (ICES) has recommended a 10 percent cut in the quota to 894 000 tonnes for 2015, and prices may be driven up as a result. At the same time, ICES is recommending a 10 percent increase in the haddock quota. Overall, the Norwegian Seafood Council reports that following a very productive fishery this year, groundfish exports during the first half of 2014 amounted to NOK 5.82 billion (USD 946 million), which was a 20 percent increase over the same period in 2013 and a new record. Prices were generally low, although they began rising in the second quarter. In particular, cod prices continue to strengthen as demand on the European market improves and prices are also firming in the US. Demand for hake in the EU is also good and growing. Based on scientific advice, the quota for Alaska pollock in the Far East waters of the Russian Federation was reduced to 885 000 tonnes in 2014, which can be expected to push prices upwards. For surimi, observers are predicting a 50 000 tonne shortfall in global supplies this year, mainly due to lower production in Southeast Asia. At the same time, global consumption of surimi is increasing, despite stagnating demand from the US, which may lead to higher prices when inventories shrink.

Pangasius

The Vietnam Association of Seafood Exporters and Producers (VASEP) has stated that pangasius farming in the country has been negatively impacted by high feed cost, decreased product price and lower exports to major markets. Demand has weakened significantly in the EU, with both volumes and prices down this year. Similarly, after strong first quarter performance, import volumes into the US market fell substantially in the second quarter and the total of 47 700 tonnes of Vietnamese pangasius in the first half of 2014 was 9 percent less than the same period in 2013. There appear to be more promising opportunities in emerging economies such as Brazil, which more than doubled its imports of Vietnamese pangasius in the first half of this year, reaching a total of 22 400 tonnes. Meanwhile, other Asian countries, such as Indonesia, are expected to focus on expanding their own pangasius sectors to meet booming domestic demand.

Seabass and seabream

Greek export prices for most sizes of bass and bream were falling early in the second half of 2014, following a cyclical pattern commonly observed when prices begin their annual drop off in mid-summer. Weakening demand in the major Mediterranean markets and temporarily higher harvest volumes should see this trend continue, but relatively tighter supply in 2014 is expected to result in a year-on-year increase in prices. In terms of unit value, Greek gilt-head bream exports were worth 20 percent more in the first six months of 2014 than in the same period of 2013, while the increase for European seabass was 12 percent. Meanwhile, Turkey continues to increase its share of traditional markets with low-priced fish, dominating the growing Russian market as well as targeting alternative markets in the Middle East.

Salmon

High salmon prices and record export revenues for the salmon industry have continued into 2014 as global demand growth strains against limited supply. The total value of Norwegian salmon exports for the first six months of the year was NOK 21.5 billion (USD 3.56 billion), the highest figure ever, while volumes increased to 469 000 tonnes. Slightly concerning, however, is the dampening effect of the high price level on demand in major markets such as France and Russia, while sea lice control is a continuing challenge. Going into the second half of the year, relatively higher Norwegian harvest volumes hit the markets and dragged down prices once again, but a predicted reduction in production growth in 2015 should ensure the downward trend is temporary. For Chile, the first half of 2014 also brought improved fortunes, as more prudent supply growth targets and much improved prices in the core markets of the US, Japan and Brazil has seen many Chilean companies return to profitability after a difficult period. The Russian import ban on Norwegian salmon potentially presents a further opportunity for Chilean exporters. The situation for wild salmon is mixed, with sockeye landings exceeding forecasts, chum salmon volumes well below expectations and the market for pink salmon looking difficult. Norwegian trout performed well in the first half of 2014, with total export value reaching NOK 1.2 billion (USD 195 million), although the impact of the Russian ban is expected to be substantial, given Russia’s position as by far the most important market.

Shrimp

Global shrimp supply was tight going into the second half of the year, and forecasts for the rest of the year are conservative. Amid renewed interest from US and European buyers, this situation has pushed up prices. In Thailand, early mortality syndrome (EMS) seems to have stopped spreading, but unfavourable weather conditions affected shrimp farming this year and the annual harvest is unlikely to be higher than last year’s total of 250 000 tonnes. Chinese suppliers are also facing shortfalls following EMS difficulties, whereas exports from India and Viet Nam, increasingly composed of vannamei, have risen substantially in the first half of 2014. In Ecuador and Honduras, production levels are good, reflected by increased exports to major markets. Good landings of Pleoticus muelleri by the Argentinian fleet are putting pressure on prices in Europe, while US domestic landings remain below last year’s. On the market side, Japanese demand for farmed shrimp is down as a result of price increases and the weak yen, and volumes in the first six months of 2014 were down 23 percent to 93 800 tonnes. Elsewhere in East Asia, imports into China are rising steeply. Both prices and imports are higher this year in the US, but consumption levels have not increased by the same extent and buyers remain cautious. In the EU, demand for shrimp has not improved much this year and imports from non-EU origins increased by only about 4 percent in the first half of 2014. There has been a surge in supply from Ecuador and India, but Thailand is starting to feel the impact of higher tariffs under the EU’s new Generalized System of Preferences (GSP+) scheme.

SPECIAL FEATURES

FOOD STOCKS AND PRICES[1]

The experience of three food price spikes in five years highlighted the vulnerability of international markets to supply and demand shocks when stock-to-use ratios are low. The resulting “excessive” price volatility was associated with lower stock levels that were not “adequate” to cushion the impact of shocks, although defining “excessive” and “adequate” is not easy and reliable stocks data are scarce. In the last few months, recovering production and stock levels have calmed markets. These developments have focused attention on the relationship between stocks and prices and on low stocks as a necessary condition for spiking prices. They have also revived interest in the question as to whether active manipulation of stocks at national, regional and even international levels might be used to stabilize prices or at least limit price spikes. This article reviews these issues in the light of the questions raised by the FAO Expert Meeting on Stocks, Markets and Stability held at FAO headquarters, Rome, 30-31 January 2014[2].

POLICY APPROACHES TO ADDRESSING PRICE VOLATILITY

The recent food price spikes triggered different national policy responses aimed at either moderating the price increase itself or moderating its negative impacts. Stocks policies have a potential role in each case. While some countries imposed direct controls on prices or margins, efforts to moderate price increases relied mainly on increasing available supplies in the short- and medium-term. Efforts to provide short-term relief from the impacts of price increases relied on scaling up various safety net measures including subsidized food distribution, school feeding programmes or cash transfers. Not all such measures can easily be put in place as an emergency response. Options for increasing food availability in the short run are constrained either physically in the case of production, or politically in the case of diverting potential food products from mandated nonfood uses such as biofuels. Trade policy changes can be implemented quickly and at relatively low direct budgetary cost. Importing countries reduced their tariffs, sometimes to zero, to reduce the domestic price of imported foods although the tariff level needs to be sufficiently high and the tariff reduction sufficiently large to offset significant increases in the price of imports. Tariff reductions might also run counter to attempts to encourage substitution of locally produced traditional foods for higher priced tradeable foods. Some exporting countries used export taxes, minimum export prices, export quotas and bans, to divert exports on to domestic markets. While such restrictions are within WTO rules, they proved controversial due to their adverse impact on international market prices and availability and on importers’ confidence in global food markets. Domestically, they can impact negatively on producer incentives and hence future supplies. For the medium and longer term, many countries sought to raise productivity and production and set higher targets for self-sufficiency. Higher prices can provide an incentive to increase productivity, but governments need to ensure that small producers can respond by helping them to overcome supply constraints and creating an enabling environment that supports the channelling of increased revenues into investment and growth.

The apparent limitations of other approaches led to renewed interest in the policy roles of stocks, whether as emergency reserves to cover temporary shortfalls in supplies or as buffer stocks to stabilize prices or at least limit price spikes[3].. It seems widely recognized that small strategic emergency food reserves can help improve food security. By exploiting synergies with early warning systems and well-designed and well-targeted consumer safety nets, they can reduce the exposure of vulnerable people to price volatility. Many developing countries ran down stocks in 2007-08 to increase availability and maintain food security while stocks lasted, and in some cases this also moderated consumer price increases. However, using public stocks to specifically manage price volatility is more controversial and its effectiveness is uncertain. Nevertheless, there is active debate over the use of stocks not only for emergency purposes but also for price stabilization. Although the two are sometimes difficult to separate, it is the latter which is of concern here and the debate raises questions not only of the practical feasibility of price stabilization through stocks but also broader questions of the appropriate involvement of the public sector in food markets and the relative roles of stocks versus trade in ensuring price stability and food security. More detailed questions concern the role of private stocks and the relationship between private and public stockholding. Managing stocks to influence prices requires a detailed understanding of the relationship between the two to determine appropriate stock releases but it also requires overcoming a variety of financial and operational problems. These issues are explored in the following sections.

PUBLIC AND PRIVATE STOCKS

The severity of the 2007-08 price spike led many developing countries to reconsider their policy options. Interest grew in the active accumulation of stocks as an element of national or regional food security strategies and as emergency reserves to meet temporary shortfalls in food supplies and to provide some degree of insulation from volatility in world markets. This was in contrast to the trend in developed countries where stocks were typically declining. The possibility of using buffer stocks to curb price volatility at national, regional and even international levels also began to be discussed.

Public stocks are procured to counter unexpected shortfalls in food availability or for regular distribution to guarantee food security to the vulnerable more generally and also as buffer stocks to stabilize prices, which is the major concern in this document. Many countries already held stocks for emergency needs and some for price stabilization, notably for rice in Asia. In some countries public procurement programmes also support farm prices and help integrate smallholders into markets. Public stocks in some developed countries also accumulated as a result of policy support to agricultural production but diminished as policy reform progressed. Although accumulated to some extent incidentally, these high stock levels arguably helped restrain price volatility, but stockholding was not widely considered as a practical policy tool to secure market stability. The emphasis was on policy reforms agreed under the Uruguay Round Agreement on Agriculture to remove trade distortions, measures to enhance market transparency, and encouragement of the use of risk management tools and targeted social protection programmes to mitigate the negative impacts of price volatility on the most vulnerable.

While the consensus view appears to be that stocks held as emergency reserves can play a useful role, this is less widely accepted in the case of attempts at stabilizing prices through buffer stocks. Nevertheless, there is clearly a strong preference in some countries for food price stability, and those countries are willing to devote significant budgetary resources to preserving it. In practice, the two roles of public stocks overlap since release from food security reserves, which can be sizeable, in response to reduced availability and increasing prices can restrain price increases. However, this is a by-product of the operation of emergency and food security reserves rather than a deliberate attempt to manage stocks to maintain a specific price band or eliminate price spikes. In fact, in 2007-08, some countries were building stocks as prices were rising.

In the case of private stocks, these are held by farmers, processors and traders to meet their business needs, or to manage risk, or for financial gain in the expectation of higher prices in the future. Private storage is discussed in more detail in the next section. Stocks can also be held by smallholders and households to smooth their food consumption in the face of erratic supplies and prices. While such stocks may be insignificant individually, they can have an important cumulative impact on prices, as for example, in the case of hoarding and panic buying of rice in 2007-08.[4] In many countries, public and private stocks are held simultaneously and are effectively interchangeable. Governments can provide policy incentives to encourage private storage and its use for public policy objectives as an alternative to public stocks. In the absence of such policy incentives, private storage alone based on private rather than social costs and benefits and risk perceptions would not necessarily be sufficient to meet the government’s storage needs. At the same time, public stocks can crowd-out private stock holding.

THE RELATIONSHIP BETWEEN STOCKS AND PRICES

Understanding the relationship between stocks and prices is fundamental to understanding how food markets work and especially what role stocks might play in policy interventions in relation to price spikes and volatility. Even where stocks are maintained for emergency relief purposes, the potential impacts of stock releases on markets and prices need to be assessed. The relationship between stocks and prices might also provide the basis for a practical indicator for heightened risk of price volatility, namely movements in the stocks-to-utilization ratio (SUR).[5]

The High Level Panel of Experts of the Committee on World Food Security (CFS) noted “The relationship between stock levels and price volatility is well-established: low stocks are strongly associated with price spikes and volatility” and that a minimum level of stocks seems to be a sufficient condition to avoid price spikes.[6] It is true that recent price spikes have been associated with low stocks, or more precisely low SUR, but not in every case, and economists’ opinions are still divided on how important the role of stocks was in the 2007-08 spike and afterwards. In the case of rice in 2007-08, for example, rice stocks were actually increasing as prices were increasing. Stocks provide a cushion against supply or demand shocks and there are many instances of major production shocks having little impact on prices as a result. Low stocks are a necessary but not sufficient condition for such shocks to produce a spike, so stocks provide only a partial explanation for price changes.[7]

Depending on the balance between current demand and production, stocks can represent either additional demand or additional supply, with the carry-out stocks linking production periods and prices. If storers “buy low to sell high” then stocks smooth out price variations: low current prices relative to expected prices provide incentives to stock holding which in turn raises prices until the return to stock holding is the same as the return on similarly risky investments. High prices result in destocking. Once stocks are exhausted – a “stockout” – then prices are determined by current demand and supply and a continuing shortfall in supply has to be offset by adjustments to trade or different consumption categories.

The “supply of storage model” provides the standard economists’ view on the relationship between private stocks and prices. This says that carry-out stocks are based on expected prices and so on expectations concerning future supplies and demand. If prices are expected to increase, then higher stocks will be held. Price expectations will be formed on the basis of information concerning past price changes, general commodity price movements and macroeconomic variables such as growth, inflation and exchange rates. “The supply of storage model” predicts that price peaks will coincide with low stocks-to-utilization ratios. Storers add to private stocks until current price plus costs of storage equals expected value of price next year. This gives an L-shaped stocks demand function showing the relationship between stocks-to-utilization ratios and prices: stocks demand is highly elastic where supplies are plentiful and prices low then becomes increasingly inelastic as supplies are low and prices high.

So there is a relationship between stocks and prices which suggests that private stocks have a stabilizing role. Stocks set a price floor where private agents expect prices to be. Prices and stocks are determined simultaneously while public stocks are essentially exogenously determined by governments. While stocks can moderate the extent of periodic spikes, a sequence of poor harvests or other supply shocks raise the risk of stockouts. Through trade, these national private stocks can contribute to stabilizing international markets. From an international perspective, therefore, it is particularly the level of stocks in major exporting countries such as the United States rather than global stocks per se that are most relevant. However, some countries have public stocks for domestic food security and ring-fenced from trade, in which case there is no beneficial effect on world markets.

The relevant relationship between stocks and prices may involve different commodities where there are substitution possibilities. In the case of a production shortfall in one crop, stocks of that crop are drawn down and through substitution eventually stocks of related crops, so production shortfalls for an individual crop do not necessarily lead to a price spike if there are substitution possibilities.

For policy decision-making, the qualitative relationships outlined above need empirical support. Unfortunately, stocks data are typically weak and in many cases nonexistent.[8] Improving stocks data was an important reason for the creation of the Agricultural Market Information System (AMIS). Public stocks should be measureable, although data are not always made public and are a state secret in some countries.

In general, stocks data are estimated as a residual after accounting for all the other variables – production, utilization, imports and exports – in a supply-demand balance. Production and trade data are measured most accurately but the various categories of use – food, feed, industrial use, seed, waste and losses - less so. Food consumption surveys can provide estimates of food use but the other categories are often estimated as a proportion of production. Any errors in estimating these variables accumulate in the stocks estimate so it is important that the coefficients used to estimate different categories of use are regularly updated and empirically verified. Only a few countries – Brazil, Canada, the Philippines, and the United States – conduct regular stocks surveys covering stocks held by different market participants.

In spite of these data limitations, Figures 1-3 confirm the broad relationship between stock-to-utilization ratios and prices for cereals. The time series graphs show the coincidence of high prices and low stock-to-utilization ratios, although not in every instance. The scatter graphs suggest the downward-sloping stocks demand function, although the picture for rice and especially after 2000 is not clear.

Econometric analyses estimate the relationship between prices and stocks-to-utilization ratios where prices are real market or futures prices at end-year. The results are mixed depending on the time period considered, with the apparent relationship between stocks and prices not always statistically well-defined especially after 2000/01. [9] This is partly due to the data limitations but also due to shifts in the relationship itself. Where long data series are used it is difficult to establish a stable estimated relationship as a result of policy changes and the shifting balance between public and private stocks –which have different relationships with price – in total estimated stocks. The estimated relationship between prices and an aggregate cereal stocks variable tends to perform better statistically with price movements for wheat, maize and rice more closely correlated to movements in the aggregate stocks-to-utilization ratio than to stocks-to-utilization ratios for individual cereals. However, overall, the estimated links between prices and stocks are stronger than those between prices and production. While the econometric estimates may not provide a precise and stable empirical model, they do provide broad support for the predictions of the supply of storage model.

EXPLOITING THE RELATIONSHIP BETWEEN STOCKS AND PRICES

Private stocks can have a role in contributing to stability including in global markets where stocks and trade are related. In principle, and provided that a stable empirical relationship between stocks and prices can be established, this might be exploited by policies to stabilize prices or limit price spikes. The argument that private storage alone would not provide sufficient stocks in relation to these objectives suggests a need for policy incentives to encourage private stockholding and/or a role for public stocks.

Buffer stocks are used in a number of developing countries, though they have been virtually abandoned in developed countries. There already were a number of operating schemes either at national or regional level before 2007-08, notably for rice in Asia[10], and there have been proposals for new schemes since. However, a recent World Bank review of national and regional experiences[11] concluded that while public stocks could contribute to addressing short-term emergency needs they have not been an effective instrument to stabilize prices. Similarly, the international organizations’ 2011 report to the G20[12] rejected the use of buffer stocks to stabilize prices as costly and ineffective, although it did see a role for small-scale food security emergency reserves to assist the most vulnerable. On the other hand, the CFS HLPE report[13] suggested that governments might come together to organize minimum storage levels and called for “practical organization of a minimum level of world stocks” with the objective not of defending a price band but to avoid spikes. In practice, many of the same issues arise with respect to either objective.

There are concerns on grounds of cost but also on operational issues and effectiveness. The investment costs of establishing a buffer stock and the costs of market operations are significant, putting such schemes beyond the reach of many developing countries, although some savings might conceivably be achieved where a regional scheme is based on coordination of existing stocks. Continuing budgetary costs of market operations and trading losses incurred can also be significant and can be difficult to control where borders are open. Operational problems include physical losses to stocks as a result of poor storage practices, the possibility of unpredictable or untransparent rotation decisions having unintended impacts on prices, and the difficulty of judging the need for interventions and their timing so that the interventions themselves are not destabilizing or adding to market uncertainty and deterring investment. In some instances replenishment policies of public stock holdings have not bought cheap to sell dear but rather bought when prices are high contrary to the normal view of stocking strategies and adding to pressure on prices. Some stockholding arrangements might be seen as trade-distorting support under the existing WTO rules. Public buffer stocks can crowd out private storage and private trade, especially where public procurement is not transparent and open.

The World Bank review concluded that, in general, attempts to stabilize prices using stocks have resulted in failure or have involved costs far in excess of their benefits and absorbed resources better used elsewhere. Confusion of objectives between price stabilization and emergency relief and between the needs of producers and consumers leads to widening gap between buying and selling prices, conflicting decision rules on accumulation and release, slow reactions and escalating fiscal costs as larger and larger stocks are required to meet all objectives. These costs can amount to as much as two percent of GDP and are often about the same or more than spending on agricultural research. Some countries, especially in Africa, using buffer stocks have failed to achieve price stability and prices have been more volatile than international prices or prices in neighbouring countries without buffer stocks. Wide gaps between export and import parity prices because of poor infrastructure and wide marketing margins allow prices to fluctuate widely without triggering imports or exports, and it is better to address that problem and low productivity and resilience more generally than to try to compensate through expensive buffer stocks.

Attempts to stabilize prices through regional and international buffer stocks face many of the same difficulties with the added complication of differing national interests, potentially leading to collective action issues and tensions in governance. Besides the regular operational matters, joint decisions are required on when price increases justify action and what that action should be. These proved problematic in the case of the international commodity agreements. International buffer stock mechanisms are judged to have been ineffective in reducing the volatility of prices although the experience is actually quite limited. Of the five international commodity agreements which provided for stockholding or supply controls to stabilise prices, only one – the agreement for rubber – was a pure buffer stock. The agreements were more effective in moderating downward price movements than price spikes, which a buffer stock can only curb while it still has accumulated supplies.

The relevance of the international commodity agreement experience to moderating price spikes today might be questioned. However, many operational decision-making and financial issues would remain the same. Stabilising world prices in the face of a sequence of production shocks around a level lower than that determined by market fundamentals requires significant resources. The typical behavior of commodity prices with long low-price periods and occasional spikes mean that stocks might need to be held for long periods. Buffer stocks set to defend against price spikes are also vulnerable to speculative attacks. If speculators perceive that the stocks held by the stabilization agency are insufficient to maintain the target lower price level, they will compete to buy the entirety of the stock in order to take advantage of likely profits.

In spite of the limitations of available stocks data and the consequent difficulties of establishing a stable empirical model, it seems that low stocks are a necessary condition for price spikes and that the relationship between prices and stocks is highly relevant to policy on price volatility. Many countries have used stocks policies in attempts to limit price spikes and there have also been attempts at regional and international level. However, it seems that these have been with limited success and at high cost compared to alternative policies that attempt to address the underlying causes of price spikes and volatility.

[1]This article is largely based on a study prepared for Seventieth Session of the FAO Committee on Commodity Problems in Rome, 7-9 October 2014.

[2]The papers and presentations from this expert meeting are available at http://www.fao.org/economic/est/est-events-new/stocks/en/

[3]See, for example, F. Galtier “Which role for storage policies in managing grain price instability? Some insights from a thought experiment”. FAO Expert Meeting on Stocks, Markets and Stability. FAO, Rome, 30-31 January 2014.

[4]P. Timmer “What are grain reserves worth? A generalized political economy framework”. FAO Expert Meeting on Stocks, Markets and Stability. FAO, Rome, 30-31 January 2014.

[5]E. Bobenrieth, B. Wright, and D. Zeng “Stocks-to-use ratios and prices as indicators of vulnerability to spikes in global cereal markets”. Paper prepared for the 2nd Session of the Global Food Market Information Group of the Agricultural Market Information System (AMIS), 3 October 2012. Available at http://www.amisoutlook.org/fileadmin/user_upload/amis/docs/reports/AMIS_IG_12_4_Stock_to_use.pdf

[6]CFS High Level Panel of Experts on Food Security and Nutrition ‘Price Volatility and Food Security’, July 2011, p12.

[7]C. Gilbert “Grain stocks and prices”. FAO Expert Meeting on Stocks, Markets and Stability. FAO, Rome, 30-31 January 2014.

[8]See P.Abbott Lessons from recent stocks adjustments, and their Measurement. FAO Expert Meeting on Stocks, Markets and Stability. FAO, Rome, 30-31 January 2014.

[9]See, for example C. Gilbert “Grain stocks and prices”. FAO Expert Meeting on Stocks, Markets and Stability. FAO, Rome, 30-31 January 2014.

[10]R. Briones “Public stockholding in Southeast Asia: Review and Prospects”. FAO Expert Meeting on Stocks, Markets and Stability. FAO, Rome, 30-31 January 2014.

[11]World Bank, Using Public Foodgrains Stocks to Enhance Food Security, 2012.

[12]FAO, IFAD, IMF, OECD, UNCTAD, WFP, the World Bank, the WTO, IFPRI and the UN HLTF Price Volatility in Food and Agricultural Markets: Policy Responses, Report to the G20, June 2011.

[13]CFS High Level Panel of Experts on Food Security and Nutrition ‘Price Volatility and Food Security’, July 2011.

MARKET POLICY DEVELOPMENTS

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 Sugar statistics

Appendix Table 14 Total meat statistics

Appendix Table 15 Bovine meat statistics

Appendix Table 16 Ovine meat statistics

Appendix Table 17 Pigmeat statistics

Appendix Table 18 Poultry meat statistics

Appendix Table 19 Milk and milk products statistics

Appendix Table 20 Fish and fishery products statistics

Appendix Table 21 Selected international prices for wheat and coarse grains

Appendix Table A22 Wheat and maize futures prices

Appendix Table 23 Selected international prices for rice and price indices

Appendix Table 24 Selected international prices for oilcrop products and price indices

Appendix Table 25 Selected international prices for sugar and sugar price index

Appendix Table 26 Selected international prices for milk products and dairy price indices

Appendix Table 27 Selected international meat prices

Appendix Table 28 Selected international meat prices and FAO meat price index

Appendix Table 29 Fish price indices

Appendix Table 30 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.

- Coarse grains include: maize, barley, sorghum, oats, millet, rye and other minor grains.

- ‘-‘ means nil or negligible.

Production

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

- Sugar: Figures refer to centrifugal sugar derived from sugar cane or beet, expressed in raw equivalents. Data relate to the October/September season.

Utilization

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

- Sugar: Figures refer to centrifugal sugar derived from sugar cane or beet, expressed in raw equivalents. Data relate to the October/September season.

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 and sugar: 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 55 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.

MARKET INDICATORS

FUTURES MARKETS

Ann Berg, Senior Commodity Analyst

PRICES

Futures prices for wheat, maize and soybeans declined steadily between June and October 2014, after having been on an uptrend since January 2014. Nearby futures contracts reached four-year lows for all three commodities, with wheat and maize declining 36 percent from peak to trough and soybeans falling 40 percent. Wheat prices decreased as drought conditions in the US southern plains region eased and other significant growing regions, such as EU, Black Sea, India and China, reported ample crops. Previous concerns about the tensions in the Black Sea region were alleviated as the region reported robust wheat shipments. In maize and soybeans, excellent growing conditions throughout the US central corridor led to projections of record yields and production. These projections, following bumper soybean and maize harvests in South America, caused sizeable price declines. In addition, growth in imports by China is expected to slow down in 2014/15, owing to poor domestic crushing margins - the price difference between soybeans and the finished products of oil and meal.

VOLUMES AND VOLATILITY

Futures volumes did not exhibit much variance y/y and appeared to adhere to individual crop developments – increasing in wheat during August, as Black Sea tensions rose, and declining in soybeans the same month, as crop prospects improved. Volumes remained lower than in 2012 when maize and soybeans reached record high prices. Implied volatility, which reflects the cost of options premiums on the underlying futures contracts (often called the “fear index”), rose from subdued levels exhibited in late 2013, with wheat showing the greatest increase and soybeans the smallest increase (see implied volatility chart).

FORWARD CURVES

Forward curves (as of October 2014) for wheat, maize and soybeans reverted to normal upward sloping patterns (contango), indicative of ample domestic and global supplies. This structure is particularly notable for soybeans which, over the last four crop seasons, had persisted in a pronounced downward sloping curve (backwardation) owing to very tight balance sheets. Rail car and train engine shortages have been predicted for the October/November 2014 harvest, as a result of abundant new crop supplies and competing transport demands from the coal and shale oil industry. This projected transportation shortage has caused many analysts to venture that spot prices to farmers will remain at discounts to futures well past harvest, weighing on the front end of the forward curves. Both producers and local elevators have been reportedly building additional storage to counteract the logistical problems. In addition, producers have rapidly adopted the use of silo bag storage, a common temporary storage mode in Argentina, but until recently, rare in the US.

INVESTMENT FLOWS

Managed money established net short positions in wheat during May 2014, profiting from the 36 percent price decline that ensued during the summer. In maize, however, managed money likely incurred significant losses as it maintained net long positions, despite paring levels of exposure, as maize fell below its four year contract low. In soybeans, managed money maintained net long futures positions, but established a net short in its combined futures and options positions around mid-July, likely off-setting losses incurred from futures price declines. According to Barclays hedge fund tracker, assets under management for pure agricultural funds declined slightly from USD 1.12 billion to USD 1.03 billion between the second and third quarters. Besides ample cereal and oilseed supplies, other factors, such as declining energy prices and a rising US Dollar, have helped dissuade speculative inflows. With respect to swaps dealers, which take positions in commodity index funds, the largest US pension fund – the California Public Employees’ Retirement System (CalPers) – announced it was liquidating its hedge fund holdings which would potentially diminish its exposure to the Standard &Poor’s Goldman Sachs Commodity Index (S&P GSCI), the oldest and largest commodity index by market capitalization.

According to the Commodity Futures Trading Commission’s Index Fund Participation report, notional values of wheat, maize and soybean index investments have declined by about 33 percent since January 2014, commensurate with price declines, although total agricultural open interest exposure by index funds has changed little. The banking industry, after the majority of the largest global investment banks announced their intention to close their proprietary commodity trading desks, has been mostly quiet in the commodity space. The US Federal Reserve, which granted banks the ability to own commodity infrastructure to complement their other operations in 2003 and announced in 2013 that it would reconsider the ruling, has not issued any further guidance on the matter.

OCEAN FREIGHT RATES

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

OCEAN FREIGHT MARKET (MAY 2014 - MID-SEPTEMBER 2014)

Dry bulk ocean freight rates remained volatile over the past four months. During the May–July period all sectors of the dry bulk freight market fell sharply owing to a weak demand, typical for summer months, and surplus tonnage, with both, the average of the Baltic Indices of three grains-carrying sectors and the Baltic Dry Index, losing about 30 percent.

However, the beginning of August saw a sharp rebound in freight rates due to improved demand for commodities, including grains and soyabeans. The rise was more pronounced in the larger-size market sectors and the Baltic Exchange Indices registered double-digit gains over the month. The US Gulf, South America and the Black Sea remained the main loading areas. In August, the average of the Baltic Indices of three grains-carrying sectors advanced by 32 percent m/m, while the Baltic Dry Index (BDI) closed 43 percent higher, as Capesize values doubled.

Overall, by 10 September, the average of the Baltic Indices of the three grains-carrying sectors increased by 4 percent since the beginning of May, but was down 11 percent y/y, with the biggest decline in the Panamax sector. The Baltic Dry Index, which also includes the Capesize sector, was up 21 percent from early May, but was 22 percent lower y/y.

After some firming in May, Atlantic Panamax rates fell sharply during June due to surplus tonnage in early positions, notably in the Mediterranean and the US Gulf, with some owners starting to lay up vessels to limit losses. There has been some recovery in July on the back of improved demand for prompt shipments but there were still more vessels than cargoes. August saw a sharp rise in rates, owing to improved demand for commodities, including grains and soyabeans, particularly on routes to Far East Asia. In early September the market started to cool off as more tonnage ballasting from India and South East Asia started to appear in the Atlantic. Overall, from May to early September, the Baltic Panamax Index (BPI) increased by 5 percent.

Insufficient demand for cargoes from Europe and the US Gulf weighed on the Atlantic Supramax rates during June/ July, notably on transatlantic routes. However, the market increased significantly in August due to more activity in the key loading areas. Rates in the Pacific were supported by mineral business from Indonesia and Philippines, mostly to China. Over the May to mid-September period, Baltic Supramax Index (BSI) increased by 10 percent. Handysize rates remained generally weak due to insufficient demand and the Baltic Handysize Index (BHSI) fell by 8 percent over the past four months.

The Capesize market remained very volatile and after a one-third monthly jump in June, owing to increased volumes of trade in raw materials from Brazil and Australia, the Baltic Capesize Index (BCI) plummeted by 36 percent in July due to poor and unstable demand. In August, however, the market soared on solid mineral demand, with the Baltic Capesize Index (BCI) doubling its value. Overall, the sector gained 71 percent during the past four months. Year-on-year, however, the Baltic Capesize Index (BCI) fell by 20 percent.

FOOD IMPORT BILLS

Global food import bills set to moderate in 2014

At USD 1.3 trillion, global expenditures on imported foodstuffs in 2014 are on track to remain close to last year’s level, but 4 percent below the record of 2012. Freight costs, which are expected to dip slightly from 2013 levels, also contributed to the moderation in bills. Nevertheless, for the fifth year in succession, the world bill is expected to surpass USD 1 trillion in nominal terms

The stability of global imported food costs masks significant movements across individual product bills. Products in the animal protein category, including meat, dairy and fish are foreseen to undergo the largest increases. All combined, their importation could cost a record USD 453 billion, 10 percent more than in 2013 and a near doubling in the past decade. The anticipated increase in these bills is based on much larger volumes of imports as well as higher world quotations, especially for dairy products. Similarly, rising prices of coffee are expected to lead to an increase of 20 percent in total expenditures on tropical beverages (coffee, tea and cocoa). By contrast, sugar could see its corresponding 2014 bill falling, reflecting both lower international prices and a diminished flow of imports. Expenditures on imported vegetable oils are expected to remain virtually unchanged from last year.

As for cereals, reduced import volumes and considerably lower quotations look set to bring bills down by around USD 23 billion, or 12 percent, from 2013 levels. Much of the easing in cereal import costs is on account of lower coarse grain expenditures, which are expected to fall by almost USD 20 billion from last year. The overall decline would have been much more, if it were not for rice, as rice bills are expected to soar to a record USD 40 billion in 2014.

Given these outcomes, the share of staples in food import bills continues to decline and is expected to reach 13 percent in 2014 compared with around 15 percent last year. The tendency for global import bills to be steady in 2014 extends to developing countries and, among the most economically vulnerable nations, to the group of Least Developed Countries (LDCs). Even more, the food import costs born by the Low Income Food Deficit Countries (LIFDCs) and those geographically situated in sub-Saharan Africa (excluding South Africa) may even decline somewhat, as prospects for abundant harvests in 2014 in many of these disadvantaged countries, particularly for staples, are expected to limit their need to rely on international markets. Moreover, with higher international prices for key export primary commodities, such as coffee and cocoa, the terms of trade in food and agriculture for many commodity-dependent countries in the vulnerable category are expected to improve.

FAO PRICE INDICES

FAO Global Food Consumption Price Index falls[1]

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/faostat-gateway/go/to/browse/FB/*/E).

The index has lost considerable ground in 2014, with the pace of decline accelerating in recent months. Since May, the index has lost almost 10 percent of its value. Falling international prices of foodstuffs that carry a much higher weight in total consumption than in trade (notably cereals, 65 percent versus 27 percent), is behind the index’s weakening.

The weakening is slightly more than that of the FAO Food Price Index (FPI) and is a result of upward trending quotations for livestock products, which are more influential in determining the FPI.

Contact

Adam.Prakash@fao.org

The FAO Food Price Index falls for the sixth consecutive month

The FAO Food Price Index averaged 191.5 points in September 2014, down 5.2 points (2.6 percent) from August and as much as 12.2 points (6.0 percent) from the corresponding period last year. The September slide, which represented the sixth consecutive monthly drop, brought the value of the index to its lowest level since August 2010. The decline in September marks the longest period of continuous falls in the value of the index since the late 1990s. Among the sub-indices, sugar and dairy weakened the most, followed by cereals and oils, while meat remained firm. Among the underlying factors, the US dollar’s broad appreciation continued to weigh on all international commodity prices.

The FAO Cereal Price Index averaged 177.9 points in September, down 4.6 points (2.5 percent) from August and 17.1 points (8.8 percent) from September 2013. The latest decline marks the fifth consecutive monthly fall. Good production and large export availabilities are the main factors behind falling wheat and maize prices. Even rice prices, which had risen steadily in recent months, registered a decline in September, reflecting accrued competition among exporting countries ahead of upcoming harvests.

The FAO Vegetable Oil Price Index averaged 162 points in September, down by 4.6 points (2.8 percent) from August. Dropping for the sixth consecutive month, the index has fallen to its lowest level since October 2009. The main driver behind the slide remains palm oil, whose prices dipped to 5-year lows as abundant production coincided with weak import demand. Meanwhile, better than anticipated soy yields in the United States and large availabilities of rapeseed oil weighed on their prices, contributing to the fall in the index.

The FAO Dairy Price Index averaged 187.8 points in September, down 13.0 points (6.5 percent) over August and 62.4 points (24.9 percent) less year-on-year. Quotations for all dairy products covered in the Index fell, especially skimmed milk powder. The continued decline in prices reflects abundant export availability, above all in Oceania. In addition, a movement away from the production of cheese by the European Union for sale to the Russian Federation, has resulted in increased output of butter and skimmed milk powder within the Union. Elsewhere, the fall in skimmed milk prices has stimulated whole milk powder production, as manufactures seek to adjust products to ensure the best returns.

The FAO Meat Price Index Index averaged 207.8 points in September, only 0.3 point higher than its revised value for August, yet still 21.7 points (11.6 percent) above September last year. Overall, prices are currently at historic highs and the lack of an increase this month may indicate that, overall, they have reached a peak. While bovine meat prices remain strong, principally reflecting a rise in export prices in Australia, where herd rebuilding has reduced supplies, average quotations for poultry were stable, while those for ovine meat fell back somewhat. As for pigmeat, prices have weakened for each of the past three months, reflecting a recovery of production in several important producing and exporting countries, following outbreaks of porcine endemic diarrhoea (PED); additionally, the closure of the Russian Federation’s market to meat products from a number of countries since August, has contributed to market uncertainty.

The FAO Sugar Price Index averaged 228.3 points in September, down as much as 16.1 points (6.6 percent) from August and 18.2 points (7.4 percent) lower than in September 2013. In recent months, large supply prospects and expectation that world production in 2014/15 would exceed consumption continued to put downward pressure on international sugar prices, pushing down average prices in September to their lowest level since January.

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

2The FAO food price indices are updated on a monthly basis and are available on: http://www.fao.org/worldfoodsituation

3All changes referred to in this section, in absolute or percentage terms, are calculated based on unrounded figures.