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ACKNOWLEDGEMENTS

The Food Outlook report is a product of the FAO Trade and Markets Division. This report is prepared under the overall guidance of Boubaker Ben-Belhassen, Director, and Abdolreza Abbassian, Senior Economist. It is written by a team of economists, whose names and email contacts appear under their respective market summary contributions. The report benefited from research support by many staff, namely, Andrea Alesiani, David Bedford, Claudio Cerquiglini, Julie Claro, Grace Karumathy, Lavinia Lucarelli, David Mancini, Emanuele Marocco, Marco Milo and the fisheries statistical team.

Special thanks go to Claudio Cerquiglini for preparing the charts and statistical tables and to Valentina Banti for her administrative support. Additionally, the team is grateful to Concepción Calpe and Nancy Hart for their valuable inputs and editorial assistance.

HIGHLIGHTS

From a global perspective, food markets are expected to remain generally well balanced in 2016/17 amid large export availabilities and relatively low and more stable international prices, especially for cereals. The world food import bill is set to dip to a six-year low, while still remaining above the USD 1 trillion mark.

WHEAT

Record world production and ample inventories keep international wheat prices at multiple-year lows. Large supplies of low quality wheat at competitive prices boost usage of wheat in feed rations. World trade in wheat in 2016/17 is likely to remain at record levels, with the Russian Federation emerging as the world’s largest wheat exporter.

COARSE GRAINS

Global production to rebound in 2016, largely on anticipation of a record output in the United States. However, world stocks could decline somewhat, led by drawdowns in China, Brazil and South Africa. Large export availabilities are likely to keep international prices under downward pressure.

RICE

World rice production is predicted to expand in 2016 for the first time in three years, reaching a new record. In the absence of substantial sales, good crop prospects in the Northern Hemisphere weigh on international prices, with early expectations pointing to import demand remaining subdued in 2017.

CASSAVA

Cassava is set to resume its status as one of the fastest expanding food crops, with its production rebounding from last year. The significant contraction in international trade so far in 2016 has exposed the high vulnerability of cassava non-food sectors to developments in markets in which cassava competes, especially maize.

OILCROPS

Preliminary forecasts for 2016/17 point to a relatively balanced global supply and demand situation for both meals and oils. Global oil and meal output is anticipated to rebound, underpinned by a recovery in soybean and palm oil production, while world demand is expected to keep growing at a steady pace.

MEAT

Overall world meat production is predicted to remain at 320 million tonnes in 2016, with growth in many countries likely to be offset by a fall in output in China and Australia. Global meat trade is expected to recover, growing by 4.4 percent to 31.1 million tonnes.

DAIRY

International prices of dairy products have moved up since May, as ample export supplies were reduced. World milk production is expected to increase in 2016, even though unfavourable weather and reduced farmgate returns could constrain output in some countries.

FISHERIES

Global fish production is forecast to grow moderately in 2016, underpinned by sustained gains in aquaculture. After falling sharply in 2015 under the influence of a strong US dollar, the value of seafood trade is forecast to rebound this year. A tightening of supplies for major traded species and firming import demand may keep international seafood prices on the rise.

NAIROBI DECISION ON EXPORT COMPETITION

Despite a general rise since the beginning of 2016, international food commodity prices have remained well below their peak values and are not projected to return to those high levels over the next decade (OECD/FAO 2016). In this context, the Decision agreed at the 10th WTO Ministerial Conference, held in Nairobi in December 2015, to eliminate export subsidies can be important as it prevents members from reverting to their use.

CONTENTS

MARKET SUMMARIES

MARKET ASSESSMENTS

Wheat

Coarse grains

Rice

Cassava

Oilcrops, oils and meals

Meat and meat products

Milk and milk products

Fish and fishery products

SPECIAL FEATURE

Nairobi Decision on export competition

MAJOR POLICY DEVELOPMENTS

Grains

Rice

Oilcrops

Meat

Dairy

STATISTICAL TABLES

MARKET INDICATORS

Futures markets

Ocean freight rates

Food import bills

The FAO price indices

CEREALS

A positive outlook for global cereal production in 2016, together with abundant stocks, points to a generally comfortable supply and demand balance in 2016/17.

In 2016, world cereal production is set to increase by 1.5 percent, or 38 million tonnes, to hit a new record of 2 569 million tonnes, topping by at least 5.5 million tonnes the previous peak of 2014. The current FAO forecast is 3.4 million tonnes higher than projected in September, with most of the upward revisions concerning wheat and rice. World wheat production in 2016 is expected to exceed the 2015 record by 1.2 percent, underpinned by output increases in India, the Russian Federation and the United States. Similarly, global rice production is forecast to grow by 1.3 percent, to an all-time high, driven by recoveries in Asia, as well as by gains in Africa and North America. Global production of coarse grains is set to rebound by 1.8 percent from last year’s reduced level, mostly reflecting prospects for record maize crops in the United States, Argentina and India.

Global cereal utilization in 2016/17 is projected to expand by 1.6 percent to 2 560 million tonnes, with feed usage, in particular, seen increasing by 2.7 percent in 2016/17, amid large supplies of maize and low quality wheat. In spite of the projected year-on-year growth in total cereal utilization, the rise in world cereal production in 2016 would still result in an increase in the level of global cereal inventories. All would be in the form of wheat, as ending inventories of coarse grains and rice are anticipated to slide below their opening levels.

Although the world-stock-to-use ratios for wheat, coarse grains and rice are all estimated to decline somewhat in 2016/17, export availabilities are predicted to remain ample. This is particularly the case for coarse grains, which are likely to face a decline in import demand in 2016/17.

Contact:

Abdolreza.Abbassian@fao.org

WHEAT

The international wheat market in 2016/17 is likely to witness another season of abundant supplies, amid expectations of record production and rising stocks. At 742.4 million tonnes, FAO’s current forecast for global wheat production in 2016 is 1.2 percent above the 2015 all-time high, with increases in India, the Russian Federation and the United States accounting for most of the year-on-year growth. This forecast is 1.6 million tonnes higher than the projection reported in September, largely reflecting improved crop prospects in Argentina and Australia.

The forecast for world wheat trade (including wheat flour in wheat equivalent) in 2016/17 (July/June) has been raised by 1.5 million tonnes since September, and now stands at 165 million tonnes, similar to the 2015/16 record. On a regional basis, wheat imports in 2016/17 are predicted to remain close to the previous season’s levels. However, on the export side, an emerging feature is the anticipated emergence of the Russian Federation as the world largest wheat exporter, taking over from the EU which is expected to occupy a distanced second place, almost on par with the United States.

Total wheat utilization in 2016/17 is projected to reach 730.5 million tonnes, almost 15 million tonnes, or 2 percent, above the 2015/16 estimate. At 498 million tonnes, food consumption would continue to account for the bulk of global wheat utilization. On the other hand, the use of wheat in animal rations is forecast to increase by 6.2 percent to 146 million tonnes, reflecting the ample availabilities of low quality wheat at competitive prices.

World wheat stocks are forecast to increase further in 2016/17 and reach 234 million tonnes, up 8.4 million tonnes from their already elevated opening levels and the highest level since 2001/02. As a result, the world wheat stock-to-use ratio in 2016/17 would reach 31.7 percent, well above the historic minimum of 22.7 percent registered in 2007/08. Against this background, international wheat prices are likely to remain stable and relatively low during the 2016/17 season.

Contact:

Abdolreza.Abbassian@fao.org

Jonathan.Pound@fao.org (Production)

COARSE GRAINS

Although world production of coarse grains is set to increase in 2016, the overall supply and demand outlook for 2016/17 suggests a slight tightening of the market compared to the previous season. However, with large export availabilities and weak import demand prospects, international coarse grain prices could remain subdued. World production of coarse grains in 2016 is forecast to rise by 1.8 percent from the reduced 2015 harvest. Record maize outputs in the United States and Argentina, along with gains in a number of other major producing countries, are likely to boost world maize production in 2016, despite expected sharp declines in Brazil, China and South Africa. World production of sorghum is also heading to an increase, with anticipated growth in Sudan and Mexico more than offsetting a reduction in the United States. By contrast, barley production is expected to fall below its 2015 level on smaller outputs in several countries, especially Morocco and Turkey.

Global utilization of coarse grains is anticipated to grow by 1.5 percent in 2016/17, driven largely by higher uptakes of coarse grains for animal feeding and industrial use. The most significant expansion concerns maize, which could see much greater volumes fed to animals in the United States and China, supported by larger domestic supplies and more competitive prices than in the previous season. Relatively low prices are also likely to stimulate industrial uses, in particular of maize for the production of starch and biofuels.

A drawdown of coarse grain stocks might be required by the close of seasons in 2017, as, although increasing, total production in 2016/17 is anticipated to fall slightly short of projected utilization. A contraction in China, where the Government is aiming to reduce the size of its accumulated maize inventories, would be much behind the anticipated decline in global reserves. This would, in turn, cause a small drop in the world stocks-to-use ratio, to a level still indicative of a comfortable supply and demand balance. In fact, given the build-up of stocks in several major exporting countries, the ratio of major coarse grains exporters’ closing stocks-to-their total disappearance (defined as domestic utilization plus exports) ratio, is set to increase. As this would signal a further easing of international market conditions, world prices are likely to remain under downward pressure for most of 2016/17.

Contact:

Abdolreza.Abbassian@fao.org

Jonathan.Pound@fao.org (Production)

RICE

The 2016 season is unfolding favorably in the Northern Hemisphere, with abundant monsoon rains over Asia more than compensating for El Niño-related setbacks that occurred along or south of the Equator. As a result, forecasts of world rice production in 2016 have been upgraded to a record 497.8 million tonnes, up 6.3 million tonnes, or 1.3 percent, from the depressed outcome of 2015. If confirmed, this would mark the first year of global output growth since 2013. Much of the expansion is forecast to stem from recoveries in Asia, although sizeable gains are also foreseen in Africa and the United States.

After a combination of tighter export availability and subdued import demand depressed 2016 deliveries, early prospects point to world rice trade stagnating at 43.8 million tonnes in 2017. On the import side, improved local harvests may enable countries in the Far East and Latin America and the Caribbean to reduce imports, with good crops and depreciated currencies also tempering import growth in Africa. As for exports, an output recovery could help India boost its sales to international markets, primarily at the expense of lower deliveries by Thailand, consolidating India’s position as the world’s leading supplier of rice.

With expanding food use lifting total rice utilization over projected production in 2016, global rice reserves at the close of 2016/17 are anticipated to fall for the second successive season, reaching 169.6 million tonnes. India and Thailand are predicted to lead the 0.7 percent stock draw-down, but the fall is expected to be mitigated by accumulations elsewhere, especially in China (Mainland). Thus, at 33.2 percent, the global stock-to-use ratio in 2016/17 would continue to surpass the 30 percent mark it has consistently exceeded over the past five years.

A three-month upward trajectory in international prices came to an end in August, when a lack of substantial demand from traditional buyers, together with prospects of larger availabilities as a result of imminent crop harvests, began to weigh on quotations. This resulted in the September value of the FAO All Rice Price Index falling to 190 points, its lowest since January 2008.

Contact:

Concepcion.Calpe@fao.org

Shirley.Mustafa@fao.org

CASSAVA

World cassava production is forecast to recover in 2016, due to the return of more normal weather conditions as compared with last year, when El Niño marred yields in most growing regions. The crop’s tolerance to erratic weather conditions, however, spared cassava from substantial output reductions, encouraging governments to put cassava expansion high on their agendas, especially in food insecure regions. Production prospects are also positive in countries with dietary diversification programmes or those aspiring to limit the imports of staples, particularly wheat and rice.

The volume of world trade in cassava in 2016 is expected to slump to a six-year low. International flows of cassava, primarily confined to East and Southeast Asia, are hugely contingent on industrial and feed demand, particularly from China, the world’s leading cassava importer, and on the competitiveness of supplies in Thailand – the world’s leading exporter. With policy change in China supporting the increased use of domestic substitutes from the country’s stockpiles, principally maize, international demand for cassava has plummeted, accentuated by the relative thinness of cassava trade.

With China’s maize inventories overhanging the entire regional market for cassava, the potential for cassava to compete in markets beyond China is also uncertain, given that international maize prices reached a multi-year low in September of this year. Consequently, cassava product quotations are being pressured considerably, and the likelihood of a further significant price correction will need to gather momentum if cassava sectors in the region are to remain commercially viable and if they are to compete in the international marketplace.

Contact:

Adam.Prakash@fao.org

OILCROPS

After a tightening in market fundamentals in 2015/16, preliminary forecasts for the 2016/17 season point to a relatively balanced global supply and demand situation for both meals/cakes and oils/fats.

In 2016/17, global oilseed production is forecast to recover fully from last season’s fall, possibly climbing to a new record. While the expansion would be led by soybeans, the other oilseeds are also anticipated to post sizeable gains, with the exception of rapeseed. Soybean growth would be concentrated in the United States, where record-high yields are set to boost output. In South America, production might grow only moderately, as farmers are expected to reduce soybean plantings in favour of competing crops. In China and India, production could expand, reversing the downward trend observed in recent years.

Growth in global palm oil output is forecast to resume, as palms in Southeast Asia begin to recover from the effects of adverse weather in 2015/16.

Based on current forecasts, world output and consumption of oils and meals would reach record levels in 2016/17. The current estimate for global meal uptake roughly matches that for global meal output, suggesting that global meal inventories would remain around last season’s level. By contrast, global oil consumption is projected to outstrip production by a small margin, therefore pointing to a modest reduction of world oil reserves. While the global stock-to-use ratios for both oils and meals are forecast to fall by a small margin, the major exporters’ stock-to-disappearance ratios could remain unchanged or even improve slightly.

International trade in oils/fats is forecast to grow at a faster pace than last season, fueled by the anticipated recovery in palm oil production in Indonesia and Malaysia. The outlook is less buoyant for world meal trade, which could face slowing growth, mainly reflecting subdued import demand by China.

Regarding prices, after gaining strength earlier this year, international quotations for oils and meals entered, since June, a phase of instability. In the coming months, prices are expected to be much affected by developments impacting soybeans in South America and palm oil in Southeast Asia.

Contact:

Peter.Thoenes@fao.org

MEAT AND MEAT PRODUCTS

World meat production is anticipated to stagnate in 2016, rising by a meagre 0.2 percent to 319.8 million tonnes. While output is expected to rise particularly in the United States, the EU, Brazil, India, Mexico, Canada and the Russian Federation, a down-turn in meat production – especially in China, but also in Australia – would weigh on the overall trend. Excluding the last two countries, aggregate meat production of the rest of the world would rise by 1.4 percent.

Global meat trade is forecast to recover in 2016, rising by 4.4 percent to 31.1 million tonnes. This would represent a return to trend, after a fall in 2015. Based on current expectations, trade in pigmeat is expected to increase by 10.8 percent, poultry meat by 4.4 percent and bovine meat by 0.3 percent, while ovine meat may decrease by 2.8 percent. Increased meat imports are expected particularly in China, but also in Japan, South Africa, Chile, the Republic of Korea, Mexico, the EU, Iraq, the Philippines, Viet Nam, the United Arab Emirates and the Russian Federation. By contrast, growth in domestic production may result in reduced imports by the United States and Canada, with Angola also anticipated to buy less. The expansion in world exports is projected to be led by Brazil and the EU, followed by the United States and Canada, with sales also rising for Belarus, Thailand, the Russian Federation, Paraguay, Mexico and Ukraine. Meanwhile, exports by Australia, China, Turkey, South Africa, New Zealand, Argentina and India are likely to be curtailed.

After remaining at a low level during the first three months of 2016, when it averaged 146 points, the FAO Meat Price Index recorded sustained growth between April and September, rising by 17.7 points, or 12.1 percent, to 163.5 points. Over the period January to September, the index gained 12.6 percent, supported by a surge in the prices of ovine meat, pigmeat and poultry meat, which, for the group, rose by 18.7 percent, and a more moderate increase of 4.3 percent for bovine meat. Limited supplies of pigmeat in the European Union and sheep meat from Oceania lent support to prices for these products, while firm international demand, in particular from Asia, underpinned poultry meat prices. Meanwhile, recovery in bovine meat production in the United States reduced the country’s need for external supplies, contributing to international prices increasing less than for the other categories of meat.

Contact:

Michael.Griffin@fao.org

MILK AND MILK PRODUCTS

World milk production is forecast to grow by 1.1 percent to 817 million tonnes in 2016, with output set to expand in Asia and North and Central America, but to stagnate in Europe and Africa and decline in Oceania and South America. The removal of some excess export supplies in the EU and anticipation of tighter milk availabilities during the second half of the year caused international dairy prices to rebound between May and September.

Trade in dairy products in 2016 is projected to be almost unchanged, remaining at 72 million tonnes of milk equivalent. This stands in marked contrast to an average annual rate of increase of 6 percent for period 2009–2014. In 2015, a drop in shipments to China and the embargo by the Russian Federation on imports from specific countries impinged on international dairy product trade. For 2016, purchases by China and, to a lesser extent, the Russian Federation are projected to recover somewhat, with growth also foreseen for Brazil, the United States and Mexico. However, this is forecast to be largely counterbalanced by substantial reductions in imports by Venezuela and Algeria, and also by the United Arab Emirates, Nigeria, Singapore, Malaysia, Vietnam and Thailand. Overall, international trade flows in cheese and butter are anticipated to expand, while shipments of milk powders may fall.

Among exporters, the EU, New Zealand, Belarus and Uruguay are forecast to increase their sales. However, this is likely to be almost matched by a fall in shipments from the United States, Brazil and Argentina, while exports by Australia and Switzerland could be unchanged. Large purchases of skimmed milk powder (SMP) to intervention stocks so far this year are forecast to slow EU export expansion. Despite increased milk production, overall dairy sales by the United States are expected to fall, as export opportunities are curtailed by the strength of the US dollar and stiffer competition from other exporters.

Contact:

Michael.Griffin@fao.org

FISH AND FISHERY PRODUCTS

After falling for much of 2015, international fish prices have given signs of a recovery in the first five months of 2016, while still remaining below their 2015 levels. According to the FAO Fish Price Index, international fish prices averaged 2 percent lower in the first six months of 2016 compared to the same period last year. The recent price strength, which extended to all the major species except for shrimps, generally reflected a tightening of supplies in some major exporting countries, combined with a stronger import demand.

Global fish production is forecast to grow by 1.8 percent to 174.1 million tonnes in 2016, boosted by a 5 percent expansion of aquaculture to 81.4 million tonnes, confirming the sector as the main engine for fishery growth, which compensated for a 1 percent contraction in wild fish output to 92.7 million tonnes.

Consumer demand for fish remains strong, with more people worldwide appreciating the health benefits of regular fish consumption. Direct human consumption, which accounts for more than 85 percent of all fish uses, is projected to grow by 2.3 percent to 152.8 million tonnes in 2016. This would result in a slight increase in per capita fish intake, from 20.3 kg in 2015 to 20.5 kg in 2016.

Although several exporters are likely to face supply constraints associated with El Niño, diseases and fishing quotas, the value of international fish trade may increase by 4 percent in 2016, recouping part of the losses registered in 2015.

The recent FAO-UNCTAD-UNEP Joint-Statement[1], endorsed by more than 90 countries, international governmental organizations and active civil society organizations, highlighted the importance of having an international regulatory framework to streamline fishery subsidies. Any future regulation in this area will have a significant market-oriented impact on production patterns, prices and trade flows.

Contact:

Audun.Lem@fao.org

Stefania.Vannuccini@fao.org

[1] Available at http://unctad.org/meetings/en/SessionalDocuments/U14ditc_d16_FishSub_Statement_en.pdf.

WHEAT

PRICES

International wheat prices drift lower on large world supply

Wheat prices have continued to drift lower since the start of the year, pressured by large supplies and generally good prospects for 2016 crops. Following a rebound from March to June, mainly caused by concerns about the weather, prices have resumed their downward trend. By September, the benchmark US wheat, No.2 Hard Red Winter, f.o.b. Gulf, averaged nearly USD 182 per tonne, down 15 percent from the start of the year and the lowest monthly average since June 2010. International wheat prices have fallen by more than 60 percent since their peaks in early 2008.

Amid expectations of a record global output for the fourth consecutive year and ample export supplies, wheat futures have also fallen sharply. Quotations for December delivery at Chicago Board of Trade (CBOT) have subsided 16 percent since the start of the year, hitting a ten-year low of USD 147 per tonne in September. Besides large harvests and ample export supplies, other factors have also exerted downward pressure on prices so far in the season, including earlier interruptions in wheat deliveries to Egypt, the world’s largest wheat importer, because of uncertainties surrounding the official permissible tolerance level of ergot – a common fungus found in grains – in wheat shipments to the country. In recent weeks, larger than projected supplies in the Black Sea region have also weighed on export quotations. However, below-average protein levels in winter wheat, caused by untimely rains, in several major producing zones, have sustained export prices of milling quality wheat. More detailed analysis of the futures markets can be found in the Market Indicators section of this report.

PRODUCTION

Another record wheat crop in 2016

FAO’s current forecast for global wheat production in 2016 stands at 742.4 million tonnes, which is 8.5 million tonnes, or 1.2 percent, above the 2015 estimate, with particularly large increases anticipated in India, the Russian Federation and the United States. This forecast is 1.6 million tonnes higher than was projected in September, reflecting an improved outlook for Argentina and Australia. Global wheat production has been on the rise for four consecutive years.

In the United States, better-than-expected yields from the later harvested crop have offset an overall price-induced reduction in plantings. As a result, official production estimates were raised to 63.2 million tonnes, which is 7.3 million tonnes, or 13.1 percent, above the previous year and an eight-year high. Canada is also expected to harvest a larger crop of almost 30.5 million tonnes, up 11 percent from 2015. The increase stems from a rebound in yields that more than compensated for a reduction in the area sown to the main spring wheat crop – a reduction partly due to a shift of planting to pulses.

In Europe, harvesting of the 2016 wheat crop is nearly complete. The latest indications for the EU point to a contraction of production of almost 17 million tonnes to 144 million tonnes in 2016. Much of the reduction rests on expectations of a lower output in France, where excessive rains depressed yields. In the Russian Federation, weather conditions have improved since the start of the season, boosting yield prospects. As a result, wheat production is now forecast at a record high of 69.5 million tonnes, 13 percent above the previous year. However, despite the improved production, the quality of the crop is reportedly poorer than in 2015. Dryness during the planting period curtailed sowings in Ukraine, contributing to a 3 percent decline in its 2016 production to 25.6 million tonnes.

In Asia, the bulk of the harvest is complete and the regional 2016 output is expected to be above the 2015 level, at 322 million tonnes. Most of the increase reflects prospects of a recovery in India, where record yields more than compensated for a contraction in sowings prompted by reduced water supplies for irrigation. According to the latest official estimates, India’s output might reach 93.5 million tonnes, 8 percent above the reduced 2015 harvest. In Pakistan, production in 2016 is estimated slightly above the bumper 2015 harvest, as weather-improved yields largely counterbalanced a modest decrease in plantings. Production in China is now foreseen to decline by about 1 percent in 2016, to 128.6 million tonnes, in contrast to a more buoyant outlook earlier in the season. The downgrading of the production forecast follows a period of poor weather, in the form of dry spells and excessive rains, which resulted in lower expected yields. In Turkey, dry conditions are expected to depress production in 2016 by 2 million tonnes, while the persistent conflict in Syria continues to severely undermine production in the country. In North Africa, severe dry weather resulted in a significant drop of wheat output in Algeria, but also in Morocco, now estimated to have harvested a well-below average crop of 2.7 million tonnes.

In the Southern Hemisphere, prospects for the 2016 wheat crop in Australia are favourable, due to adequate soil moisture conditions for planting and subsequent rains during July and August that benefited crop development. Although the area planted is estimated to have changed little compared to the previous year, better yield prospects are expected to boost production by 16 percent, to 28 million tonnes. In South America, the aggregate 2016 wheat production is forecast to rise by almost 22 percent to 25.2 million tonnes. Most of the growth is expected to derive from a 33 percent increase in Argentina’s output, forecast at 15 million tonnes, reflecting a price-driven expansion in sowings. Brazil is also forecast to harvest a larger crop in 2016, for analogous reasons.

TRADE

World wheat trade in 2016/17 hovering around record levels

FAO’s latest forecast for world wheat trade (including wheat flour in wheat equivalent) in 2016/17 (July/June) has been raised by 1.5 million tonnes since September, and now stands at 165 million tonnes, almost unchanged from the 2015/16 record estimate.

Total wheat imports by Asia are forecast at around 80 million tonnes, slightly above the previous season’s level and nearly 1 million tonnes higher than had previously been anticipated. Wheat purchases by Indonesia, Asia’s largest wheat importer, are currently projected at 10 million tonnes. Wheat imports by Indonesia have doubled over the past ten years underpinned by a growing demand for food as well as feed. Reacting to the rapid increase in feed wheat imports since last year and consistent with the country’s maize self-sufficiency policies, the Government recently decided to suspend issuing import certificates for feed quality wheat, a decision that may result in reduced wheat imports by the country in 2016/17 than had been foreseen. In Japan, wheat imports are likely to increase by 500 000 tonnes, reaching 6 million tonnes in 2016/17, due to strong demand and despite a brief suspension of imports from the United States following reports of a possible presence of bioengineered wheat in US shipments. Wheat imports by Thailand are expected to reach 4.2 million tonnes, 1 million tonnes more than earlier forecast. Thailand’s wheat imports have doubled since 2012/13, following the Government’s decision to waive import tariffs, which particularly boosted imports of feed quality wheat. Purchases by Saudi Arabia are forecast to increase by 500 000 tonnes to 3.8 million tonnes, confirming the country’s total reliance on world markets to meet its domestic needs following the termination, in 2015/16, of wheat production and the purchase programme. By contrast, deliveries to the Islamic Republic of Iran could decline by 1 million tonnes to a 4-year low of 2.2 million tonnes. Helped by large domestic supplies, the government halted all state wheat import purchases as of March 2016.

In Africa, aggregate wheat imports in 2016/17 are anticipated to remain close to last year’s record level, at just over 50 million tonnes. In North Africa, wheat imports are forecast to remain steady at around 29 million tonnes. Imports by Algeria and Egypt are likely to decrease marginally, to 8 million tonnes and 12 million tonnes, respectively. Following several months of slow activity, Algeria has accelerated its wheat purchases in the early months of the season. In Egypt, uncertainties surrounding tolerance rules on wheat containing ergot (a common fungus found in grains) slowed the pace of wheat purchase by the country since the start of the year. However, following the reinstating a 0.05 percent tolerance level, announced on 21 September, the pace of wheat deliveries to Egypt is expected to return to normal. Wheat imports by drought-stricken Morocco are forecast to reach 5 million tonnes in 2016/17, 500 000 tonnes more than in the previous season.

In sub-Saharan Africa, only Ethiopia is predicted to cut wheat imports significantly in 2016/17. Although the country is now anticipated to purchase 500 000 tonnes less than in the previous season, much will depend on whether the expectation of another above average wheat production season materializes. Wheat shipments to Nigeria, the sub-region’s largest importer, are forecast at 4.5 million tonnes, unchanged from 2015/16.

In Europe, imports in 2016/17 may total 9.2 million tonnes, down marginally from the 2015/16 estimate. Wheat imports by the EU are currently put at 6.5 million tonnes, down 100 000 tonnes from 2015/16, but 500 000 tonnes more than last anticipated, due to quality concerns and tighter supplies of milling wheat following this year’s poor harvest in France, the EU’s largest wheat producer and exporter. In Latin America and the Caribbean, imports are forecast to be slightly lower than in the previous season, mostly on expectation of reduced purchases by Mexico. These are currently forecast to reach 4.4 million tonnes, down 400 000 tonnes from 2015/16 due to large domestic supplies. By contrast, imports by Brazil could increase to 6 million tonnes (on July/June basis).

Regarding exports, shipments from the EU are projected to fall to a 4-year low of 25.5 million tonnes following this year’s reduced production and less competitive prices compared with other origins, in particular the Black Sea region. By contrast, helped by a bumper crop, wheat exports by the Russian Federation are set to increase by at least 21 percent to 29.5 million tonnes, making the country the world’s largest wheat exporter in 2016/17. Because of large domestic supplies, the Russian Federation decided in August to suspend the wheat export duty until July 2018. Wheat shipments by Australia are seen to increase to 19 million tonnes, up 1 million tonnes from the previous forecast. Exports by the United States are projected to increase as a result of this year’s rise in production and reach 25 million tonnes. The forecast for wheat exports by Argentina has been raised by 500 000 tonnes to 9 million tonnes, reflecting improved crop prospects. Kazakhstan’s wheat exports are set to reach 7 million tonnes, up slightly from 2015/16 due to this year’s increase in production. By contrast, wheat shipments by Canada may drop slightly, to 21.5 million tonnes. A more severe drop is anticipated in Ukraine, where sales could fall by 3.4 million tonnes to 14 million tonnes, because of a slightly reduced domestic production and, more importantly, increased competition by Australia in several Asian markets.

UTILIZATION

Global wheat utilization rising by 2 percent in 2016/17

Total wheat utilization in 2016/17 is projected to reach 730.5 million tonnes, 1.5 million tonnes higher than was anticipated earlier and almost 15 million tonnes, or about 2 percent, above the 2015/16 level. Total wheat use for direct human consumption is currently projected at around 498 million tonnes, 1 percent higher than in 2015/16. Most of the increase will be concentrated in developing countries, which are forecast to consume 363 million tonnes of wheat as food. On a per capita basis, wheat consumption in 2016/17 would remain close to 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. However, while the year-on-year growth in food consumption of wheat largely keeps pace with the world population growth, feed use of wheat tends to follow a more dynamic trend, very much influenced by its price competiveness vis-a-vis coarse grains in feed rations. Given this season’s abundant supplies of low quality wheat, total feed use of wheat at the world level is forecast to rise to 146 million tonnes, up 8.5 million tonnes, or 6.2 percent, from 2015/16. The largest increases, in terms of volume, are projected for the United States, up 5.3 million tonnes, and several countries in Asia, especially China and Indonesia.

As for the other uses of wheat, the latest estimates by the International Grains Council (IGC) put total industrial utilization of wheat in 2016/17 at 22 million tonnes, slightly above last season. The biofuel sector is expected to absorb some 5.8 million tonnes of wheat in 2016/17, unchanged from 2015/16. However, the starch industry would continue to account for the bulk of the industrial usage of wheat, at 12.8 million tonnes, 3.9 percent higher than 2015/16, driven by strong increases in the EU and, to a lesser extent, Canada.

STOCKS

Global wheat inventories to reach their highest level since 2001/02

Another year of record wheat production is likely to result in a further accumulation of world inventories, which have been rising steadily since 2013/14. World wheat stocks are currently projected to reach 234 million tonnes by the close of the marketing seasons ending in 2017, up 8.4 million tonnes from their already elevated opening levels and the largest since 2001/02. This month’s stock forecast is also 900 000 tonnes higher than the one reported in September, with much of the month-to-month revision reflecting upward adjustments to production estimates of several countries in Asia, in particular China and Pakistan.

Wheat inventories are projected to increase by a significant 11.9 million tonnes in China, 3.2 million tonnes in the United States and 1 million tonnes in India, as well as by nearly 1 million tonnes in Australia and Ukraine. By contrast, the tightening of supplies may require the EU to drawdown stocks by 4 million tonnes and Morocco by a 1.8-million tonnes. Likewise, Egypt, India, the Islamic Republic of Iran, Iraq, the Syrian Arab Republic and Turkey may end the season with smaller wheat reserves.

Based on the latest forecasts for global utilization and ending stock levels, the world wheat stock-to-use ratio is likely to hit its highest level since 2003/04 and rise to 31.7 percent in 2016/17. This would be well above the historic minimum of 22.7 percent registered in 2007/08. Moreover, given the build-up of inventories in several major exporting countries, the ratio of major wheat exporters’ closing stocks-to-their total disappearance (defined as domestic utilization plus exports), which is considered a more robust indicator of supplies for international trade, is also set to increase, from 16.6 percent in 2015/16 to 17.4 percent in 2016/17.

COARSE GRAINS[*]

PRICES

International prices below last year on large export supplies and weak import demand

After a mixed start of the 2016/17 marketing year, characterized by weather uncertainties, tight export availabilities in South America, spill-overs from rising prices of soybeans and currency fluctuations, export prices of major coarse grains have witnessed a more definite downturn since June. Several factors contributed to this recent weakening, including the expectations of a record maize crop in the United States, large export availabilities in the Black Sea region and abundant world supplies of feed wheat in a context of generally frail global import demand. By September 2016, export prices from the US were well below their levels at the start of the year and in September last year. The benchmark US maize price (yellow, No. 2, f.o.b.) averaged USD 148 per tonne in September 2016, down 8 percent from January and 11 percent compared to one year ago.

As for the other major coarse grains, barley and sorghum prices weakened considerably in recent months, trading below last year’s levels. Much reduced imports by China had the most bearish influence on both markets, with feed barley quoted at least 10 percent below last year, also due to good production prospects in Australia.

Ample supplies also weighed on the prices of futures, with the CBOT maize futures for December 2016 delivery averaging around USD 129 per tonne in September, down 17 percent from the start of the year. Anticipation of a record soon-to-be-harvested crop in the United States and China’s active selling of state reserves through auctions further contributed to the downward trend. More detailed analysis of the futures markets can be found in the Market Indicators section of this report.

PRODUCTION

Strong rebound in global production of coarse grains in 2016

Global coarse grains production in 2016 is forecast to reach 1 329 million tonnes, slightly less than predicted in September, but still 1.8 percent (23.4 million tonnes) above the reduced 2015 crop. Much of the projected increase rests on expectations of a rise in maize production in the United States and Europe.

World production of maize in 2016 is currently forecast at 1 029.3 million tonnes, 1 million tonnes less than anticipated in September, but 2.3 percent (23.3 million tonnes) above the previous year. The forecast for maize production has been reduced since September mainly due to deteriorating crop prospects in Brazil. The year-on-year increase in world maize production is mainly reflective of improved prospects for the United States and, to a lesser extent, for Europe. With the harvest underway, the United States is forecast to garner a record maize crop of 383 million tonnes, about 11 percent up on the previous year. The yearly gain mainly reflects beneficial weather that is expected to boost yields to near-record levels. In Canada, the recent arrival of rains failed to reverse the impact of earlier dryness on yields and, as a result, maize production is expected to decline by as much as 9 percent from last year.

In Europe, the outlook for the EU 2016 maize crop was recently downgraded, following hot and dry weather. Nonetheless, EU production is likely to recover by a marked 8.6 percent from the 2015 drought-affected harvest to reach 63 million tonnes. Similarly, Ukraine’s maize output is set to rebound by 12 percent from 2015’s reduced level on improved yields. A smaller increase is forecast for the Russian Federation, on account of an expansion in plantings reflecting improved price expectations.

In Asia, aggregate production in 2016 is forecast to fall. The decrease almost entirely rests on an expected 7.6-million-tonne (3.4 percent) decline in China to 217 million tonnes. This results from a contraction in sowings, as farmers shifted from maize cultivation to more profitable crops, following the Government’s decision to abandon the procurement programme for maize. Improved weather conditions are expected to sustain a recovery of maize crops in India, but also in Cambodia and the Philippines. In the Near East, dry conditions in Turkey instigated a 6.3 percent production decline, although the 2016 crop is still estimated at an above-average level of 6 million tonnes.

In South America, maize production in Argentina is forecast to increase by 6 million tonnes, putting the latest estimate at 39.8 million tonnes, a record high. The increase mainly stems from a larger planted area, as farmers responded to more attractive maize prices, prompted by the removal of export controls and a weaker currency. By contrast, following continual downward revisions this year, due to the adverse impact of dry weather, particularly on the second season “de safrihna” maize crop, Brazil is predicted to harvest its smallest crop since 2011. The latest estimate puts Brazil’s 2016 crop at 65.5 million tonnes, 23 percent down from the bumper output of the previous year. In Central America and the Caribbean, aggregate production is set to rise from the drought-reduced level of 2015. This is mainly on account of Mexico’s 2016 output, which is forecast to increase to 25.7 million tonnes, as improved weather conditions resulted in bumper yields for the winter crop. Elsewhere in the subregion, higher rainfall volumes this year are foreseen to result in moderate production recoveries compared to the reduced 2015 crops.

In Africa, aggregate regional production is forecast to decline in 2016, mostly reflecting steep reductions in southern African countries that were affected by severe drought conditions. The bulk of this decline is attributed to South Africa, where the prolonged El Niño-induced drought caused a near 4 million tonne cut in the 2016 harvest compared with the already below-average output of the previous year. Maize outputs are also estimated to have fallen sharply in neighbouring countries, similarly on account of rainfall deficits, except in Zambia where the maize harvest increased by 10 percent. Production gains are anticipated in Ethiopia and Nigeria, where good rains so far have favoured crop development.

Global production of barley in 2016 is forecast at 142.5 million tonnes, 3.3 percent (4.9 million tonnes) down on the previous year. The decrease stems almost entirely from lower crops in Morocco and Turkey resulting from dry weather. The forecast for world sorghum production stands at 64.5 million tonnes, 2.3 percent (1.4 million tonnes) up on the previous year. Predominantly behind this year’s improved crop are larger outputs in Ethiopia and the Sudan, which helped compensate for near 3 million tonne decrease in the United States.

TRADE

International trade in coarse grains to contract in 2016/17

World trade in coarse grains in 2016/17 (July/June) is set to fall to 176 million tonnes, down as much as 5 percent (9.7 million tonnes) from the 2015/16 record estimate. The contraction is predicted to concern all the major coarse grains, with trade in maize falling by almost 3 percent (4.1 million tonnes) from the record 2015/16 level to 135.5 million tonnes; barley shrinking by 8 percent (2.4 million tonnes) to 27 million tonnes; and sorghum by 29 percent (3.4 million tonnes) to 8.5 million tonnes. By contrast, trade in millet is projected to surge by 29 percent (200 000 tonnes) to 866 000 tonnes, while the volumes of oats and rye trade are predicted to remain largely unchanged from the 2015/16 levels, at 2 million tonnes and 359 000 tonnes, respectively.

In Asia, total imports of coarse grains in 2016/17 are forecast to drop by as much as 12 percent (11.9 million tonnes) to 90 million tonnes. Most of the decrease reflects lower anticipated purchases of maize, but also of barley and sorghum, by China. Total coarse grain imports by the country in 2016/17 are forecast at 11.3 million tonnes, a drop of 49 percent (nearly 11 million tonnes) from 2015/16. Recent policy measures to halt the purchasing and stockpiling of maize by the Government, combined with an increase in auctioning from state reserves, have contributed to narrowing the gap between domestic and world prices, thus making the importation of all coarse grains less attractive. Imports by the Islamic Republic of Iran are forecast to decline by around 1 million tonnes, to 6.5 million tonnes, mostly on reduced maize purchases for the first time in three years. Total imports of coarse grains by Saudi Arabia are also set to decrease, by 500 000 tonnes, to 13.2 million tonnes. As a leading importer of the commodity, Saudi Arabia’s barley imports in 2016/17 are forecast at 9.7 million tonnes, 300 000 tonnes below the estimated record volume in 2015/16, but still 8.7 percent above the 5-year average. A slight decrease in imports is projected for the Republic of Korea, as some maize purchases could be substituted with competitively priced feed wheat. By contrast, deliveries of barley to Turkey are anticipated to rise from 300 000 in 2015/16 to 800 000 tonnes in 2016/17, following this season’s sharp fall in domestic production. Increased volumes of barley and sorghum purchases may slightly raise coarse grain imports by Japan, to 17.6 million tonnes, as maize imports are expected to remain unchanged at around 15 million tonnes.

In Africa, total coarse grain imports are forecast to rise to 30 million tonnes in 2016/17, some 11 percent (3 million tonnes) more than in 2015/16, with most of the increase concentrated in Morocco and South Africa, which both face larger requirements following domestic production shortfalls. In Morocco, purchases of barley are forecast to nearly double in 2016/17 to 1.5 million tonnes, because of a drop in production, with those of maize also rising to meet the overall domestic feed demand. In South Africa, normally a leading regional maize exporter, maize imports in 2016/17 are likely to reach 3.5 million tonnes, exceeding the previous season’s high level. Among other countries, maize purchases by Malawi and Zimbabwe are forecast to approach 650 000 and 955 000 tonnes, respectively, significantly above the already high levels attained in 2015/16, because of falling production in 2016 in both countries. Maize deliveries to Egypt, Africa’s largest importer, are likely to remain close to the 2015/16 estimate of 8.5 million tonnes.

Imports by countries in Latin America and the Caribbean are forecast to hover around the 2015/16 level, with decreases in several countries in Central America and the Caribbean offsetting an increase in South America. Among countries buying less coarse grains in 2016/17 is Mexico, due to higher domestic production. The country is forecast to import 14.6 million tonnes, down 300 000 tonnes from 2015/16, but still some 26 percent above the 5-year average. On the other hand, maize imports by Brazil, normally a major maize exporter, are seen to soar to 2 million tonnes, up 1.3 million tonnes from 2015/16. Brazil’s sharp decline in this year’s production, combined with large exports earlier in the year, have led to tight market conditions and high domestic prices, thus necessitating large external supplies until the arrival of the second harvest. Total imports in Europe are forecast at around 14.1 million tonnes, down 1.4 million tonnes from the 2015/16 estimated level. Most of the decrease is expected to be concentrated in the EU, given the expected recovery in this year’s maize production and large supplies of low protein wheat.

As for exports, a sharp contraction in world trade, such as the one projected for 2016/17, would have normally resulted in big cuts in exports by major exporters. However, an emerging feature this season is the tight export availabilities in a number of exporting countries (in particular Brazil and South Africa) due to their own production shortfalls. As a result, other exporting countries (such as Argentina and the United States) are expected to be able to greatly increase their exports and even expand their market shares despite shrinking world trade volume. With maize supplies very much curtailed following the poor 2016 production, shipments from Brazil are forecast to decrease by as much as 17 million tonnes (47 percent) to a five-year low of 19 million tonnes, while, at just 700 000 tonnes, maize exports from South Africa could fall below last season’s below-average level. By contrast, large supplies are anticipated to boost coarse grain sales from the United States to a 9-year high of almost 61 million tonnes, of which 54 million tonnes in the form of maize, up 18 percent from 2015/16. Similarly, the 2016 record production may boost Argentina’s maize shipments to an all-time high of 24 million tonnes, 29 percent more than in 2015/16. Exports of coarse grains from the EU are projected to contract, because of lower sales of barley. Indeed, in spite of large supplies, total exports of barley (feed) from the EU could decline to 8 million tonnes, 2.8 million tonnes less than 2015/16, reflecting ample availability of more competitively priced barley from other export origins; Australia, the Russian Federation and Ukraine, in particular.

UTILIZATION

Large supplies and lower prices driving up total utilization

World total utilization of coarse grains in 2016/17 is projected to reach 1 328 million tonnes, an increase of 1.5 percent (19.4 million tonnes) over 2015/16. The latest forecast is 4.6 million tonnes higher than anticipated in September, mainly due to upward revisions of feed usages of barley, maize and sorghum in several countries.

World feed utilization of coarse grains in 2016/17 is forecast at 758 million tonnes, up 2.1 percent, or 15.3 million tonnes, from 2015/16. Maize use as feed is likely to reach 592 million tonnes, 3.1 percent, 18 million tonnes, above the 2015/16 estimate. The United States and China are likely to register the largest increases in coarse grains feed usage in 2016/17. In the United States, it is forecast to reach 149 million tonnes (of which 143 million tonnes of maize), up 8.3 percent (11.5 million tonnes) from 2015/16, underpinned by the record 2016 production. In China, the elimination of Government maize purchases and stockpiling is anticipated to boost domestic feed as well as industrial uses of maize, despite a reduction in this year’s production. China’s maize feed use is currently projected at 151 million tonnes, up 3.8 percent (5.5 million tonnes) from 2015/16. By contrast, feed use of maize could contract in the EU, mainly because of large supplies of poor quality wheat. Declines are also projected for Brazil and South Africa, due to poor domestic production and high domestic prices.

Total industrial use of coarse grains is projected to increase by 1.8 percent, to 310 million tonnes in 2016/17. Of these, 155 million tonnes are anticipated to be consumed for biofuel production, up 1.5 percent from the 2015/16 estimate; and 104 million tonnes for the production of starch, 2.7 percent more than in 2015/16. As with feed use, the largest expansions are predicted for the United States and China, and especially with regard to maize. The growth in overall industrial utilization of barley and sorghum is likely to remain subdued.

World food consumption of coarse grains is forecast to increase in 2016/17 by 1.9 percent, or 3.9 million tonnes, to 205 million tonnes. This would imply a stable average per capita consumption level of around 27.6 kg per year. While their direct human consumption is less significant globally than that of other cereals, coarse grains are an important source of food in Latin America and the Caribbean. They also constitute a main staple food in Africa, with average per capita consumption at 73 kg per year.

STOCKS

Small decline projected for world inventories of coarse grains

FAO’s latest forecast of world stocks of coarse grains by the close of seasons in 2017 stands at 256 million tonnes, a decrease of 1.1 percent (2.9 million tonnes) from their relatively high opening level and 8.5 million tonnes lower than was reported in September. This month’s downscaling largely reflects lower estimates for maize ending stocks and, to a lesser extent, barley inventories. Based on the latest forecasts, the world stocks-to-use ratio for coarse grains in 2016/17 is estimated to decline slightly from the previous season to 18.8 percent, still well above the historical low of 15.4 percent registered in 2003/04. The largest year-on year drawdown is forecast for China, where, with this year’s anticipated decline in maize production and higher domestic use, coarse grain stocks could fall by as much as 13.2 million tonnes, or 12.4 percent.

By contrast, the ratio of major exporters’ closing stocks to their total disappearance (defined as domestic utilization plus exports), considered a better indicator of global availabilities for trade, is set to increase from 11.4 percent in 2015/16 to 13.0 percent in 2016/17. The reason for the higher value of the ratio is the expectation of a surge in the end-of-season inventories mostly in the United States, the world’s leading maize exporter. On the back of this year’s record maize crop, coarse grain stocks in the United States are forecast to rise by some 17 million tonnes to nearly 65 million tonnes, or as much as a quarter of the world total. By contrast, inventories in several other exporters are likely to decline, especially in Brazil, where this year’s cut in production might curb end-of-season maize stocks by half, to around 3.5 million tonnes.

[*] Coarse grains include maize, barley, sorghum, millet, rye, oats and NES (not elsewhere specified)

RICE

PRICES

International rice prices resume their downward trajectory

International rice prices resumed their downward trajectory in August 2016, after rising steadily since May, as availabilities in the major rice exporters dwindled, following back-to-back poor harvests. The tendency for prices to weaken stretched into September, when new crop arrivals compounded a sluggish pace of sales, as demand from traditional major buyers was held back due to good local availabilities or constraints posed by restrictive policies and weak local currencies. As a result, the FAO All Rice Price Index fell to 190 points in September, down 3 percent from August and registering its lowest level since January 2008. The weak market sentiment was pervasive, but particularly heavy falls were registered in Thailand. Benchmark Thai 100% B white rice traded at USD 399 per tonne in September, down 11 percent from May – a decline aided by successive large auctions of supplies from government stocks. Looking at the various segments, the price strength evidenced between May and July concerned long-grain varieties, keeping the January–September averages of the Indica sub-indices close to their corresponding 2015 levels. Amid more adequate availabilities, lackluster demand tended to weigh more heavily on quotations of medium/short grain rice and of fragrant varieties, resulting in the January–September averages of the Japonica and Aromatica indices falling 14 and 17 percent below their respective 2015 levels.

PRODUCTION

Production to hit a new record, as abundant rains boost output prospects in Asia

After a difficult start to the 2016 season, which saw numerous producing countries along or south of the Equator negatively impacted by the lingering influence of El Niño, the return to El Niño/La Niña-neutral conditions in May ensured a more normal climatic unfolding of the season in the Northern Hemisphere. This was particularly the case in Asia, where main crops, now at the harvest stage, benefitted from plentiful monsoon rains. As a result, world rice production in 2016 is now forecast to reach a record of 497.8 million tonnes, up 1.9 million tonnes from September expectations and 6.3 million tonnes over the 2015 depressed outcome. If confirmed, this would mark the first year of global output expansion since 2013, an achievement that would come on account of a 1.4 percent expansion in plantings to 163.1 million hectares and a robust average global yield of 4.6 tonnes of paddy per hectare.

Much of the global production increase anticipated for 2016 is expected to be concentrated in Asia, where aggregate output is seen reaching 450.1 million tonnes. The 1.3 percent growth in the region’s crop would be spearheaded by a 3 percent output recovery in India to 107.7 million tonnes. An overall normal pattern of the monsoon permitted main-crop plantings in India to rise 1.0 million hectares over year-earlier levels by mid-September and has boosted yield prospects and water availabilities for the successive irrigated Rabi crop. In China (Mainland), producers have continued to favor rice over other crops due to the safety provided by sizeable state acquisitions at support prices. Although some flooding has occurred, the resulting area expansion should ensure that production in the country exceeds the 2015 record by 0.4 percent, reaching 143.2 million tonnes. Improved growing conditions should also give way to large absolute gains in the Philippines and Thailand, after crops in both countries were constrained by prolonged drought conditions last year. However, in the case of Thailand, production is forecast to stage a partial recovery to 20 million tonnes, given setbacks associated with short water supplies early in the season, coupled with sustained official efforts to encourage producers to shift to alternative crops. The Islamic Republic of Iran, the Lao People’s Democratic Republic, Myanmar and Nepal are similarly likely to close the season with larger crops, while adverse weather undermined output in Indonesia, Malaysia, Sri Lanka, Timor Leste and Viet Nam. The anticipated output fall in Bangladesh is instead linked to a substitution of more profitable crops for rice, with planting cuts in the Republic of Korea also promoted by the state in order to reduce surplus output.

The production outlook for Africa remains positive, pointing to a 4 percent expansion from 2015 to 19.6 million tonnes. The anticipated growth mirrors expectations of a 7 percent annual upturn in Egypt to 4.3 million tonnes, where attractive prices and a shift away from cotton cultivation have boosted rice plantings, but also of headway in West African countries such as Chad, Mali, Nigeria and Senegal. Indeed, despite some flooding problems, main crops through much of West Africa have benefitted from abundant rains this season, with the rice sector continuing to draw support under import substitution programmes. In Nigeria, for instance, officials have reaffirmed their commitment to attain self-sufficiency in rice by 2018 under the “Green Alternative” roadmap, with credit assistance to purchase basic inputs already channeled to producers under the Anchor Borrowers’ Programme. Similarly, authorities in Senegal have renewed efforts to enhance the marketing of local crops, attaining commitments from importers to absorb almost 10 percent of the forecast output this year. Elsewhere in the continent, while generally conducive weather is expected to boost crops in the United Republic of Tanzania, El Niño-induced drought constrained output in Malawi, Mozambique and Zambia. Poor weather in southern regions similarly kept production in Madagascar at below average levels for a third successive season.

In Latin America and the Caribbean, where the bulk of crops has already been collected, 2016 production is expected to decline by 7 percent year-on-year to a six-year low of 17.7 million tonnes, as crops in numerous South American countries were beset by drought and/or flooding problems under the El Niño weather anomaly. These were compounded by cuts to area planted stemming from prospects of reduced margins, depressing output in Argentina, Bolivia, Brazil, Guyana, Paraguay, Uruguay and Venezuela. This contrasts with expectations of recoveries in Cuba, Costa Rica, Mexico and Nicaragua, and of record outturns in Chile, Peru and, especially, Colombia. In the latter, attractive prices fostered a surge in plantings, likely boosting output by 20 percent this season to a record of 1.7 million tonnes.

In North America, the USDA’s latest assessment puts rice production in the United States at 7.5 million tonnes, 200 000 tonnes less than previously envisaged. The less buoyant outlook mirrors the impact of extensive flooding during August, especially in Louisiana and Arkansas, which hampered harvest operations, reduced yields and undermined the quality of crops that had still to be collected. However, these barely dented the outlook for a season that had been, otherwise, characterized by generally conducive weather and a strong rebound in plantings. As a result, the United States is set to harvest its second largest crop on record and 23 percent more than in 2015. In Europe, larger plantings and favourable yield outturns in the European Union and the Russian Federation are foreseen to boost output in Europe to 2.6 million tonnes. Yet, the season proved far less auspicious in Oceania, where Australia’s production slumped to 167 000 tonnes, 64 percent below the already reduced 2015 outcome, as limited and costly water supplies for irrigation constrained plantings.

TRADE

Subdued demand from the Far East to stall trade recovery in 2017

Largely based on current expectations of 2016 crops, much of which will be consumed in the course of next year, FAO forecasts world trade in rice to amount to 43.8 million tonnes in 2017. This is marginally (300 000 tonnes) above the 2016 depressed figure, marking the third successive year of declining or stagnating trade growth. Underlying the downcast outlook are prospects of continued subdued demand in Asia, especially in the Far East, where improved local harvests may enable traditional importers such as Indonesia and the Philippines to cut imports, while rather ample inventories may keep Bangladesh and Sri Lanka’s purchases at reduced levels. In the case of China (Mainland), the largest single global destination of rice, 2017 purchases are put at 6.3 million tonnes, unchanged from 2016 expectations. Although the wide gaps between Chinese quotations and those of near-by suppliers should continue to keep Chinese imports large, prospects of deliveries to country gaining further ground next year are tempered by ongoing government efforts to slow the influx of rice through borders with Viet Nam and Myanmar.

Import demand is anticipated to be firmer in the Near East, under expectations that countries such as Iraq, Saudi Arabia, Turkey and the United Arab Emirates will need to replenish stockpiles drawn thin in the course of 2016. Purchases by the Islamic Republic of Iran are also forecast to edge up to 1.1 million tonnes next year, while remaining below their 2012 and 2014 levels, due to a good crop and the intermittent imposition of import restrictions.

Deliveries to African countries are seen in the order of 14.2 million tonnes in 2017, up 4 percent from the 2016 depressed level, but below the heights registered in 2014. Indeed, many of the factors that have tended to curtail deliveries to the region over the past two years, namely good local harvests and weak local currencies, are expected to continue into 2017. This is even if more attractive international offerings could provide some scope for countries to meet their fast-expanding domestic needs by stepping-up imports. Within the region, Burkina Faso, Cameroon, Mauritania, Niger and South Africa could all purchase more rice, with year-on-year growth in Ghana also facilitated by the recent rescinding of a three-year old ban on overland deliveries. By contrast, good seasonal turnouts are expected to permit Senegal and Cote d’Ivoire to reduce imports by 4 percent each, arriving at 1.1 and 1.3 million tonnes, respectively. On the other hand, purchases by Nigeria may remain limited, at around 2.5 million tonnes, should the prevailing weakness of the Naira persist along with current restrictions that prevent rice traders’ access to official currency markets.

After reaching an all-time high in 2016, aggregate deliveries to Latin America and the Caribbean in 2017 are expected to subside by 6 percent year-on-year to 4.0 million tonnes. Within the region, output recoveries may lead Cuba and Brazil to cut imports, with easing inflationary pressure following an excellent harvest also enabling Colombia to reduce purchases relative to the record of 300 000 tonnes forecast for 2016. Elsewhere, strong domestic demand for Indica and fragrant varieties could extend the upward streak in imports by the European Union for another year, with deliveries to the United States also expected to rise by 1 percent to 775 000 tonnes.

On the export side, anticipation of international demand remaining tepid for a third successive year raises prospects of competition for markets intensifying in 2017. At country level, improved availabilities from a good harvest in India are forecast to raise the country’s shipments by 7 percent to 10.7 million tonnes, thus consolidating its position as the world’s leading supplier of rice for the sixth straight year. The resurgence of Indian exports would mainly come to the detriment of Thailand, which could see its 2017 shipments contract by 4 percent to 9.5 million tonnes. The reduction comes amid expectations of only a partial output recovery in the country, although official efforts to dispose of the 8.4 million tonnes of rice still held in Thai public granaries by next year could cushion the country’s export fall. Prospects are similarly subdued for Viet Nam, which, in the absence of a major boost to fragrant and glutinous sales, may see faltering demand for white rice from traditional Asian outlets keep its shipments close to the six-year low expected for 2016, at 7.6 million tonnes. Among other exporters, lower export quotations due to a bumper crop are anticipated to raise shipments by United States by 6 percent year-on-year to a seven-year high of 3.7 million tonnes. Australia, Cambodia and Pakistan could similarly count on sufficient availabilities to step up shipments in 2017, while consignments are expected to decline for Argentina, Brazil, Uruguay and Paraguay. In the case of Egypt, an anticipated contraction is linked to the continuance of the ban on milled rice exports and the recent inclusion of broken shipments in the ban.

UTILIZATION

Per capita food intake to rise slightly in 2016/17

Total rice utilization is forecast to reach 501.4 million tonnes in 2016/17, up 1.2 percent year-on-year. The expansion is anticipated to be sustained by a 1.3 percent increase in world food use to 402.7 million tonnes, accounting for 80 percent of total projected use. Volumes destined to animal feed are also seen edging up to 18.3 million tonnes, amid expectations that Japan, the Republic of Korea and Thailand would continue encouraging rice use in the livestock sector to dispose of surplus produce. Other uses (including seeds, post-harvest losses and non-food industrial uses) are expected to absorb 80.4 million tonnes over the year. Based on these tendencies, world food use would stage a modest recovery on a per capita basis, rising from 54.1 kg in 2015/16 to 54.2 kg per person this season. This would reflect expectations of a 0.1 kg gain in Asia to some 78.4 kg and in Africa to 24.9 kg per person. Nonetheless, much will still depend on domestic quotations. During the third quarter of 2016, retail and wholesale rice prices remained above their year-earlier levels in various Asian countries, mirroring production shortfalls incurred in 2015/16 due to unfavourable weather. Larger price gains have been registered in southern Africa and South America, amid a combination of weak local currencies and output shortfalls.

STOCKS

Despite sustained reductions in the major exporters, world rice stocks in 2016/17 sufficient to cover four months of global domestic use

In line with the improved production outlook, forecasts of world rice inventories at the close of 2016/17 have been raised to 169.6 million tonnes. This level would stand 0.7 percent, or 1.1 million tonnes, short of the 2015/16 estimate, while still suggesting a comfortable level of global supplies, with world reserves sufficient to cover 4 months of projected global use. This would keep the world stocks-to-use ratio in 2016/17 at 33.2 percent, over the 30 percent mark it has consistently exceeded over the past five years.

From a regional perspective, much of the forecast stock reduction is expected to take place in Asia, with India and Thailand once again driving the fall by cutting reserves to 16.5 and 8.2 million tonnes, respectively. In both cases, drawdowns come amid expectations of sustained government efforts to trim the size of their reserves. Although reductions are also expected to concern a few rice importers within the region, such as Bangladesh, Indonesia, Sri Lanka and Saudi Arabia, in most cases declines would occur from hefty reserves amassed the previous year through good harvests or large imports. Moreover, cuts would be more than outweighed by accumulations in other countries, especially in China (Mainland). Reflecting a combination of steady output gains and sizeable imports, 2016/17 carry-overs in China are predicted to expand by 4 percent year-on-year to a high of 101.5 million tonnes. Improved harvests may similarly enable Cambodia, Nepal and the Philippines to replenish their reserves. On the other hand, gains in the Republic of Korea are linked to long-term dietary shifts away from rice consumption and in Viet Nam to a poor export performance. Elsewhere, poor harvest results are envisaged to entail carry-over cuts in Argentina, Australia and Madagascar. However, the steepest fall is forecast to take place in Brazil, where a poor harvest and still sizeable exports are expected to reduce the country’s reserves by as much as 67 percent, year-on-year, to a low of 215 000 tonnes. By contrast, Colombia, the European Union and the United States are all expected to accumulate more rice, with the United States closing the season with 1.9 million tonnes in stock, the highest volume in over three decades.

Seen from a trade angle, the predicted drawdown in Indian and Thai inventories would lower aggregate reserves of the major rice exporters – India, Pakistan, Thailand, the United States and Viet Nam – by 11 percent year-on-year to 30.4 million tonnes in 2016/17. This would result in the group’s stock-to-disappearance ratio falling from an estimated 19.3 percent.

CASSAVA

PRICES

International quotations of cassava in sharp decline

Monthly reference prices of internationally traded cassava, a market that is mostly confined to East and Southeast Asia, have fallen markedly in the past 12 months, despite a rally in the second quarter of 2016. In September 2016, Thai chips (f.o.b. Bangkok) were being quoted at an average USD 180 per tonne, around 20 percent lower than in the corresponding month of last year, with Thai flour and starch quotations (Super High Grade, f.o.b. Bangkok) losing over 25 percent of their value – or around USD 100 – over this period, dropping to an average USD 325 per tonne in September 2016. Thai domestic root prices, the raw material that underpins these quotations, have undergone even more profound falls, losing more than a third of their value over the past 12 months.

The decline of world import demand, which was exacerbated in recent months by policy changes in China – the major destination for internationally traded cassava products – has largely triggered the plummeting of quotations. In June of this year, China began to implement measures to lower its accumulated stockpiles of maize, with the state grain reserves body auctioning 2 million tonnes of the commodity, deemed unfit for human consumption, to its feed and industrial sectors. As imported cassava competes directly with maize in these sectors, China’s stock release had a dramatic effect on world cassava quotations, especially given the thinness of the international market for cassava. The removal of minimum support prices for maize in China has also made domestic maize more competitive with imported substitutes, further pressurizing cassava quotations.

PRODUCTION

Global cassava production to rise in 2016

World cassava production is tentatively forecast to reach 288 million tonnes in 2016, 3 percent, or over 8 million tonnes, more than last year, restoring cassava’s status as one of the world fastest expanding staple crops. The anticipated output recovery rests on a return to more normal weather conditions compared with last year, when El Niño marred yields in most growing regions. In fact, the crop’s tolerance to erratic weather conditions spared cassava from further substantial output reductions in 2015.

Forecasting cassava production is difficult, due to a widespread lack of data on harvest expectations and negligible information on planting intentions. Even in countries where the crop is known to play a critical role in food security and rural development, or where its trade carries importance, little effort is made to regularly survey the crop, as is done for other staple crops. This holds especially true in sub-Saharan Africa (SSA), the world’s largest cassava growing region. Nevertheless, with rising demand for the staple and with food security and the rural economy high on the policy agendas of the region, 2016 cassava production in SSA could rebound to a record 157 million tonnes after having undergone an estimated 2 percent contraction last year.

The crop is the object of many expansion programmes in the region, as commercialization of cassava remains a key objective of many West African governments. Nigeria, the regional production and world leader, is projected to harvest around 58 million tonnes, almost 1 million tonnes more than in 2015. Under its 2016–2020 Agriculture Promotion Policy, the country will continue to provide preferential loans to producers and grants to processors for the expanded uptake of domestic cassava and to sustain the continued propagation of improved varieties. Nigeria also encourages the processing of cassava into flour as a substitute for wheat in bread, which would enable the country to limit its high dependency on imported wheat. Indeed, with consumer purchasing power being negatively affected by high inflation and a falling currency, many have turned to cassava as a more affordable staple than imported rice, providing a further stimulus to national cassava output in 2016.

Supported by favourable growing conditions and a conducive policy environment, cassava production in Ghana, the region’s second largest cassava producer, could rise by 4 percent to a record 18 million tonnes in 2016. Current year prospects also remain positive in other important producing countries in West Africa, especially Côte d’Ivoire, Cameroon, Benin, Sierra Leone and Benin, where either all-time high or exceptional harvests are anticipated.

In central, eastern and southern African countries, cassava production is expected to recover from the drought-afflicted levels of 2015. Cassava’s tolerance to erratic weather conditions spared output in these subregions from considerable disruption last year and has even put cassava expansion high on the agendas of many governments. Positive cassava outcomes are anticipated in Angola, Madagascar, Mozambique, United Republic of Tanzania and Rwanda. By contrast, conflict and floods reported in the Democratic People’s Republic of Congo are likely to have curtailed production in 2016.

In Asia, the regional 2016 cassava production is forecast to increase by around 4 percent to a record 100 million tonnes. The industrial utilization of cassava in the alcohol, ethanol, starch and animal feed sectors, and their lucrative export markets, have underpinned a sustained expansion of the crop in the region, particularly in Southeast Asia. However, weather disruptions, including dryness from El Niño, have affected cassava yields and stymied the prospect of a much larger 2016 regional harvest.

In Thailand, Asia’s largest producer, the 2016 season has concluded, and official reports point to a small decline in production from the record crop of last year. Despite higher cassava plantings, a drought-induced drop in yields is behind the 2 percent fall in 2016 output. In China, crop production is forecast to remain at around last year’s level. The country largely sources its cassava needs in processed form (mainly dry chips and flour) from Thailand and neighbouring countries, namely Cambodia, Lao People’s Democratic Republic and Viet Nam, where it has engaged in efforts to ensure long-term supplies. Of all these countries, only Cambodia’s production is expected to increase in 2016. The country is anticipated to gather a record crop of some 13 million tonnes, over 1 million tonnes more than in 2015. Buoyed by rising regional demand in recent years, the expansion of cassava cultivation in Cambodia has been remarkable, increasing three-fold in the space of six years.

In contrast, in Indonesia and the Philippines, cassava is more important for food security than for industry. Dietary diversification programmes in the two countries have targeted cassava as a substitute for rice. Record cassava harvests are foreseen in both countries in 2016, boosted by higher plantings and above average yields. In Indonesia, 27 million tonnes could be gathered, some 17 percent more than last year, while in the Philippines, output is expected to reach 2.9 million tonnes, some 5 percent more than in 2015.

In South Asia, cassava plays a role in food security in India, particularly in the major growing states of Kerala (consumption of fresh roots) and Tamil Naidu (starch for food manufacturing). Combined, the two states account for 98 percent of national output. Production by the country in 2016 is expected to fall by 2 percent from last year, to 7.8 million tonnes. Cassava output is on a gradual decline in India, as farmers are opting to cultivate more remunerative crops, such as rubber, black pepper and coffee.

The cassava production outlook for Latin America and the Caribbean points to a successive year of contraction in 2016. In Brazil, the region’s leading producer, and also in Paraguay, low prices at the beginning of the season resulted in a decline of plantings, bringing about a slight decrease in cassava output in both countries. Concerning the region’s other sizable producing countries, production is expected to remain stable in Colombia and Peru.

UTILIZATION

Rising demand for processed cassava

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

Cassava is mainly utilized as a foodstuff. As a staple, the root crop has little importance in the global diet (typically 21 kg per capita per year in fresh root equivalent) owing to its perishability and bulkiness which preclude its widespread trade. However, cassava has major dietary significance in areas where it is grown. This is particularly evident in sub-Saharan Africa, where cassava is an important dietary staple in root form, but also in processed form. Indeed, fermented and non-fermented granulated and flour-based cassava products are increasingly popular in the region. Many countries in sub-Saharan Africa have launched value addition initiatives in the cassava food chain, promoting cassava to support the rural economy and help meet rising dietary needs. Since non-food markets for cassava are of little significance in sub-Saharan Africa, production levels effectively translate into levels of food availability in the region. As a result, the per capita food availability is estimated at approximately 109 kg in fresh root equivalent in 2016, which is marginally down from last year. This comes in spite of a sizeable increase in production, as population growth has outpaced that of output, resulting in the fall in per capita availability in 2016.

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

Demand for cassava as a raw material in the energy sector, particularly in East and Southeast Asia, has stalled. Low gasoline prices have generally put ethanol at a competitive disadvantage and, where mandatory blending rates are in force, competition among agricultural feedstocks for energy conversion is fierce. For instance, in China, the rising availability of lower priced maize has substantially lowered the uptake of cassava by the energy sector. In Viet Nam, relatively high cassava root prices have resulted in the closure of two of the country’s three cassava-based biofuel plants, despite the presence of a national mandate requiring blending rates of 5 percent. On the other hand, in Thailand, shortfalls in the availability of molasses derived from sugarcane could lead to expanded use of cassava in ethanol production.

Based on analysis in countries that have established markets for cassava feedstuffs, the use of cassava globally as an animal feed could also fall in 2016, where it is in direct competition with other feeding stuffs, particularly maize, and where annual supplies of cassava are expected to fall, such as in Brazil. Thailand could again be an exception to this trend, as the slump in international demand for its cassava products may foster a diversion of supplies to its domestic feed sector.

TRADE

Sharp contraction in cassava product trade in 2016

The volume of world trade in cassava is expected to fall to 14 million tonnes (chip and pellet weight equivalent), some 5.5 million tonnes, or 28 percent, below last year’s volume, reaching a six-year low.

Mostly confined to East and Southeast Asia, international flows of cassava are hugely contingent on industrial and feed demand for the product, particularly from China, and on the competitiveness of Thai exports. The importance of the two countries in shaping international trade is noteworthy, with China typically accounting for over 70 percent of world imports, and Thailand for around 80 percent of world exports. With policy change in China supporting the increased use of domestic substitutes, principally maize, international demand for cassava products has plummeted. Based on the annual pace of shipments to date, Thai exports of chips, virtually all of which are procured by China, are expected to decline by 40 percent to 4.4 million tonnes, while Thai deliveries of cassava starch could fall by around 17 percent to 6.3 million tonnes. The sharp drop in Thai exports, which could be well over 4 million tonnes (chip and pellet weight equivalent), is mostly due to China directing its maize surpluses towards ethanol distilleries and animal feeding, thereby negating demand for the cassava-based products. Thai exporters have expressed an unwillingness to reduce their asking prices at the expense of stalling trade.

Exports of cassava products from Viet Nam – the other important supplier in the region – are also expected to fare negatively in 2016, with shipments that mostly comprise chips destined for China foreseen down by 20 percent from last year. Similarly, Cambodia could see cassava deliveries down this year. Again, export quotations from these sources remain stubbornly high despite faltering regional demand.

As for buyers other than China, purchases are mostly for cassava starch of Thai origin with very little international demand for chips and pellets. Concerning starch trade flows, smaller import volumes are anticipated by Indonesia and Malaysia in 2016, while Japan is expected to purchase a record volume of over 1 million tonnes of the product, some 26 percent more than in 2015.

Prospects for an international cassava market expanding beyond Asia remain largely elusive, with no sign of re-emerging demand for substantial cassava volumes in Europe, or of significant exports from the major producing regions of Africa or Latin America and the Caribbean.

OUTLOOK

Cassava at the cross roads?

Growth prospects for world cassava sectors appear delimited along the lines of geography that characterize the role of cassava in the agricultural economy. For instance, as cassava is principally a food crop in Africa, the sector is providing a strong stimulus for rural development, poverty alleviation, economic growth and, ultimately, food security. There is also wider recognition of cassava as a choice crop in the context of climate change adaptation strategies, particularly in eastern and southern African countries that have recently endured long periods of drought. These considerations are providing cassava sectors in the continent with a more assured long-term footing and are, by and large, behind an annual average production growth rate that has outpaced population growth for the past decade.

By contrast, cassava sectors in Asia are strongly susceptible to developments in China, the principal destination for cassava products. In fact, almost all cassava sectors in Southeast Asia have been geared to meet China’s high import demand, expanding in tandem with regional trade growth. However, with highly competitive industrial and feed procurement, China has demonstrated in the past few months its willingness to turn to other substitutes. Helped by a policy shift, China’s industrial and feed sectors began using maize released from the nation’s accumulated stockpiles, instead of imported cassava. The move is expected to result in a substantial cut in overall cassava shipments to China in 2016, and will likely do so again in 2017 with the prospect of more maize being released from its inventories. Given the thinness of international cassava trade, even small releases from China’s maize stocks can bring about serious ramifications to the international market for cassava, as witnessed in June of this year.

The potential for cassava to compete in markets beyond China is also uncertain, given that international maize prices have fallen to multi-year lows. Consequently, cassava product quotations are being considerably pressured, and the likelihood of a further significant price correction must gather momentum if cassava sectors are to remain commercially viable and if they are to compete in the international marketplace.

Already in Thailand, the world’s leading supplier, where international export quotations are by and large determined, the price gap between cassava roots and cassava products has widened exceptionally, with prices of the raw material falling to a seven-year low. With China’s maize inventories overhanging the entire regional market for cassava, the Government of Thailand recently announced the release of some 350 000 tonnes of processed cassava from official stocks, a move which ought to lessen, in part, the strength of cassava product prices. But with such low root prices prevailing at the onset of the new season, cassava plantings are likely to be impacted, which could result in a much reduced crop in 2017.

OILCROPS, OILS AND MEALS[1]

PRICES[2]

After gaining strength earlier this year, international prices for oilseeds, oils and meals have entered a phase of instability

Overall, the 2015/16 (October/September) season saw a tightening in market fundamentals of the oilcrops complex, particularly in the oils/fats segment. Consequently, international prices of both oilseeds and oilseed products trended upward during 2015/16, as reflected by FAO’s monthly price indices for oilseeds, oils and meals. Regarding oilseeds and oils, the prolonged decline in the respective price indices came to a halt towards the end of 2015, and values started firming from February 2016 onward. In the case of meals, the rebound in the FAO meal price index began in April 2016.

For oilseeds and meals, the recovery in international prices primarily reflects developments in the soybean market, notably deteriorating crop prospects in South America, combined with firm global import demand. Interestingly, since July 2016, world prices for oilseed and meals have lost some of their strength, as markets started to be influenced by the production outlook for 2016/17, with brighter than originally anticipated soybean crop prospects in the United States.

In the oils/fats market, price developments have been dominated by palm oil, the world’s most consumed oil. The concurrence of poor palm oil production in Southeast Asia with robust global import demand for the oil drove a rebound in international oils/fats quotations in early 2016. More recently, world oil/fats prices exhibited some instability, mainly reflecting trade uncertainties regarding the level of global palm oil export availabilities.

Preliminary forecasts for 2016/17 point to a broadly balanced global supply and demand situation in both the meal and the oils markets – which, if confirmed, would provide limited scope for marked upward or downward movements in prices. Relatively stable Chicago Board of Trade futures prices for soybeans since the second half of July 2016 tend to confirm this picture. However, prices could be volatile over the coming months, influenced by changes in the production forecasts for soybeans in South America and palm oil in Southeast Asia, as well as uncertainties regarding the development of global oil and meal demand.

OILSEEDS

2016/17 production poised to set a new record

After contracting by about 3 percent in 2015/16, global oilseed production is forecast to climb to an all-time high in 2016/17. The anticipated year-on-year rise of 4 percent would be led by soybean, although sizeable increases are also likely for sunflowerseed, groundnut, cottonseed, palmkernel and copra. Rapeseed, would stand out as an exception, as its output is forecast to drop for the second consecutive year.

Global 2016/17 soybean production – currently pegged at 330 million tonnes – is expected to fully recover from last season’s drop, and possibly rise above the 2014/15 record. At the global level, the expansion would be driven almost entirely by record-high yields, given only marginal gains in area harvested. In the Northern Hemisphere, where harvesting is now underway, output reductions in Canada and Ukraine should be more than offset by large increases in the United States, China and India. In the United States, the world’s leading soybean producer, latest estimates point to a 7 percent (7.4 million tonnes) rise in production, underpinned by favourable growing conditions which boosted average yields to an unprecedented 3.4 tonnes per hectare. India’s output is anticipated to expand by 34 percent above last year’s 4-year low, thanks to beneficial rainfalls. In China, where gradual cuts in sown area have caused production to trend downward since 2011/12, increased support payments for soybeans (introduced to promote soy production at the expense of maize) resulted in a marked expansion in plantings and output. On the other hand, Canada’s production should drop on unfavourable weather conditions, while in Ukraine production is expected to fall on lower plantings. In South America, where sowing of the 2016/17 crop has just started, production is projected to recover from last season’s drop, on expectations of a return to normal weather conditions and a modest increase in area planted. Brazil is expected to drive the region’s recovery, largely thanks to anticipated improvements in yields. With regard to area sown, better return prospects for competing crops, notably maize, and high production costs are expected to curb Brazil’s annual growth in soy plantings to less than 2 percent – well below the 5-year average of 6–7 percent. While a similar growth pattern is forecast for Paraguay and Uruguay, output could tumble to a 3-year low in Argentina, as soy plantings are expected to shrink in the wake of export policy changes that favour crops other than soybeans, but also because of pressing crop rotation needs.

World rapeseed production is forecast to contract by a further 3–4 percent in 2016/17, reflecting poor harvest prospects in all key producing countries, except India and Australia. While crops in the EU suffered from adverse weather, outputs in Canada, China and Ukraine were affected by declines in area planted. By contrast, India is set to harvest a large crop, thanks to higher plantings and adequate rainfall, while, in Australia, production could receive a boost from improved yields.

World sunflowerseed production is set to grow for the second year in succession, possibly reaching an all-time high, underpinned by record plantings. While larger sowings should drive growth in CIS countries and Argentina, favourable growing conditions are expected to bolster output in the EU. Also global groundnut production could reach a record-high, following a strong rebound in plantings and yield improvements. Plantings have been stepped up in the world’s two leading producers, China and India, and near-record yields are expected in the United States and Argentina. As to cottonseed, global output could partially recover from last season’s drop, primarily reflecting better yields. Upturns are expected in the United States, India, Pakistan and Australia, whereas China’s production could continue to fall. Global palmkernel and copra outputs are set to recover, with improvements concentrated in Southeast Asia.

OILS AND FATS[3]

Global oils/fats production to resume growing in 2016/17

The above positive crop projections translate into a 4–5 percent expansion in global oils/fats production in 2016/17 – in contrast to last season’s exceptional drop. Global output is tentatively pegged at 217 million tonnes, marking a historic record. Output growth would be led by palm oil, followed by soybean, sunflowerseed, groundnut and palmkernel oil, while production of rapeseed oil could drop for the third consecutive year. Palm oil production, which experienced unprecedented losses in 2016 due to El Niño, is expected to rebound next year, as palms in Malaysia and Indonesia begin to recover from the protracted effects of poor rainfall in late 2015 and early 2016. Next year’s palm oil production is tentatively pegged at 35.1 million tonnes in Indonesia and 20.5 million tonnes in Malaysia. Further expansion of the mature oil palm area should contribute to the portended growth, especially in Indonesia.

Global 2016/17 oils/fats supplies, which comprise 2016/17 production and 2015/16 carry-over stocks, are currently forecast at 251 million tonnes, which entails a modest year-on-year improvement. Last season’s conspicuous drop in global inventories would weigh on supply growth in 2016/17. Domestic availabilities could resume growing in several important producing countries, notably Australia, Brazil, India, Indonesia, Malaysia, the Russian Federation, Ukraine and the United States. On the other hand, domestic supply contractions are expected in Argentina, Canada, China and the EU, mostly reflecting both low crop outturns and reduced carry-in stocks.

Global oils/fats utilization set to expand further

World consumption of oils/fats in 2016/17 is tentatively pegged at 217 million tonnes, implying a more dynamic growth of 3 percent compared to last year’s.

With regard to individual oils, soy and palm oils should experience a brisk consumption growth, supported by adequate supplies and price discounts relative to other vegetable oils. A sizeable expansion is also forecast for sunflowerseed oil, given the prospective pronounced gain in production. Conversely, the consumption of rapeseed oil could undergo a marked drop.

While population and economic growth remain the key drivers behind the rising uptake of oils/fats for food and traditional industrial uses, protracted slow economic growth in several countries, together with firmer international oils/fats prices, could temper the expansion of oils/fats consumption in 2016/17. Furthermore, growing demand by the biodiesel industry continues to play a limited role. During 2016/17, a pronounced acceleration in global oils/fats uptake by the biodiesel industry seems unlikely. While mandatory blending rates may be raised in a number of countries, uncertainties remain regarding the extent to which national targets for biodiesel are being met. Moreover, persistently weak world prices for crude mineral oil continue to discourage discretionary blending of diesel with biodiesel.

Developing nations in Asia are expected to continue driving growth in global oils/fats uptake. Steady expansion is forecast for India and several other Asian countries. By contrast, in China, growth could falter on a possible slowdown in national economic growth. Also in Malaysia and Indonesia, consumption may grow less than last year, considering that demand from the biodiesel industry could expand at a slower pace. Elsewhere, bumper supplies should support higher consumption in the United States, Brazil and Argentina, where oil uptake could be fuelled in part by fresh demand from the biodiesel sector. In other developed countries, utilization growth rates are expected to linger around 1 percent, except in the EU, where the anticipated contraction in rapeseed oil availabilities could notch down consumption.

Global oils/fats inventories unlikely to recover in 2016/17

A shortfall of global oils/fats production relative to consumption could be witnessed again in 2016/17. However, the gap between demand and production is currently estimated at less than 1 million tonnes – compared with last season’s 4 million tonne difference. Consequently, an additional, modest contraction in global inventories cannot be excluded. Currently, global oils/fats stocks (including the oil contained in stored oilseeds) are forecast to contract by about 0.6 million tonnes or 1.6 percent in 2016/17. Commodity-wise, soybean and rapeseed oil reserves may record conspicuous drops, which would be partly offset by stock replenishments in palm, sunflowerseed and groundnut oil. At country level, significant stock drawdowns are anticipated in China and Argentina. In China, the drawdown would concern government stockpiles of rapeseed oil. On the other hand, Indonesia and Malaysia are expected to replenish their palm oil stocks, while, in the United States, a further accumulation in soybeans/soybean oil reserves is expected.

While the above forecasts would lead to a further, moderate drop in the global stock-to-use ratio for oils/fats in 2016/17, the stock-to-disappearance ratio for the major exporting countries[4] could actually inch up.

Growth in oils/fats trade to accelerate in 2016/17

Global trade in oils/fats – including the oil contained in traded oilseeds – is forecast to reach 119 million tonnes in 2016/17, expanding at least twice as fast as last season, when a contraction in palm oil transactions weighed on global trade.

Sustained by production gains in major exporting countries and a trimming in prices, trade in palm oil, the world’s most widely shipped oil, is expected to recover fully, driving global trade growth in 2016/17. More competitive prices should allow palm oil to gain back the market share it lost to other oils (notably soybean oil) last season. As to other oils/fats, only sunflower oil trade should post a sizeable increase, facilitated by record supplies. Transactions in soybean oil, the world’s second most traded oil, are projected to remain flat, while rapeseed oil trade may contract.

On the import side, India’s purchases are projected to grow at a below average rate, provided the country’s bumper crops are confirmed. In China, import growth could be limited to 2–3 percent, due to subdued consumption, and also because the country can rely on large inventories to satisfy domestic demand. Sustained import growth is expected in other countries in Asia as well as in Africa. Net purchases by the EU and other developed countries are forecast to increase marginally, reflecting stagnation or only minimal growth in domestic consumption.

Global export growth would rest strongly on a marked rebound of palm oil shipments from Malaysia and Indonesia, although sizeable increases in oils/fats sales are also expected for Ukraine, the Russian Federation, Brazil and Australia – all facilitated by marked year-on-year gains in domestic output. By contrast, in Canada, the prospective fall in domestic output is likely to prompt a contraction in exports. A cut in net exports may also occur in Argentina, where foreign sales could be trimmed to satisfy additional domestic demand from biodiesel producers. Shipments from the United States, which surged to unprecedented levels in the last two seasons, are anticipated to remain flat in 2016/17.

MEALS AND CAKES[5]

Global meal production set to recover in 2016/17

Based on current crop forecast, in 2016/17, global meal production could more than recover from last season’s setback. Growing by over 4 percent, output is pegged at an unprecedented 144 million tonnes (expressed in protein equivalent). The recovery primarily concerns soybean meal, which, along with higher sunflower, cotton, groundnut palmkernel and fish meal production, would outweigh a drop in rape meal output.

Global oilmeal supplies, which also include 2015/16 carry-out stocks, are projected to expand by 2–3 percent, i.e. less than global production, because of a marked contraction in inventories last season. In the United States, fuelled by bumper crops and large carry-in stocks, domestic availabilities could expand further. Conspicuous supply increases are also forecast for Brazil and India. By contrast, sizeable contractions could occur in Argentina, Canada, China and the EU, owing to both modest crop outturns and reduced opening stocks. In China, the world’s top consumer, domestic supplies could drop to a four-year low. Aggregate availability of the United States, Argentina and Brazil – the world’s three dominant meal suppliers – could swell to 105 million tonnes (in protein equivalent).

Meal consumption to rise further in 2016/17, albeit at a reduced pace

Pegged at a record 144 million tonnes (expressed in protein equivalent), global meal/cake consumption would continue to expand in 2016/17, albeit at a below average rate. Growing uptake by the livestock sector arising from further economic growth in several countries should continue to support meal consumption However, similar to last season, the availability of bumper feed grain supplies worldwide is expected to weigh on meal utilization growth. As in previous years, much of this growth would be on account of soybean meal, although consumption of sunflowerseed meal could also rise conspicuously. By contrast, rapeseed meal uptake could drop to a 3-year low.

Developing countries in Asia should remain the main engine of overall consumption growth. However, in China, the world’s largest meal consumer, the economic slowdown could trim the expansion in poultry and pig-meat production and, with it, demand for meals. In addition, ample supplies of attractively priced feed grains will weigh on domestic meal demand. In other Asian countries, consumption is anticipated to rise at about average rates, including in India, Indonesia, Pakistan, the Philippines, Turkey and Vietnam. Elsewhere, the current forecasts point to a further expansion in demand in Argentina, while only moderate increases are expected in the United States and Brazil. In the EU, the world’s second largest consumer, meal uptake could stall at last season’s level, due to both reduced meal supplies and burgeoning feed grain availabilities.

Global meal inventories to remain unchanged

Based on current forecasts, in 2016/17, global meal output would basically match consumption – as opposed to last season, when production fell short of demand, triggering a drawdown in world inventories. Consequently, in 2016/17, global oilmeal stocks (including the meal contained in stored seeds) are expected to remain virtually unchanged, including stable reserves of soymeal, the world’s dominant oilmeal. Regarding the other meals, replenishments in sunflower, groundnut and cottonseed meal should offset a drop in rape meal inventories.

In China, Argentina and the EU, sizeable stock reductions are expected to make up for poor domestic supplies as well as, in the case of Argentina, to support higher exports. The largest drawdowns concern China, consistent with government efforts to curb state stockpiles, and Argentina, where reserves have reached burdensome levels. The above reductions should be offset by additional replenishments in the United States, where, boosted by bumper crops, carry-out stocks are projected to climb to a 10-year high. Healthy domestic supplies should also facilitate stock replenishments in India, Brazil and Australia.

Based on the above forecasts, the global stock-to-use ratio for meals/cakes would drop somewhat compared with last season’s level, whereas the stock-to-disappearance ratio for the major exporting countries[6] would show a slight improvement.

Expansion in global meal trade may slow down further

International meal trade (including the meal contained in traded oilseeds) is forecast to grow only moderately in 2016/17. Thanks to ample supplies and competitive prices, soybean meal should continue to drive expansion, aided by sunflower meal. Moderate rises are also expected for the other meals, except rapeseed meal, which could tumble to a 4-year low in transactions.

With regard to imports, Asian countries would continue to dominate demand. However, in China, the world’s top importer, purchases are forecast to rise by only 2 percent – the lowest rate in four years. The slowdown would stem from the anticipated rebound in domestic soy production, continued sales from state stockpiles, and faltering growth in local meal demand. In other countries in Asia, robust growth in import demand is expected to continue. As to developed countries, in the EU, the world’s second largest buyer, the anticipated tightening in domestic supplies of rapeseed meal could propel overseas purchases upwards.

Export growth is expected to concentrate in South America (provided the current soybean production forecasts materialize), as well as the United States and India. South America’s export expansion would be led by Brazil, the world’s top exporter, along with smaller Increases in Argentina and Paraguay. Brazil’s sales could rise by 1.7 million tonnes (in product weight and including the meal contained in soybean shipments), which would be well below last year’s increase. Although domestic supplies would support larger sales, the recent strengthening of the Real vis-à-vis the US dollar has made Brazil’s exports less competitive. In Argentina, the rise in deliveries would have to rely on the release of old-crop inventories, given the prospective stagnation of domestic production. Sales by the United States, the world’s second largest supplier, are projected to expand by a further 1.7 million tonnes, facilitated by bumper crops. In India, which saw its exports tumble over the last three years, better crops should support a rebound in shipments, allowing the country to regain, at least in part, its position as a supplier to the Asian meal market.

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

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

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

[4] Argentina, Brazil, Canada, Indonesia, Malaysia, Ukraine and the United States. Disappearance is defined as domestic utilization plus exports.

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

[6] Argentina, Brazil, Canada, India, Indonesia, Malaysia, Paraguay, Russian Federation, Ukraine, Uruguay and the United States. Disappearance is defined as domestic utilization plus exports.

MEAT AND MEAT PRODUCTS

PRICES

After remaining at a low level during the first three months of 2016, when it averaged 146 points, the FAO Meat Price Index recorded sustained growth between April and September, rising by 17.7 points, or 12.1 percent, to reach 163.5 points. Over the period January to September, the index rose by 12.6 percent, supported by an upswing in the international prices of ovine meat, pigmeat and poultry meat, which, for the group, rose by an average of 18.7 percent, and a more moderate gain of 4.3 percent for bovine meat. Limited supplies of pigmeat in the European Union and sheep meat from Oceania lent support to prices for these products, while firm international demand, in particular from Asia, underpinned poultry meat prices. Meanwhile, recovery in bovine meat production in the United States reduced its need for external supplies, contributing to international prices rising by less than that recorded for the other categories of meat. Despite its recent increase, the overall meat price index in September 2016 was down 2.4 percent compared to a year earlier.

Production stagnates, but trade recovers

World meat production is anticipated to stagnate in 2016, rising by a meagre 0.2 percent to 319.8 million tonnes. Output is expected to grow in the United States, the EU, Brazil, India, Mexico, Canada and the Russian Federation. However, down-turns elsewhere, especially in China, but also in Australia, would weigh on the overall trend. Excluding these two countries, aggregate meat production of the rest of the world would rise by 1.4 percent. Among the various sectors, production is forecast to grow marginally in the case of poultry, ovine and bovine meat, while it could fall slightly for pigmeat.

After a dip in 2015, global meat trade is forecast to recover by 4.4 percent in 2016, to 31.1 million tonnes. Based on current expectations, trade in pigmeat is set to increase by 10.8 percent, poultry meat by 4.4 percent and bovine meat by 0.3 percent, while ovine meat may decrease by 2.8 percent from last year.

Increased meat imports are expected particularly in China, but also in Japan, South Africa, Chile, the Republic of Korea, Mexico, the EU, Iraq, the Philippines, Viet Nam, the United Arab Emirates and the Russian Federation by contrast, growth in domestic production may result in reduced purchases by the United States and Canada, with Angola also anticipated to buy less. The expansion in world exports is projected to be led by Brazil and the EU, followed by the United States and Canada, with sales also rising for Belarus, Thailand, the Russian Federation, Paraguay, Mexico and Ukraine. Meanwhile, exports by Australia, China, Turkey, South Africa, New Zealand, Argentina and India are likely to be curtailed.

BOVINE MEAT

Production: little growth

Bovine meat production in 2016 is forecast to grow by 0.3 percent, to 67.8 million tonnes. Substantial output increases are anticipated in the United States and the European Union, while a sizable drop is foreseen for Australia, with declines also expected for Brazil, Argentina, the Russian Federation and New Zealand.

In Latin America and the Caribbean, mixed weather, stemming from El Niño, brought exceptionally dry conditions to some parts of the region, while others experienced excessive rainfall and flooding. Brazil experienced widespread dry conditions during the first part of the year, which adversely affected pasture conditions and caused a substantial rise in feed costs. Yet, favourable international demand encouraged producers to expand herds, even though domestic demand remained subdued. As a consequence, Brazil’s bovine meat production may fall by 1.5 percent to 9.3 million tonnes. In neighbouring Paraguay, productivity increases are expected to boost growth, spurred by international demand. In Argentina, a 2.2 percent drop in output to 2.7 million tonnes is predicted, as more calves and cows are retained to facilitate herd expansion. The lifting of the export restrictions is anticipated to result in the longer retention of cattle to attain heavier slaughter weights preferred by international markets, rather than the lighter animals favoured by domestic consumers. Meanwhile, in Chile, Colombia and Ecuador, chronic dry-to-drought conditions experienced at the start of the year are anticipated to cause output to fall. In Mexico, production is expected to be slightly up on last year, as heavier carcass weights should more than offset a decline in cattle slaughtered.

In Asia, subdued international demand for buffalo meat is forecast to slow growth in bovine meat production in India, which exports approximately 70 percent of its output. In China, stable prices are attracting investment in bovine meat production and a limited increase in output could occur. Elsewhere, output is forecast to drop in the Republic of Korea, where improved prices have encouraged herd rebuilding, while some small-scale producers have left the industry. Output could also fall in Japan, due to continued herd reduction and farmers retiring. In Africa, some parts of the continent, including Burundi, Kenya, Rwanda, Tanzania and Uganda, received abundant rain which led to pasture recovery and replenishment of water resources, auguring well for bovine meat production in 2016. Meanwhile, in southern Africa, many areas experienced dry-to-drought conditions in 2015, which persisted into 2016, negatively affecting pastures and feed availability. As a consequence, the sector’s growth may be constrained in this subregion.

In North America, bovine meat production in the United States is forecast to rise by almost 5 percent, as a result of larger numbers of cattle slaughtered and heavier slaughter weights. Output, foreseen at 11.3 million tonnes, would be the highest in three years. The long-term herd decline in Canada, evident since 1992, may have come to an end, with expansion in cattle numbers forecast in 2016. Despite lower slaughter numbers, increased carcass weights could maintain the country’s bovine meat production at some 1.1 million tonnes.

In Australia, following three years of dry weather, improved rainfall in many parts of the country have improved pasture conditions and encouraged stock retention. However, a further fall in the size of the national herd is expected, due to the high level of cow slaughter in the preceding two years, thus constraining recovery. Concomitant on herd rebuilding, bovine meat production in Australia could fall to 2.0 million tonnes, a 15 percent decline from 2015. Likewise, output in New Zealand may slide by 5.8 percent to 650 000 tonnes, as high international bovine meat prices and sharply lower milk pay-outs prompted farmers to reduce both beef and dairy herds in 2015, resulting in a smaller calf crop.

In the Russian Federation, 2016 bovine meat output may drop by 3.3 percent to 1.55 million tonnes, as a result of herd reduction stemming from poor profitability discouraging investment. In the European Union, production could rise by 2.2 percent, owing to an increase in dairy cow culling in many member countries in response to low milk prices.

Trade: steady

Subsequent to a decline of 5 percent in 2015, world trade in bovine meat in 2016 is anticipated to remain at around 9.1 million tonnes. For exports, growth in the Americas, notably Brazil, Paraguay, Canada, the United States and Mexico, and in Europe, namely Belarus and the European Union, is projected to be counterbalanced by significantly reduced sales by Australia and diminished shipments by South Africa, India and New Zealand. Brazil is forecast to regain its position as the world’s principal bovine meat exporter, superseding India, which held the spot in 2014 and 2015. Brazil’s deliveries could increase by 12.5 percent to 1.8 million tonnes, assisted by depressed domestic consumption. Shipments by Brazil surged during the first eight months of 2016, partly due to China lifting of a two-and-a-half year embargo, imposed after a case of atypical bovine spongiform encephalopathy (BSE) in Brazil. On the other hand, deliveries by Australia are forecast to drop by over 15 percent, due to a reduction in cattle numbers and the commencement of herd rebuilding. After falling by 13 percent in 2015, India’s bovine meat exports are expected to remain around 1.7 million tonnes in 2016 – between January and May, exports to Vietnam and Egypt grew substantially, while augmented competition from suppliers in South America caused sales to Thailand, in particular, but also other to countries in Southeast Asia and in the Middle East to fall.

Among bovine meat importers, a number of countries in Asia are forecast to step up their purchases in 2016, especially China, the Republic of Korea and Vietnam, but also Chile, the Islamic Republic of Iran, the European Union and Egypt. The increases are anticipated to be almost matched by a steep fall in deliveries to the United States, plus more contained declines in sales to the Russian Federation, Angola, Japan and Canada. After tepid growth in 2015, China’s imports are forecast to soar by over 15 percent to 1.4 million tonnes, with most of the supplies originating from South America, especially Brazil, but also Uruguay. Brazil is also forecast to be the main beneficiary of expanded imports by the Islamic Republic of Iran and Chile, while the Republic of Korea and Vietnam, respectively, are predicted to source their augmented purchases mainly from the United States and India. Imports by the United States are forecast to drop significantly, by 13 percent to 1.2 million tonnes, as domestic bovine meat production is set to recover. Bovine meat purchases by the Russian Federation are anticipated to drop by 7.8 percent to 470 000 tonnes.

PIGMEAT

Production: stagnates

World production of pigmeat is forecast to decrease marginally in 2016, by 0.6 percent to 116.5 million tonnes, thus registering a second year of stagnation. As in 2015, contraction in output in China, which accounts for almost half of the world’s total, is the main reason for the slowdown, as low profitability and new environmental regulations caused farmers to reduce breeding sows for a second year in succession. China’s 2016 production is posited at 54 million tonnes, down 2.5 percent from 2015. Elsewhere in Asia, modest production growth is forecast for Viet Nam and the Republic of Korea, but also for Japan and the Philippines where the industry is recovering from outbreaks of porcine endemic diarrhoea (PED), which reduced piglet numbers in the previous two years. Recovery from the effects of PED has been faster in the United States, where a second year of growth is anticipated, with production potentially increasing by 1.9 percent to a record 11.3 million tonnes. Output in Mexico also continues to recover, following a PED outbreak in 2014, and may rise in 2016 by almost 5 percent to 1.4 million tonnes. Elsewhere in the Americas, international demand is forecast to result in boosted production in Brazil and Canada. In the Russian Federation, the pace of progression in pigmeat production could slacken, as a result of low domestic prices and competition from imports. Meanwhile, output in the European Union is likely to be essentially unchanged, at 23.4 million tonnes, consequent to a decline in breeding sow numbers, brought about by low prices in 2015 and the first half of 2016.

Trade: surges

Trade in pigmeat is set to record exceptional growth in 2016, increasing by as much as 10 percent to reach a historical high of 8 million tonnes. A surge of imports by China is projected to be the main engine of growth. The country, which is set to confirm its status as the main market for pigmeat for the second year, could see its purchases increase by more than 30 percent, attendant on reduced domestic production. Notably larger imports are also anticipated for the Russian Federation and Japan, in addition to Viet Nam, Mexico, Chile and the United States.

The buoyant world import demand is expected to result in increased exports mainly for the European Union, followed by Brazil and Canada, while sales by the United States could remain similar to last year. The European Union may see an upswing in sales of over 20 percent, surpassing the vibrant growth experienced in 2015. European Union exporters have adjusted to the 2014 Russian Federation embargo by seeking alternative markets, particularly in Asia and especially in China. Half-year shipments by the European Union to China rose by almost 160 percent, with substantial expansion also seen in sales to Japan, the United States and the Philippines. Brazil is anticipated to see its exports increase by around 25 percent, based on greater trade with Asia, especially China (Hong Kong, SAR), but also with neighbouring Chile, Argentina and Uruguay. Similarly, half-year data for Canada show a swell in sales to China, which rose by over 150 percent, leading to exports to practically all other destinations falling during the period. An analogous situation occurred in the United States, where half-year exports to China more than doubled, causing sales to a number of its major markets to drop.

POULTRY MEAT

Production: modest expansion

Modest growth is foreseen for poultry meat production in 2016, with global output forecast to rise by 0.9 percent to 115.8 million tonnes. Substantial expansion is anticipated in the United States and Brazil, as well as increased production in the European Union, India, Mexico and Argentina – along with most other countries. Rising consumer demand and favourable feed costs have provided the basis for increased production. At the same time, output in China may experience a reduction of around 5 percent, because of lacklustre consumer demand, and may also fall in South Africa, where the domestic poultry industry has faced increased competition from imports. Production of poultry meat in the Russian Federation and Turkey is foreseen to be little changed, as subdued domestic demand, reduced profitability and limited export possibilities combine to restrain industry expansion.

Trade: recovery

Trade in poultry meat in 2016 is forecast to grow by 4.4 percent to 12.7 million tonnes. Buoyant international demand contributed to higher prices for poultry meat, registering an overall increase of 14.2 percent for the year to September, although it remains the lowest priced category of meat in the FAO Price Index. Affordability and rising domestic consumption have been important factors in stimulating imports in a number of markets, including South Africa, Japan and Iraq. The same factors should stimulate increased imports in by the European Union, the Philippines, the United Arab Emirates, China, Mexico, Chile and Saudi Arabia. In Viet Nam, growth in the domestic poultry industry and falling domestic prices may curb the country’s imports. Likewise, purchases by the Russian Federation are expected to be constrained by the expansion of domestic production, but also by the continuation of the country-specific trade embargo. Reduced imports are also projected for Angola, Benin, Canada and Cuba.

Brazil is forecast to be the major beneficiary of increased international demand for poultry meat, with its trade forecast to expand by 6.5 percent to a record 4.6 million tonnes. Half-year shipments from Brazil showed a substantial rise in sales to China, which jumped by over 40 percent year-on-year, as well as to Egypt, Iraq, Japan and the United Arab Emirates, among others. United States’s exports are also set to recover somewhat, rising by 3 percent to 3.6 million tonnes, notwithstanding the continuation of the Russian Federation’s embargo and, more importantly, trade restrictions related to the highly pathogenic avian influenza virus (HPAI), widely applied in 2015 and prolonged by several countries into 2016 (as of September). Export growth is also projected for the European Union, Thailand and Ukraine. Elsewhere, shipments by Turkey, Argentina and China may decline.

OVINE MEAT

Production: continued modest growth

Production of ovine meat has grown little in the last few years, a trend likely to continue in 2016, with output forecast to increase by 0.6 percent to 14.1 million tonnes. Developing countries account for over 80 percent of the total, with the largest producers in this grouping being China, India, Nigeria and Pakistan. Generally satisfactory pasture conditions have set the basis for some output expansion in many of the major producing areas. In the European Union, herd expansion could boost sheep meat production by 2.1 percent in 2016. Meanwhile, in Oceania, dry weather and drought-imposed herd reduction, and subsequent rebuilding, are projected to constrain output in Australia and New Zealand.

World trade in ovine meat is forecast to contract by 2.8 percent in 2016, to 937 000 tonnes, principally reflecting reduced shipments by New Zealand and Australia. New Zealand is projected to record a 5 percent fall in exports, while Australia could experience a 1.8 percent drop. Limited world export availabilities are forecast to result in a second year of reduced import flows into China, the main market for ovine meat, although some other destinations may register some increase, including the United Arab Emirates, the United States, Malaysia and the European Union.

MILK AND MILK PRODUCTS

PRICES

International prices rise on anticipated tight supply

After falling almost continually since the beginning of 2014, international dairy prices surged mid-year, as the initiation of a declining trend in EU milk output and an unexceptional opening to the dairy year in Oceania pointed to tighter export supply prospects than had been anticipated.

The FAO Dairy Price Index averaged 176 points in September, up 21.4 points (13.8 percent) from August. International prices rose for all the dairy commodities that compose the Index, particularly for cheese, whole milk powder (WMP) and butter. Skimmed milk powder (SMP) quotations were muted, as large EU intervention stocks were seen as a potential future source of supply. Compared with September 2015, the Index averaged 33.7 points higher (23.7 percent), all constituent commodities rose, viz: WMP by 31.8 percent to 2 831, SMP by 22.3 percent to 2 248, butter by 36.2 percent to 3 926 and cheese by 16.8 percent to 3 504 per tonne.

PRODUCTION

Most growth to come from Asia

World milk production is forecast to grow by 1.1 percent in 2016 to 817 million tonnes. Output is set to expand in Asia and North and Central America, but stagnate in Europe and Africa and decline in Oceania and South America. Most of the global increase would originate in Asia, principally India, where production is forecast to expand by 4.8 percent, or 7.3 million tonnes, to 160.4 million tonnes. In India, rising incomes and urbanization are fuelling demand, although the small size and limited productivity of the herd and urban encroachment constitute challenges to the industry. Increased output is also anticipated in Pakistan, China and Turkey. Elsewhere in Asia, the Islamic Republic of Iran and Saudi Arabia may achieve production levels slightly above last year. In China, where output is expected to recover somewhat after stagnating last year, more emphasis is being placed on developing large farms and improving genetics, while low farmgate prices have led some smaller scale producers to leave the industry. In Japan and the Republic of Korea, poor profitability is likely to lead to a continued exodus from the sector. In Africa, Burundi, Kenya, Rwanda, Tanzania and Uganda received abundant rain that led to pasture recovery and replenishment of water resources, auguring well for increased milk output in 2016. However, production is forecast to contract in a number of countries in southern Africa, including South Africa, Malawi and Zimbabwe, where El Niño-associated drought has affected animal condition and pastures, and where feed and fodder prices have spiralled. The El Niño weather anomaly brought exceptionally dry conditions to some parts in Latin America and the Caribbean, while others experienced excess rainfall and flooding. In South America, El Niño is anticipated to cause overall milk production to fall in the subregion. In Brazil, widespread dry conditions during the first part of the year adversely affected both milk output and pasture conditions. Moreover, a substantial rise in feed costs further impinged on profitability and contributed to industry exodus. As a consequence, Brazil’s milk production may fall by as much as 5 percent in 2016. Meanwhile, in Argentina and Uruguay, milk output may drop by more than 10 percent, as their dairy industries were hit by heavy rain and flooding, with producers also having to deal with substantially higher feed costs and depressed international dairy product prices. In Mexico, improvements in genetics and technology would likely support a second year of growth in milk output, although competition from low-priced internationally sourced milk powder has tempered expansion.

In North America, output in the United States is forecast to rise by 2 percent to 96.3 million tonnes, continuing the expansion witnessed in the previous two years. Milk deliveries in Canada are set to remain at 8.7 million tonnes, within the limits established by its milk quota system.

In Europe, EU milk production is projected to expand by 1.3 percent to 165.7 million tonnes, sustained by strong growth at the start of the year, averaging 5.5 percent between January and April. Despite favourable pasture conditions, year-on-year EU monthly milk output began to fall back from May and is projected to decline during the second half of the year. Reduced farmgate prices in almost all member countries, which on average fell by 14 percent during the first-half of the year, have stemmed production growth. Preliminary data indicate that farmers in many EU countries increased the cow cull rate, as one means of moderating output. In an effort to raise prices, the EU substantially expanded intervention purchases and aid to private storage, especially for SMP. In addition, a series of exceptional market measures and financial and promotion support were approved, including the possibility of voluntary agreements between farmers to limit milk deliveries for a six-month period, beginning 13 April 2016. Milk production in the Russian Federation is predicted to fall by 1.5 percent this year. Poor profitability has caused a contraction in the country’s dairy herd, especially in the small farm sector, although this had been offset to some degree by productivity increases in the commercial farm sector. In neighbouring Belarus, milk production is expected to be stimulated by growing sales to the Russian Federation.

In Oceania, New Zealand’s dependence on the export market has left it particularly exposed to low international dairy product prices. This situation has acted as a disincentive for farmers to raise output via herd expansion or feeding supplements. New Zealand’s milk production for the 2015/16 dairy year decreased 1.6 percent to 21.6 million tonnes, as farmers culled less productive cows. Should it persist, the recent upward shift in international dairy product prices would take some time to filter through to production. Therefore, for the moment, New Zealand’s 2016/17 output is posited as unchanged. In Australia, reduced farmgate returns for milk and favourable prices for culled cows curbed 2015/2016 production by 1.4 percent to 10.3 million tonnes. Continuation of the same factors during the 2016/2017 dairy year, combined with prevalent dry conditions in the major dairy producing regions during the first half of the calendar year, is anticipated to further constrain production.

TRADE

Stable overall

Global trade in dairy products is projected to be almost unchanged in 2016, remaining at 72.3 million tonnes of milk equivalent. The absence of growth this year stands in marked contrast to an average annual rate of increase of 6 percent for period 2009–2014. In 2015, a drop in shipments to China and the embargo by the Russian Federation on imports from specific countries impinged on international demand. For 2016, imports by China and, to a lesser extent, the Russian Federation are projected to recover somewhat, with growth also foreseen for Brazil, the United States, and Mexico. However, this is forecast to be largely counterbalanced by substantial falls in purchases by Venezuela and Algeria, with declines also likely for the United Arab Emirates, Nigeria, Singapore, Malaysia, Vietnam and Thailand, among others. Within the overall international market for dairy products, trade flows in cheese and butter are anticipated to expand, while shipments of milk powders are projected to wane.

The EU, New Zealand and Belarus are the principal exporting countries expected to see sales rise. Meanwhile, falls in shipments by the United States, Brazil and Argentina would largely counterbalance increases elsewhere. In the case of the EU, large purchases of SMP to intervention stocks for the year so far are forecast to dampen trade growth, with total exports possibly rising by 2.1 percent, compared with increases of 13 and 6 percent in 2014 and 2015, respectively. On the other hand, sales by Belarus are projected to record a second year of growth due to a rise in trade with the Russian Federation. Despite rising milk production, overall dairy sales by the United States are expected to fall by as much as 4 percent due to the strength of the US dollar and increased international competition limiting export opportunities. In Brazil, drought-reduced milk output is forecast to curtail exports.

Whole milk powder – second year of decline

World trade in WMP is projected to decline for the second consecutive year in 2016, by 1.7 percent to 2 518 000 tonnes. Imports by Venezuela and Nigeria may fall sharply, with reductions also foreseen for Algeria, the United Arab Emirates, Viet Nam and Malaysia, although deliveries to China and Brazil are anticipated to substantially increase. A recovery in demand by China could push its imports to 540 000 tonnes, almost 20 percent up on 2015, while difficulty in financing imports may curtail Venezuela’s purchases by as much as 40 percent and those of Nigeria by one third.

Among the main exporting countries, January/July data for New Zealand, which accounts for just over half of world exports, showed total sales down 4 percent, despite a large increase in shipments to China. Since seeing its sales of WMP to China fall off sharply in 2015, and experiencing difficulty in disposing of excess supplies as a consequence, New Zealand has reoriented its product mix in order to be less dependent on a single product or market, raising output of cheese in particular. Elsewhere, a combination of reduced milk production in Brazil and Argentina and curtailed imports by Venezuela, the main market for WMP for both countries, is forecast to stem sales. In general, other principal exporters are expected to maintain levels of trade similar to last year. The outlook is more positive for Uruguay, which saw January/July exports leap by 70 percent, driven by increased sales to Brazil.

Skim milk powder – decline forecast

Trade in SMP is predicted to decrease in 2016, ceding 1.7 percent to 2 177 000 tonnes, which would bring a halt to an eight-year run of annual growth. The principal reason behind this change in trend stems from the temporary removal of supplies from the market via unusually large purchases to intervention stocks in the EU. The opening of EU intervention purchases of SMP at the start of the year, combined with storage financed under the Private Storage Aid scheme, meant that approximately 400 000 tonnes of product, equivalent to 25 percent of EU’s production and to 60 percent of the level of its exports in 2015, were removed from the market during the first eight months of the year. The reduced pressure to dispose of excess supplies externally was instrumental in half-year EU SMP exports falling by 14 percent, year-on-year. Exports by the United States are also expected to be down. Meanwhile, New Zealand, which has placed greater emphasis on SMP production, could see overall sales rise, sustained by increased shipments to Southeast Asia.

Since 2014, global import demand for SMP has remained relatively stable. This situation is expected to continue in 2016, with many of the main importing countries maintaining similar levels of purchases to last year. Some growth in imports is expected for the Philippines, Mexico, China and the Russian Federation, while those of Malaysia, Singapore, Thailand, Algeria and Japan may be reduced somewhat.

Butter – trade rebounds

Trade in butter is forecast to rebound, after falling in 2015. Reflecting the strengthening of demand, international quotations for butter rose 44 percent between May and September. The main sources of augmented purchases are projected to be the Russian Federation, the United States, China, Mexico, Australia and Saudi Arabia, while those by the United Arab Emirates, Singapore, the European Union and Egypt may fall.

Among exporting countries, the EU is projected to benefit most from the rise in world demand. In the EU, both production growth and a favourable rate of exchange are likely to underpin a rise in external sales. Comparing the first six months of 2016 with the same period in 2015, EU’s butter exports rose by 33 percent. In particular, sales to China grew, with deliveries to the Middle East, North Africa and North America also strong. Elsewhere, the other principal exporting countries are expected to see sales comparable with last year. In the case of New Zealand, shipments of butter are likely to stay around the 515 000 tonnes mark. The first seven months of the year saw New Zealand’s sales to the Islamic Republic of Iran and Mexico rise substantially, while those to the United Arab Emirates, Azerbaijan and the United States fell.

Cheese - strong growth

Trade in cheese is forecast to increase by 4.1 percent to 2 477 000 tonnes, ending five years of limited-to-negative growth. The principal countries anticipated to import more are the Russian Federation, China and the United States. Among the major exporters, increased shipments are forecast for the EU, Belarus, New Zealand and Argentina, with sales by Saudi Arabia, Australia, Nicaragua and the Islamic Republic of Iran being little changed and those of the United States and Egypt falling. Exports by the EU could rise by as much as 10 percent to almost 800 000 tonnes, which would represent both a record and the first annual increase since the Russian Federation embargo was imposed in 2014. Because of the prior importance of the Russian Federation, which absorbed a third of EU exports before the ban was introduced, the EU has had to focus on other markets – mainly the United States, Japan, the Republic of Korea, Saudi Arabia, Egypt and Algeria. Meanwhile, as the pre-2014 traditional suppliers continue to be subject to the embargo, Belarus still has considerable opportunities for export to the Russian Federation and, consequently, its shipments are projected to rise by 15 percent in 2016, to reach 205 000 tonnes. The sharp fall in WMP imports by China in 2015 caused New Zealand to focus more on cheese as an alternative use for milk. As a consequence, its cheese exports rose by 18 percent in 2015 and further growth is anticipated in 2016, with shipments forecast to reach 350 000 tonnes. New Zealand’s sales of cheese have expanded in particular to China, the United States, Australia and the EU. In the United States, continued strong domestic demand for dairy products in general, a strong US Dollar and increased competition from other suppliers are anticipated to lead to a second year of diminished cheese exports, which could fall by a similar margin as in 2015, or almost 15 percent, to 275 000 tonnes.

FISH AND FISHERY PRODUCTS

GLOBAL FISH ECONOMY

Global fish production in 2016 is forecast to expand by 1.8 percent, to 174.1 million tonnes, well below the ten year-trend of 2.3 percent. The relatively modest world growth reflects a number of setbacks, including diseases, and regulatory constraints. Under current expectations, the increase in global seafood production would stem from a 5 percent expansion of aquaculture to 81.4 million tonnes, confirming the sector as the main engine for fishery growth, which would compensate for a 0.9 percent contraction in wild fish output to 92.7 million tonnes.

Across different species, shrimp production continues on a downward trend in some major Asian producing countries, constrained by a recurrence of parasites, bacterial, fungal and viral diseases. Nonetheless, the world production outlook for 2016 is positive overall, thanks to gains in Ecuador, Indonesia and Thailand. Fresh cod faces an upward price trend, and Asian developing countries are expanding their role of important global whitefish processors. Tuna supply is facing constraints associated with seasonal fishing bans and the imposition of import restrictions.

Developing countries continue to play a significant role in the international supply of fish. Among developed nations, Norway, one of the world’s largest producers, continues to enjoy an increased positive performance due to upward trends of salmon and cod prices. Among the world’s major importers, the US, the European Union and Japan are all expected to see marginal declines in total import value. The overall outlook for the value of seafood trade in 2016 continues to be positive, mainly thanks to rising price prospects.

After the sharp declines registered in the second half of 2015, international seafood prices have shown a tendency to recover over the first months of 2016, while still remaining below their corresponding levels in 2015. According to the FAO Fish Price Index, fish prices averaged 2 percent lower in the first six months of 2016 compared to the same period last year, reflecting a decline of 4 percent for captured fish, while prices of aquaculture products remained stable. Only salmon prices made substantial gains year-on-year, due to a combination of tight supplies in major exporting countries and sustained import demand. By contrast, the losses incurred in the second half of 2015 brought average prices down for the other fish species, in particular shrimps and pelagic fish. Since January, however, most seafood products have witnessed a firming of prices, including fish meal and fish oil, reflecting a significant reduction in the supply of anchoveta together with growing demands for animal and aquaculture feed.

Consumer demand for fish remains strong, with more people worldwide appreciating the health benefits of regular fish consumption. Direct human consumption, which accounts for more than 85 percent of all fish uses, is projected to grow by 2.3 percent to 152.8 million tonnes in 2016. This would result in a slight increase in per capita fish intake, from 20.3 kg in 2015 to 20.5 kg in 2016.

In July 2016, FAO, UNCTAD and UNEP issued a Joint-Statement highlighting the importance for countries and the international community to move forward on trade-related targets under Sustainable Development Goal (SDG) 14, particularly under a specific target, SDG 14.6, which deals with fisheries subsidies. More than 90 countries, international governmental organizations, and active civil society organizations endorsed this Joint-Statement. In this regard, a future international regulatory framework implemented for fisheries subsidies will have a significant market-oriented impact on production patterns, prices and trade flows.

SHRIMP

Production of farmed shrimps in Asia remains relatively weak for some producers in 2016, due to an ongoing disease problem in China and the effects of drought and a delayed monsoon in some parts of Southeast Asia. Thailand, however, is ramping up production after suffering severely from disease outbreaks in recent years, and it expects strong production of 270 000 to 300 000 metric tonnes for 2016. Ecuador and Indonesia are also expecting to show strong volume growth rates for 2016 and 2017. The net result of global production is estimated to be positive for 2016 and 2017, but increased regional demand, particularly from China, is absorbing supplies previously channelled to traditional developed markets. Overall, China will likely continue to influence the global market and international prices if its domestic production does not improve. In the near term, the market will also be determined by the supply situation in India, where the 2016 production forecast is not promising. However, on a global scale, the direction of future price trends largely depends on the extent to which demand growth in regional markets in Asia offsets global supply increases.

TUNA

Canned tuna production in Ecuador, the largest supplier to the European market, was lower in May following a mid-April earthquake that slowed cannery operations and impacted the port infrastructure at Manta, making it impossible to land raw material. Combined with a scarcity of tuna arrivals from the Eastern Pacific, this situation pushed prices upwards in early 2016, but they have since stabilized. Starting from 1 July, purse seine operations in the Western and Central Pacific were subjected to the seasonal three-month ban on fish aggregating devices (FADs), which, combined with positive demand for tuna from processors, is likely to keep prices stable or lead to further increases for the remainder of 2016. The most significant trade-related news for the tuna sector in the future is the European Commission’s formal notice (yellow card) issued to Thailand in April 2016 for not taking sufficient measures in the international fight against IUU fishing. In April, the EU stated that it had given Thailand six months to implement a corrective action plan. Should the situation not improve, the EU could resort to banning fisheries imports from Thailand. Last year, the EU imported USD 184 million worth of canned tuna from the country, so if the ban goes into effect, there could be serious repercussions to Thailand, but also the EU, which would have to seek new sources of supply.

GROUNDFISH

For the remainder of 2016, a stable supply situation is expected for the majority of groundfish species. Relatively high prices for cod are forecast to continue, while haddock prices are giving sign of recovering. Cuts in Barents Sea quotas for both species have been recommended by the International Council for the Exploration of the Sea (ICES) in 2017, which may result in tighter supplies and firmer prices. Pacific cod quotations are also on the rise, and can be expected to benefit from the same market conditions. Meanwhile, the Barents Sea saithe quota is likely to be raised next year. As for surimi, the processed paste made from fish, including cod and haddock, and transformed into an imitation of crab pulp, there is a danger of overproduction, particularly considering the long-term trend that is seeing consumers move away from processed seafood. Sustainability remains an important concern for the groundfish sector, with an increasing number of fisheries in the US and Europe seeking certification by the Marine Stewardship Council (MSC).

CEPHALOPODS

The 2016 squid season off South America has been a significant disappointment for the sector thus far. Landings are dramatically down, with the drop generally attributed to the strong El Niño in 2015 and 2016. Catches have been so poor that the authorities are considering at least partial reimbursement of licence fees. As a result of the tightening supply, squid prices are up by more than 30 percent. In contrast, there seems to be reason for a more optimistic view of cephalopod supply in the longer term, as recent research has shown that global cephalopod populations are growing. In the more immediate future, scientists are expecting the current El Niño to taper off and temperature conditions to return to normal in the next 6 to 12 months, which should bring about an improvement in landings in the affected regions over the next year. Squid prices, however, can be expected to remain high for some time with sustained strong demand, while the need to make up a shortfall in supplies of Illex and Loligo squid may stimulate demand for alternative species.

PANGASIUS

The current low international prices of pangasius will continue to encourage imports throughout 2016, particularly in the important US market. For the world’s number one producer, Viet Nam, lower prices have led the Viet Nam Association of Seafood Exporters and Producers (VASEP) to forecast a 5 percent reduction in total export value for 2016. Growing import demand for farmed pangasius is expected to support growth in producing countries other than Viet Nam and prevent prices from dropping further. In fact, it is likely that increasing feed costs will necessitate a price hike in the medium term.

TILAPIA

Despite the weakening of major markets such as the US and production problems in China, the outlook for the world’s farmed tilapia industry remains promising as demand is strong and growing in a range of markets in Asia, Africa and Latin America and the Caribbean. Prices of Chinese tilapia are expected to start rising again on the back of supply shortages, and a number of countries are looking to significantly expand their tilapia farming industries. In particular, the Indian and Brazilian sectors are set to receive heavy investment from both government and private sources, which may boost global supply in the long term.

SEABASS AND SEABREAM

The current outlook for the farmed bass and bream sector can be best described as cautiously positive, so long as prices are maintained at economically sustainable levels. This will depend on the rate of production volume growth, and the progress made towards cost reductions at the farm level. Consolidation and investment activities are ongoing in major producing countries of the Mediterranean such as Greece and Turkey, which will allow for achieving improved competitiveness through economies of scale. Prices for both bass and bream did not quite reach the mid-summer peaks achieved last year in major European markets and are expected to decline steadily in typical fashion as seasonal demand weakens towards the end of the year.

SALMON

The global salmon market, from producer to consumer, has to now come to terms with a new, higher price plateau. After months of upward revisions, forward prices for Norwegian farmed salmon are now set to remain above USD 6 per kg until 2019. For the remainder of 2016, the drop in prices following the traditional late summer harvest in Norway is expected to reverse significantly, moving above last year’s levels as year-end demand takes effect. In the longer-term, Norwegian farmers will continue to reap the benefits of physical and regulatory limits on supply. Despite the obvious price benefits of slower and regulated production growth in Chile, the business implications of new regulations on its industry lead to additional costs associated with the regulations’ sanitary requirements. The process of regulatory change is still effectively ongoing in Chile, and certain industry representatives are looking to have the 3 percent annual production growth limit revisited. In the wild salmon sector, with Alaskan harvests exceptionally high this year in contrast to the overall supply situation, the current market conditions may be seen as an opportunity, particularly if product innovation and improved quality control can more closely integrate the wild and farmed fish markets.

SMALL PELAGICS

Supplies of the main small pelagic species, such as mackerel and herring, will be somewhat tighter this year, and prices are generally high. The absence of the Russian market for those exporting countries subject to the trade ban, e.g. Norway and Iceland, is still presenting some difficulties, but strong demand from elsewhere is underpinning sales for key species such as herring and mackerel. In Nigeria, traditionally an important market for small pelagic exporters, the decision of the Nigerian Central Bank (CBM) to float the national currency against the US dollar is expected to stabilize the currency in the long run. As a result, industry players are optimistic about future development of the market after a lull following the structured trade embargo introduced in 2014. In South America, meanwhile, supplies of anchoveta will be considerably lower due to ongoing El Niño effects while, in the west coast of North America, there will be no sardine fishing at all. Overall, the price outlook is positive for the major small pelagic species, although this will inevitably also depend on the development of currency exchange rates between key trading partners.

FISHMEAL AND FISH OIL

When Peru established a higher than expected – 1.8 million metric tonnes – anchoveta quota for the first fishing season in June 2016, the fishmeal and fish oil industry was optimistic that the supply of fishmeal from the southeastern Pacific would be adequate in the shortterm, despite the disruptive impact of El Niño. However, the authorities ended the season sooner, at the beginning of August, to make way for the spawning season, with only 50 percent of the quota caught and the season’s catch of 920,000 metric tonnes the lowest in a decade. This shortfall has inevitability pushed prices upwards once again, and fishmeal prices rose some 27 percent from June to August. Although commentators expect the situation to normalize later in the year, the persistent volatility of prices and an ever-increasing gap between demand from the global aquaculture and livestock sectors and fishery supply can be expected to continue to push prices upwards and drive the development of alternative sources of animal and fish feed.

CRAB

The availability of crab on the US west coast has markedly increased this year, despite the reduced quotas in the Bering Sea, and average prices are up for both US and Russian suppliers. The favourable market situation has analysts predicting that 2016 will be a very profitable year for the crab industry. However, researchers have recently shown that legal male crab biomass in Alaskan fisheries have decreased for multiple species, which will likely have a negative effect on supply volumes in the long term.

BIVALVES

The nature and extent of the consequences of the Brexit vote on the bivalve trade are difficult to assess at present, and the picture will only become clearer when the characteristics of the UK’s future trade deals and regulatory changes are decided upon. However, given that the UK is both an important supplier and a key market for traded scallops, cockles, razor and clam shells, the impact on market dynamics is likely to be significant. Among other effects, the weakened British pound is boosting export-based bivalve businesses while making imports relatively more expensive. Other important market developments include an increased interest in organic mussels, with industry sustained development observed in Denmark and Ireland, and a signed agreement in early April on mutual recognition of organic production equivalence rules and control systems between the EU, Chile and Canada. Elsewhere, a new study published in the Proceedings of the National Academy of Sciences suggested that increasing sea temperatures may be heightening food safety risks in bivalves, specifically with regard to incidence of vibrio genus bacteria usually associated with undercooked seafood.

LOBSTER

Supplies of North American lobster were quite tight in the summer of 2016 as catches were low. Coupled with strong demand in the US and Canadian markets, the lack of volume has sent lobster prices soaring higher and has seen processors scrambling to secure raw material. Demand for North American lobster in Asia is also expected to continue to strengthen, in spite of the lull in the Chinese economy. Prices for live lobster generally weaken temporarily in autumn, but the outlook, in general, is very positive.

NAIROBI DECISION ON EXPORT COMPETITION

(Tenth WTO Ministerial Conference, Nairobi, December 2015)

Contributed by:

Georgios Mermigkas

georgios.mermigkas@fao.org

Ekaterina Krivonos

ekaterina.krivonos@fao.org

ELIMINATION OF EXPORT SUBSIDIES UNDER THE LATEST WTO RULE WILL BE A CRITICAL FACTOR IN THE PERIOD OF LOW PRICES

Despite a general rise since the beginning of 2016, international food commodity prices have remained well below their peak values and are not projected to return to those high levels over the next decade (OECD/FAO 2016). In this context, the Decision[1] agreed at the 10th WTO Ministerial Conference, held in Nairobi in December 2015, to eliminate export subsidies can be important as it prevents members from reverting to their use.

Export subsidies, which were mostly used by OECD countries in the past, are considered a highly market-distorting instrument of agricultural support, with negative implications for trading partners and world markets. While providing incentives to domestic producers, export subsidies tend to supress world prices, by boosting supplies of exportable products, thus affecting the competitiveness of those countries that are not able to provide similar support. Historically, while agricultural export subsidies in developed countries could be said to have benefited net food-importing developing countries, they have placed a severe constraint on the ability of farmers in developing countries to compete in world and domestic markets. For these reasons, export subsidies have always been the core of the WTO negotiations on export competition.

NAIROBI DECISION ON EXPORT COMPETITION

The Nairobi WTO Ministerial Conference (MC10) reached a Decision on export competition covering all four elements of the agriculture negotiations on export competition, namely: export subsidies; export credits, guarantees & insurance programmes; agricultural exporting state trading enterprises (STEs); and international food aid. The agreement to eliminate export subsidies is the most significant element of the Decision, as this instrument has always been at the heart of the WTO negotiations due to its significant trade distorting character and its extensive use in the previous decades.

At the time of the Nairobi Ministerial Conference, 18 out of the 162 WTO members[2] had export subsidy entitlements and, thus, were officially permitted to subsidize their agricultural exports within the limits specified in their respective schedules. However, the original schedules did not contain deadlines for their use, a shortcoming purposely addressed by the Nairobi Decision.

The Decision establishes that developed country members eliminate their remaining, at the time of the Nairobi Ministerial Conference, export subsidy entitlements immediately on the adoption of the Decision. However, it contains a special provision (footnote 4 of the Decision) extending the termination period for the use of export subsidies by developed country members to the end of 2020, provided that they accept to eliminate, as of 1 January 2016, all export subsidies on products destined to Least Developed Countries (LDCs). Nevertheless, this extended deadline only applies to processed products, dairy products and pigmeat, and only if these were notified as having benefited from export subsidies in one of the three most recent notifications reviewed by the WTO Committee on Agriculture. An additional obligation related to this derogation is that no export subsidies should be applied either to new markets or to new products. The Decision also includes a provision for the EU, in the case of sugar, which endorsed the earlier relevant WTO Dispute Settlement rulings[3] maintaining the EU’s sugar export subsidy quantity entitlement[4] until the end of September 2017.

Consistent with the WTO differential treatment principle, the Decision does not call for the immediate elimination of export subsidy entitlements by developing country members. Instead, it allows them to retain such entitlements until the end of 2018 (or end of 2016 in the case of cotton). Like for developed country members, there is a special provision (footnote 5 of the Decision) that extends the date for the elimination of export subsidies by developing countries, in their case up to 2022, for those products that were notified as having benefited from export subsidies in one of the three most recent notifications reviewed by the WTO Committee on Agriculture. Unlike for developed countries, there is no particular restriction on the nature of such products.

The 18 WTO members with export subsidy entitlements prior to the Nairobi Decision include eight developed countries (Australia, Canada, European Union, Iceland, New Zealand, Norway, Switzerland and the United States) and 10 developing countries (Brazil, Colombia, Indonesia, Israel, Mexico, Panama, South Africa, Turkey, Uruguay and Venezuela)[5]. Using the information provided by the members in their three latest notifications examined by the WTO Committee on Agriculture before the adoption of the Nairobi Decision, table 3 shows the newly agreed end dates for the complete phasing out of export subsidy entitlements:

Another integral element of the Decision is the extended 2023 deadline agreed on the use of Article 9.4 of the Agreement on Agriculture, which allows developing countries to resort to export subsidies to cover or reduce the costs of marketing and transportation. LDCs and Net Food-Importing Developing Countries (NFIDCs) are granted seven more years, until the end of 2030, to phase out this type of support. The value of this extra flexibility is, however, limited, as these two country groups, and in particular the LDCs, are unlikely to have the resources or opportunity to use export subsidies.

TRENDS IN THE USE OF EXPORT SUBSIDIES

Of the 18 WTO members allowed to use export subsidies prior to the Nairobi Decision, only a handful of them actually did, most notably Canada, the EU, Norway and Switzerland. The EU had the largest scheduled entitlements and was the biggest user of the instrument in the past. As Table 4 shows, the use of export subsidies at the global level has declined significantly since 2005. In part, this could be explained by the steep increases in agricultural commodity prices witnessed since 2006, which considerably diminished the need to provide incentives for sustaining or boosting exports. However, the extensive reforms of the Common Agricultural Policy (CAP) of the EU, most notably the move away from using market price support for farm products, probably played an even greater role. These reforms resulted in reduced food stocks and smaller exportable surpluses. In accordance with the 2014-2020 CAP, export subsidies were last used by the EU in 2013.

While the EU regulations allow for “exceptional measures” that can be activated in an event of a crisis to address threats of market disturbances, in recent years these did not include export subsidies, even when there were concerns about European exports. For instance, the EU introduced a series of measures to support farmers in 2014 and 2015 in response to the import restrictions imposed by the Russian Federation in August 2014, and an additional package of measures to counter both the declining agricultural prices for some products and the extension of the Russian import ban in March 2016[6]. However, neither of these packages included export subsidies. To address market oversupply of dairy, which was one of the most affected sectors, the EU approved intervention buying-in of butter, skimmed milk powder and certain types of cheese, but did not make recourse to export subsidies to stimulate shipments to other markets.

While the EU is responsible for much of the reduction in export subsidies at the global level, the total use of the instrument notified by other WTO members, namely Canada, Norway and Switzerland, has remained largely unchanged over the last few years, averaging slightly above USD 200 million per year. However, the trend is not the same in the three countries. For instance, Canada only started providing export subsidies in 2003, while Norway maintained their level throughout the entire 2000-2013 period and Switzerland reduced them to less than half of their level in the early 2000s.

The main product categories subject to export subsidies by the WTO developed country members during the 2008-2013 period were the processed (or “incorporated”) products, dairy products (primarily skim milk powder and cheese) and pigmeat (Table 5). The EU also funded exports of poultry and bovine meats. In addition, the EU notified 1.35 million tonnes of sugar as quantities that benefited from export subsidies in 2013 (Diaz-Bonilla and Hepburn, 2016). Not surprisingly, the above products are those that were agreed in Nairobi as eligible for longer phasing-out dates by developed country members.

SIGNIFICANCE OF THE DECISION FOR AGRICULTURAL COMMODITY MARKETS

Given that the use of export subsidies has already declined substantially over the last decade, the Nairobi Decision is not expected to result in a substantial additional reduction in the amount of export subsidies worldwide, at least until the expiration of the derogation for developed and developing countries.

Nonetheless, the Decision plays an important role in preventing an expansion in the use of export subsidies to stimulate exports and, by setting clear deadlines for their elimination, in reducing market uncertainty. However, given the current climate of relatively low international prices, which coincides with a period when some middle-income countries are expanding their budgets for agricultural support, export subsidies could again become an attractive option for the countries holding entitlements for their use.

A number of emerging economies provide support to promote agricultural production. In fact, the level of farm support, as measured by OECD’s Producer Support Estimate (PSE), has been growing in some of the emerging economies, reaching the level of support in OECD countries, raising concerns over its possible effects on other, less developed, trading partners (OECD, 2016). In the case of over production and surplus availability, the Nairobi Decision would preclude them from using export subsidies. In this context, the extension of Article 9.4 allowing developing countries to cover or subsidize the costs of marketing and transportation is a notable element of the Decision, considering the increasing significance of some developing countries as exporters of agricultural commodities. Although the WTO Agreement on Agriculture foresaw that Article 9.4 would only apply until 2004, several WTO developing country members continued to subsidize marketing and transport costs after this date (Diaz-Bonilla and Hepburn, 2016), giving rise to considerable discussions in the WTO Committee on Agriculture regarding their compliance with WTO rules. The Nairobi Decision seems to cover transportation and marketing subsidies granted from 2004 to 2015, and not only those that will be granted after the endorsement of the Decision.[7]

Abrupt currency fluctuations can also create conditions to use export subsidies. For example, the strong appreciation of the Swiss franc against the Euro in 2015 triggered Switzerland’s policy response in the form of an export subsidy to processed products. But consistent with the Nairobi Decision, the Swiss Government has recently initiated the process to replace, by 2020, the export subsidies scheme on processed products (the so-called “loi chocolatière”) with a series of measures to support value-addition in the production of foodstuffs and to strengthen the competitiveness of the agribusiness sector.[8]

CONCLUSIONS

While entitled WTO members, in particular the EU, have limited the use of export subsidies for agricultural products in recent years, the 2015 Nairobi Decision is important, as it confirms the commitment of members to refrain from using them and sets clear deadlines for their elimination. Thus, although the Decision may not result in a noticeable reduction in their use, given their already low levels, it will considerably diminish market uncertainties about a possible recourse to the instrument in the future. This is particularly critical considering the likely continuing long-term downward trend in real agricultural prices, which, in absence of this Decision, could induce some countries to use export subsidies. Also notable, as mentioned above, is the provision in the Decision allowing developing country members to subsidize transport and marketing costs until established dates, in particular given the growing role of some emerging economies as exporters of agricultural products.

REFERENCE LIST

Diaz-Bonilla, Eugenio & Hepburn, Jonathan. 2016. Export competition issues after Nairobi. In “Evaluating Nairobi: What does the outcome mean for trade in food and farm goods?” International Centre for Trade and Sustainable Development, Geneva, Switzerland. http://www.ictsd.org/sites/default/files/research/Evaluating%20Nairobi%20-%20What%20Does%20the%20Outcome%20Mean%20for%20Trade%20in%20Food%20and%20Farm%20Goods.pdf

OECD/FAO (2016). OECD-FAO Agricultural Outlook 2016-2025, OECD Publishing, Paris. http://dx.doi.org/10.1787/agr_outlook-2016-en

OECD (2016), Agricultural Policy Monitoring and Evaluation 2016, OECD Publishing, Paris.

WTO (2015). MC10 Ministerial Decision; 19 December 2015; WT/MIN(15)/45 — WT/L/980, https://www.wto.org/english/thewto_e/minist_e/mc10_e/l980_e.htm

[1] WT/MIN(15)/45, available online: https://www.wto.org/english/thewto_e/minist_e/mc10_e/l980_e.htm

[2] The EU counted as one. Following the accession of Liberia and Afghanistan in July 2016, the WTO currently has 164 members.

[3] DS265, DS266 and DS283

[4] The export subsidies reduction commitments are expressed in terms of both the volume of subsidized exports and the budgetary outlays of these exports.

[5] The notions of developed and developing countries relate to the applicability of the Agreement on Agriculture Special and Differentiated Treatment provisions in favour of developing members. It may be noted that there is no WTO definition for “developed” and “developing” countries. Members announce for themselves whether they are “developed” or “developing” countries.

[6] The package includes supporting the fixed intervention price for skimmed milk powder and butter and financial instruments for investments to improve competitiveness or introduce structural adjustments. http://europa.eu/rapid/press-release_IP-16-806_en.htm

[7] Paragraph 8 of the Decision reads as following: “Developing country Members shall continue to benefit from the provisions of Article 9.4 of the Agreement on Agriculture until the end of 2023 … …”

[8] https://www.seco.admin.ch/seco/fr/home/seco/nsb-news.msg-id-62445.html

Statistical appendix tables

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

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

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

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

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

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

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

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

Appendix Table 9 Cereal supply and utilization in main exporting countries

Appendix Table 10 Total oilcrops statistics

Appendix Table 11 Total oils and fats statistics

Appendix Table 12 Total meals and cakes statistics

Appendix Table 13 Total meat statistics

Appendix Table 14 Bovine meat statistics

Appendix Table 15 Ovine meat statistics

Appendix Table 16 Pigmeat statistics

Appendix Table 17 Poultry meat statistics

Appendix Table 18 Milk and milk products statistics

Appendix Table 19 Fish and fishery products statistics

Appendix Table 20 Selected international prices for wheat and coarse grains

Appendix Table 21 Wheat and maize futures prices

Appendix Table 22 Selected international prices for rice and price indices

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

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

Appendix Table 25 Selected international meat prices

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

Appendix Table 27 Fish price indices

Appendix Table 28 Selected international commodity prices

NOTES

General

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

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

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

- Tonnes refer to metric tonnes.

- All totals are computed from unrounded data.

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

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

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

- ‘-‘ means nil or negligible.

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

Production

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

Utilization

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

Trade

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

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

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

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

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

Stocks

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

Price indices

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

COUNTRY CLASSIFICATION

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

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

DISCLAIMER

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

Futures markets

Contributed by Ann Berg (International Consultant)

Futures prices for wheat, maize and soybeans declined steadily between June and September following a brief run-up in April and May when South American weather developments threatened production. Wheat prices declined to multi-year lows, as global supplies appeared ample. The USDA, citing other origin export competition, predicted 2016/17 domestic farm prices would drop below USD 143 per tonne, their lowest level in 11 years. Maize futures prices also declined to multi-year lows on expectation of a bumper crop in the United States. Soybean prices remained on average higher than the previous year for the same period, but substantially below 2013 levels. Despite the record soybean harvest projected for 2016/17, heightened domestic and Asian export demand were moderately supportive of prices. Exogenous markets, such as foreign exchange and energy, exhibited some stability compared with 2014 and 2015, which was a period of dramatic price adjustments. Nonetheless, relative USD strength and low crude oil prices remained a weight on overall commodity prices. A strong pace for US exports since early June indicated that lower cereal and oilseed prices were finding a clearing level for demand.

FORWARD CURVES

Forward curves for wheat and maize displayed unusually steep upward sloping (contango) price configurations extending to December 2017. For maize, the December 2016/December 2017 spread exhibited USD 16 per tonne carry versus USD 8 per tonne the previous year. For wheat, the December 2016/December 2017 spread displayed USD 28 per tonne carry versus USD 14 per tonne the previous year. These wide curves reflected, in part, the insufficient capacity for storing the 2016/2017 maize crop following the large wheat harvest. The forward curve for soybeans, however, was flat to downward sloping with the November 2016/November 2017 spread displaying USD 5 inversion (backwardation). In September 2016, the USDA revised the 2015/2016 stocks-to-use ratio downward, to less than 5 percent (from 12.5 percent projected earlier) which reflected greater than expected end-year export demand. The dwindling carryout explained the extremely high year-end basis levels and old crop/new crop futures inversion that began with the July 2016 contract. The current November 2016/November 2017 inversion may reflect a perception of understated demand again for the 2016/2017 crop year, and producer preference for storing soybeans over wheat or maize. Deliveries were made against the September contracts for maize and wheat, but not for soybeans, even as the September contract rose to USD 11 per tonne premium to November, expiring at approximately the same level as the cash price.

VOLUMES

Trade volumes for wheat, maize and soybeans continued strong following a record year in 2015. Maize and soybean volumes were on track to surpass last year’s levels while wheat volumes appeared to be on a match course. While lower than April’s record when prices spiked briefly, monthly volumes have remained elevated despite price erosion and slumping volatilities, indicators normally linked to low volumes. Open interest was mixed: soybeans displayed record numbers of outstanding contracts during April, May and June, while wheat and maize remained below the record numbers recorded in 2012. This might indicate that many producers facing maize and wheat prices at multi-year lows rejected “locking in” prices, and that the high volumes were mostly the result of speculative activity.

VOLATILITY

Volatility levels for maize and soybeans tended to track US crop development, peaking in June and July as prospects turned increasingly favourable for record harvests. Historical volatility (based on 30 days) for maize and soybeans reached 37 and 33 respectively, declining to the low 20s by September. Implied volatility (calculated by the level of option premiums on underlying futures contracts) followed a similar upward path and fell to 23 (maize) and 17 (soybeans) during September. Wheat followed a slightly different course as historical volatility peaked in May at 33 and hovered in the upper 20s during the subsequent months, while implied volatility rose in May from 24 to the upper 20s between June and September. Overall levels were unremarkable compared with other time periods. For example, historical volatility reached a low of 11 during March 2016 (maize and soybeans) and a three-year high (maize) in August 2013 of 71. Grain price volatility continued to be insulated from crude oil volatility which, as tracked by the Volatility Index Exchange Traded Fund (ETF, listed on the Chicago Board of Options), soared to 80 in February and March 2016, and thereafter drifted down to the high 30s to low 40s.

INVESTMENT FLOWS

Managed money and commercial traders actively exchanged position strategies over the course of the past several months, as charts reveal mirror images of their net buying and selling. In wheat, managed money maintained its net short for a 12-month period, raising the level to 30 percent of open interest in September, a record over the life of the CFTC reporting period (since 2006). Commercials, also a net short for most of the past year, reversed their position to a net long during July. Swaps dealers, a perennial large net long in wheat, reduced their position to a record low 15 percent of open interest by September, possibly indicating a client withdrawal of funds due to five years of negative returns. In maize, managed money and commercials took opposite strategies during June, establishing large net long and short positions respectively. Reversing those sharply in July, both ended up as moderate net shorts in September. In soybeans, managed money has maintained a net long to varying degrees since March, while commercials maintained a net short. Despite its aggressive buying and selling and seemingly successful year-long strategy of betting on a wheat price decline, managed money involved with agricultural products returned a YTD negative performance of 1.83 percent (January through April), according to the hedge fund tracker Barclay Hedge. Passively managed index funds, notably the Deutsche Bank Agricultural Index Fund, have lost value for five consecutive years, yielding a negative 9 percent return for the period.

Ocean freight rates

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

OCEAN FREIGHT MARKET (SEPTEMBER 2015 - SEPTEMBER 2016)

After reaching an all-time low in the first half of February, dry bulk freight markets continued to stage a recovery in the past six months, although volatility was often a feature. The Baltic Dry Index (BDI), a composite index of activity on benchmark routes, touched an eleven-month peak of 804 points in September and, despite easing slightly in recent days, was still up by more than 90% when compared to mid-March. As the data show, gains were underpinned by strength in all segments, but were steepest in the Capesize sector. Nevertheless, highlighting underlying pressure from industry oversupply and wider macroeconomic concerns, the BDI was down by 6% y/y.

Being associated with the transportation of coal, iron ore and a range of other heavy raw materials, the Capesize sector is most closely linked to the broader economic cycle. During the past six months, rates in this segment trended significantly higher, the Baltic sub-Index posting a net increase of more than 700%. However, day-to-day swings in sentiment were sometimes especially pronounced, with periods of heightened activity at key origins – including Australia and Brazil – contrasting with a relatively subdued market at other times. Compared to the same point of 2015, values were up by almost one-quarter y/y.

While the grains and oilseeds carrying sectors advanced solidly, gains were markedly less pronounced than in the Capesize sector. Although the Panamax market was often volatile, it was much firmer when compared to six months earlier. Activity at the US Gulf was initially slow, but values during March-April were supported by good demand for grains and oilseeds new crop shipments from South America, with underpinning, too, from tonnage tightness in other regions.

In recent months, there was marked uptick in business volumes in the northern hemisphere – especially in the North Atlantic and Black Sea region – as importers sought to book the dispatch of freshly harvested supplies. Despite a recovery in rates since the middle of March, the Baltic sub-Index was still down by 10% on a year ago.

Concerning nominal and reported rates on key trading routes, a trip from Brazil to southern China as at mid-September was typically around US$17/t. While this represented an increase of 13% on six months earlier, it was US$3/t lower than its early-July peak. In contrast, a voyage from the US Gulf to the same destination was up by around 35% from mid-March, broadly mirroring the movement in the overall sub-Index for the Panamax segment. On the Argentina-EU (ARAH) route, quotations were in the region of US$14/t, up by about one-quarter.

After bottoming out in the first quarter, Supramax and Handysize markets turned higher, the Baltic sub-Indices for each rising by 56% and 65%, respectively. As the accompanying chart illustrates, rates were evidently less volatile than those for larger vessels. Scrap and fertiliser business in Europe provided a degree of support at times, while demand for new crop supplies underpinned values in South America through to mid-year. More recently, a boost in enquiries from importers for freshly cut crops in Black Sea producers added to the positive tone, offsetting some pressure from subdued activity in the EU, where the traditional summer slowdown weighed. However, rates remained lower when compared to a year earlier.

Supply-side developments

Aside from demand-side developments, the heavy expansion of the global dry bulk fleet has been a constant source of pressure over a number of years. However, there is now evidence that, despite a mild recovery during recent months, historically low freight rates are encouraging an increase in scrapping volumes.

The above table provides a snapshot of developments on major grains and oilseeds trade routes, and highlights changes in rates on six months earlier and one year ago.

Food import bills

World food import bill in 2016 falling to a six-year low

At USD 1.17 trillion, the value of total food imports in 2016 is forecast to decline by 11 percent, or USD 148 billion, from last year, marking the largest annual fall in absolute terms in recent history, to a level not witnessed since 2010. The June Food Outlook report had foreseen global import expenditures on foodstuffs dipping below USD 1 trillion in 2016. However, revisions to historical data, combined with higher than anticipated freight rates and larger volumes and prices for several commodities, now suggest that the global food import bill will not likely fall below the USD 1 trillion mark. Nevertheless, both sizeable and widespread falls in the commodity basket are likely to characterize 2016.

The volatility in freight costs, especially over the past 12 months, is noteworthy. For instance, as indicated by the Baltic Dry Index, shipping charges in the third quarter of 2016 are down almost a third compared with the corresponding period of last year, but have risen by over 90 percent from the first quarter of 2016. Taking wheat destined for East Asian markets as an example, importers would now be required to pay, on average, 5 percent more than in January owing to the freight increase.

Turning to developments at the product level, the import bills anticipated to undergo the largest absolute declines in 2016 are those for livestock products and cereal-based foodstuffs, which could fall by around USD 27 billion, or 12 percent, and USD 25 billion, or 16 percent, respectively. In the case of livestock, considerably lower quotations compared with last year are driving expenditures on these food groups down, even though import volumes of meat are forecast to reach a record high in 2016 and those of dairy products likely to be at a near-high level. As for cereals, lower international prices, coupled with a decline in traded volumes, are foreseen to curb import bills for this commodity group.

Commodity import bills that could instead increase in 2016 include sugar (+ USD 10 billion), fish (+ USD 6 billion), fruit and vegetables (+ USD 5 billion), and vegetable oils (+ USD 3 billion). In all of these cases, international benchmark quotations are above the 2015 levels, and import volumes are set to exceed those of last year.

The tendency at the world level for substantially lower import costs in 2016 does not necessarily extend to many of the economically vulnerable nations. The food import bills of least-developed countries (LDCs), low-income food-deficit countries (LIFDCs) and those geographically situated in sub-Saharan Africa (SSA) are forecast to fall by less than the 11 percent global decline, with falls ranging between only 5 and 9 percent among the country groups. For all of these economically disadvantaged countries, higher import volumes of products in the oilseed complex, as well as of sugar and cereals, particularly maize, are seen to offset the gains to be made from lower import bills of other product groups. In some cases, particularly for countries in SSA as well as LIFDCs, the larger maize purchases are in response to shortfalls in the domestic production of the staple.

Despite the general decline of the US dollar-denominated food bills in 2016, a different picture emerges when denominated in local currencies, given the prevailing strength of the US dollar. Although having stabilized in recent months, the US dollar remains exceptionally strong, keeping the cost of food imports high from a local currency perspective and adding strain to scarce foreign exchange reserves from which the cost of importing is met.

Contact:

Adam.Prakash@fao.org

Having reached a 13-year high at the beginning of 2016, the US Dollar relative to major currencies had lost some ground by the end of the first quarter of this year. Since then, it has been largely stable, with the inflation-adjusted index fluctuating slightly around a level of 90 points. Nevertheless, the US Dollar remains historically strong, rendering the cost of importing expensive as most commodity prices are US Dollar-denominated. This is particularly the case for numerous major food-importing LIFDCs (importing more than USD 1 billion of food annually) who, over September 2015 - September 2016, have incurred currency falls against the US Dollar, with percentage depreciation often reaching double-digit levels.

FAO price indices[1]

FAO Global Food Consumption Price Index steady[2]

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

The index has been largely stable after reaching a 12 month high in June 2016. However, it has since diverged from the trade-weighted FAO Food Price Index (FFPI). Averaging 159 points in September, the FAO Global Food Consumption Price Index is 11 points lower than the FPI. This is because prices of basic foodstuffs such as cereals, which carry a much greater weight in consumption have fallen compared to rises in the quotations of higher value traded commodities, notably sugar and dairy.

The FAO Food Price Index up again in September[3]

The FAO Food Price Index averaged 170.9 points in September 2016, up almost 5 points (2.9 percent) from August and 10 percent above the corresponding month last year. The September value is the highest since March 2015. Barring a small dip in July, the FFPI has been going up steadily since the start of the year, mainly supported by a surge in sugar prices and more moderate increases for dairy products, meat and oils. Last month’s rise in the FFPI was driven mostly by stronger dairy and sugar quotations.

The FAO Cereal Price Index averaged 140.9 points in September, down 2.7 points (1.9 percent) from August and 8.9 percent below its year-earlier level. The decline in September marked the third consecutive month of decreases, largely due to ample global supplies, especially export availabilities. This year’s record wheat production, coupled with an expected rebound in global rice production and above-average performance of coarse grains, maize in particular, have continued to weigh on cereal export quotations.

The FAO Vegetable Oil Price Index averaged almost 172 points in September, up 2.9 points (or 1.7 percent) from August, reflecting higher quotations of palm, soy and rapeseed oils. Palm oil values continued to strengthen, underpinned by weaker than anticipated output growth and low stock levels in both exporting and importing countries. International soyoil quotations appreciated on tight global export availabilities, while rapeseed oil prices firmed on concerns about global output falling for a third consecutive year in 2016/17.

The FAO Dairy Price Index averaged 176 points in September, up as much as 21 points (13.8 percent) from August. Quotations rose for all dairy products, in particular butter, which was bolstered by reduced stocks and strong internal demand in the EU. The Index has risen by 49 points, 38 percent, since April. The current price surge stems from expectations that falling milk production in the EU and a muted opening to the dairy year in Oceania would result in tighter availabilities for export, following excess supplies in the preceding two years.

The FAO Meat Price Index[4] averaged 163.5 points in September, essentially unchanged from August. Since January, when it hit a five-year low, the Index has risen by 12.6 percent. The largest increase for the year so far has been recorded for pigmeat, followed by ovine and poultry meat, while bovine meat experienced only a limited rise. Firm international demand, in particular from Asia, underpinned pigmeat and poultry meat prices, while reduced international supplies reinforced those of ovine meat. Meanwhile, a recovery in bovine meat production in the United States has reduced the need for imports, contributing to a restrained international price rise for this commodity.

The FAO Sugar Price Index averaged 304.8 points in September, up 19 points (6.7 percent) from August, the fifth consecutive monthly increase. The latest surge in international sugar prices was largely on the back of unfavourable weather conditions in the Centre South main producing region in Brazil, the world’s largest sugar producer and exporter. Reports of lower production in India, the world’s second largest sugar producer, and tight supplies in Thailand and China, also added to the upward pressure on prices.

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

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

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

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