ACKNOWLEDGEMENTS

The Food Outlook report is a product of the FAO Markets and Trade 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 contributions. The report benefited from research support by many staff, namely, David Bedford, Julie Claro, Harout Dekermendjian, Alice Fortuna, Grace Karumathy, Lavinia Lucarelli, Emanuele Marocco, Marco Milo, Fabio Palmeri and the fisheries statistical team.

Special thanks go to David Bedford and Lavinia Lucarelli for preparing the charts and statistical tables and to Valentina Banti for her administrative support. Additionally, the team is grateful to Ettore Vecchione for the desktop publishing and to Clare Pedrick for her valuable editorial assistance.

Required citation:

FAO. 2020. Food Outlook - Biannual Report on Global Food Markets – November 2020. Rome. https://doi.org/10.4060/cb1993en

(Last update: 13/12/2020)

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Contents

MARKETS AT A GLANCE

Wheat

Coarse grains

Rice

Oilcrops, oils and meals

Sugar

Meat and meat products

Milk and milk products

Fish and fishery products

COMMODITY FOCUS

Preliminary assessment of the impacts of the COVID-19 pandemic on trade in bananas and tropical fruits: Apparent resilience and vulnerabilities

SPECIAL FEATURE

Recent trends in food imports bills and export earnings: the COVID-19 challenge

MAJOR POLICY DEVELOPMENTS

Grains

Rice

Oilcrops

Meat

Dairy

STATISTICAL TABLES

MARKET INDICATORS

Futures markets

Ocean freight rates

The FAO price indices

Food Outlook is published twice a year, normally in June and November. The June report contains a more detailed market analysis while, as of 2018, the November report only provides summary market assessments (Markets at a Glance).

WHEAT

The global wheat supply and demand balance is expected to tighten in 2020/21, evidenced by much firmer international prices compared with the same period last year. The current forecast for world wheat production in 2020 stands marginally above the 2019 level and just short of the 2016 record output. Higher forecasts in several countries, especially Australia, the Russian Federation and India, will likely outweigh smaller crops expected in Argentina, Ukraine, the United States of America (USA) and, most notably, the European Union (EU).

Total wheat utilization is forecast to rise slightly in 2020/21, resting almost entirely on increases in food use, led by Asia and Africa. The reduced price competiveness of wheat relative to other cereals is expected to keep feed and industrial uses of wheat in 2020/21 close to their 2019/20 levels in most countries, except for China and India, where some increases are likely.

By the close of seasons in 2021, global wheat inventories are forecast to reach 281 million tonnes, up 1.9 percent from 2020. However, this increase is largely the result of a sharp rise in China’s stock levels to 139 million tonnes, accounting for nearly half of global stocks. Excluding China, global wheat inventories are anticipated to contract by 3.8 percent, weighed down by expected declines in several leading wheat exporters, particularly Argentina, the EU and the USA. Reflecting this development, the ratio of major exporters’ stock-to-disappearance (defined as domestic utilization plus exports) – a measure of global market availabilities – is expected to decline from 15.2 percent in 2019/20 to 14.5 percent in 2020/21, the lowest level since 2007/08.

World wheat trade in 2020/21 (July/June) is forecast to reach a new record of 184.5 million tonnes. Expected increased purchases by China, the EU, Egypt, Pakistan and Morocco are seen sustaining world trade in 2020/21, offsetting smaller imports currently projected for several countries, including Algeria, Kenya and Turkey. Regarding exporters, higher production volumes in Australia, Canada and the Russian Federation are expected to boost wheat shipments from those origins, more than compensating for likely export reductions from the EU and Ukraine.

For additional analyses and updates, see:

FAO Cereal Supply and Demand Brief

http://www.fao.org/worldfoodsituation

Crop Prospects and Food Situation

http://www.fao.org/giews/reports/crop-prospects

AMIS Market Monitor

http://www.amis-outlook.org/amis-monitoring

Contact:

Erin.Collier@fao.org

Jonathan.Pound@fao.org (Production)

COARSE GRAINS

The forecast for global coarse grains production in 2020 points to a 2.4 percent increase from 2019 to a record 1 478 millions tonnes. Maize production is seen to rise by 1.9 percent to an all-time high, pegged at 1 160 million tonnes, largely driven by expectations of strong production rebounds in the United States of America (USA) and South Africa, as well as record harvests in Argentina and Brazil. Barley output is also set to rise, while sorghum production is forecast to rebound from the decline in 2019.

Total coarse grain utilization is heading to a new peak in 2020/21, forecast at 2 745 million tonnes, up 2.6 percent from 2019/20, mostly on predicted higher feed and other non-food uses. Feed use of maize is seen rising by 1.6 percent, boosted by anticipated strong demand in Argentina, Brazil and China. Global feed use of barley is expected to expand by 3.6 percent, while strong growth in sorghum feed use in China, driven by high domestic maize prices, is expected to push up global sorghum feed use by almost 16 percent. Forecast growth of other non-food uses of coarse grains mostly reflects brisker demand for starch and maize-based ethanol.

Global inventories in 2020/21 will likely drop slightly, amounting to 0.2 percent below their opening levels. Offsetting expected buildups of global barley, rye, and oat stocks, a 2.5 percent drop in world maize stocks is forecast to result from anticipated sharp drawdowns of maize inventories in China and, to a lesser extent, the EU. Without China, world maize carryovers are set to stay close to their opening levels, with the major exporters’ stocks-to-disappearance ratio (defined as domestic consumption plus exports) remaining steady.

World trade in coarse grains in 2020/21 (July/June) is forecast to rise 4.7 percent year-on-year. A foreseen significant increase in maize purchases by China, driven by stronger feed demand and soaring domestic prices, as well as larger imports by the EU following a reduced harvest, could boost maize trade by 3.7 percent. Likewise, an anticipated rise in sorghum imports by China is seen to lift global trade in sorghum, while expectations of higher barley import demand in the EU and Morocco should drive up world barley trade. Reflecting this robust demand and export pace, international export prices of all major coarse grains remain elevated.

For additional analyses and updates, see:

FAO Cereal Supply and Demand Brief

http://www.fao.org/worldfoodsituation

Crop Prospects and Food Situation

http://www.fao.org/giews/reports/crop-prospects

AMIS Market Monitor

http://www.amis-outlook.org/amis-monitoring

Contact:

Erin.Collier@fao.org

Jonathan.Pound@fao.org (Production)

RICE

With the main-crop harvests currently under way in the northern hemisphere, the latest figures confirm the overall positive expectations for this season. Despite the various challenges posed by the COVID-19 pandemic and some weather vagaries – in particular floods – world rice production is set to reach 508.7 million tonnes in 2020, up 1.5 percent from the 2019 reduced level and marking a new record. Asia is poised to lead this expected expansion, although a sizeable area-led rebound is also anticipated in the United States of America (USA), together with a partial upturn in Latin America and the Caribbean. On the other hand, floods, coupled with input constraints, may forestall growth in Africa, while limited water for irrigation has reduced crops in Europe and Oceania.

With ample supplies and efforts to ensure affordable access to rice by vulnerable groups fueling food use growth, world rice utilization in 2020/21 is forecast to expand at its fastest pace in seven years to reach 510.3 million tonnes.

Global rice inventories at the close of the 2020/21 marketing seasons are forecast at 182.0 million tonnes, fractionally below the 2019/20 estimate, which represented the second highest volume on record. While importers (chiefly China, followed by Indonesia) may further reduce their stockpiles, inventory build-ups in exporting countries, especially India, but also the USA and Thailand, are likely to counteract the falls.

After three years of no or negative growth, global trade in rice could expand by 6.3 percent in 2021 to 47.2 million tonnes, underpinned by a resurgence in African imports, in particular by Côte d’Ivoire, Nigeria and Senegal, coming in the wake of successive years of limited purchases and domestic output growth. India’s export leadership in the rice world trade arena is expected to remain unrivaled in 2021, although most other exporters are also seen expanding shipments, except for Australia, the major South American suppliers, Myanmar and the USA.

Since reaching near six-year highs in May, international rice prices have come under downward pressure from a slow pace of nearby purchases and favourable crop prospects in major suppliers. Nevertheless, they remain above year-earlier levels, amid lingering support provided by a combination of seasonal tightness, currency movements and strong local demand in some exporting countries.

For additional analyses and updates, see:

AMIS Market Monitor

http://www.amis-outlook.org/amis-monitoring

Cereal Supply and Demand Brief

http://www.fao.org/worldfoodsituation/csdb/

FAO Rice Price Update

http://www.fao.org/economic/est/publications/rice-publications/the-fao-rice-price-update/en/

Contact:

Shirley.Mustafa@fao.org

OILCROPS

Preliminary forecasts for the 2020/21 season point towards a tightening supply-demand situation for oilseeds and their derived products.

After registering a marked decline in 2019/20, global oilseed production is forecast to climb to a new record in 2020/21, underpinned by a pronounced increase in soybean production. In the United States of America, soybean output is set to rebound strongly following a recovery in both area planted and yields, while in Brazil, unusually attractive production margins are anticipated to stimulate plantings. On the other hand, global sunflower seed output could fall to a three-year low owing to detrimental weather conditions in the Black Sea region, while global rapeseed production could remain depressed due to a third consecutive production decline in the European Union (EU). Regarding palm oil, global production is forecast to resume growing in 2020/21, after 2019/20’s exceptional decrease caused by, inter alia, the aggravation of migrant labour shortages in the major producing countries in the wake of the COVID-19 pandemic.

On the demand side, in 2020/21, global oils/fats consumption is forecast to resume growing, following COVID-19-related stagnation in the food and non-food sectors in 2019/20. For meals/cakes, global utilization is expected to rise modestly for a second successive season, as world demand for feed continues to recover from the effects of African swine fever outbreaks in Asia. Amid the predicted slow growth in global consumption and likely declines in exportable supplies, world trade in oilcrop products is poised to grow at below average rates.

Based on current forecasts, global utilization of both oils and meals would slightly exceed world production, possibly triggering additional drawdowns in national inventories in 2020/21, while global stock-to-use ratios for oilcrop products would drop below the levels observed in 2019/20.

In line with tightening market fundamentals, international quotations for both oilseeds and derived products increased markedly in recent months. Looking forward, prices in the oilcrops complex are expected to be influenced by the further evolvement of the COVID-19 situation, as well as by weather conditions in South America and Southeast Asia (in particular regarding the imminent La Niña cycle), international trade policies, mineral oil prices and the direction of national biodiesel programmes.

For additional analyses and updates, see:

Oilcrops Monthly Price and Policy Update

http://www.fao.org/economic/est/publications/oilcrops-publications/monthly-price-and-policy-update/

AMIS Market Monitor

http://www.amis-outlook.org/amis-monitoring

Contact:

Peter.Thoenes@fao.org

Di.Yang@fao.org

SUGAR

The first forecast for world sugar production in 2020/21 (October/September) points to a likely 1.5 percent recovery from the reduced outturn in 2019/20 to 172.4 million tonnes. Yet, production is foreseen to fall slightly short of global consumption, which is expected to rebound from the current season’s COVID-19-related downturn. As a result, sugar inventories are anticipated to decline again in 2020/21.

The projected increase in production is largely driven by a near record output anticipated in India, the world’s second largest sugar producer. Brazil’s sugar production is expected to edge slightly higher than in 2019/20. By contrast, a second consecutive low output in 2020/21 is forecast in Thailand, the world’s second largest exporter. Likewise, sugar output is forecast to be lower in the European Union, on the back of unfavourable weather conditions.

Global sugar consumption is set to rebound by 2.9 percent in 2020/21 after a decline in 2019/20, due to COVID-19-related lockdown and containment measures. The positive prospects are supported by the progressive relaxation of restrictive measures and expected resumption of economic growth in 2021. The main countries expected to drive the global increase in sugar consumption are India – the world’s largest sugar consumer – and China. Growth is also foreseen to recover in the Near East and Africa. However, considerable uncertainty remains on the demand side. The overall extent of the global recovery in sugar consumption will depend on how the COVID-19 pandemic develops in the coming months, and particularly on whether or not further lockdown measures would be imposed.

The forecast for world sugar trade in 2020/21 (October/September) is pegged at 61.2 million tonnes, slightly up from the 2019/20 estimated volume. Large sales by Brazil and India, resting on bumper crops, are expected to outweigh an anticipated significant decline in exports by Thailand, following a second consecutive year of reduced crop, and the Russian Federation, where a sharp contraction in sowings is anticipated to curtail production in 2020/21 compared to the previous season. Conversely, strong import demand by China and Indonesia are expected to outweigh a likely decline in imports by the United States of America and India. After falling to multi-year lows in April, international prices of sugar increased sharply from May onwards, underpinned by stronger global demand for sugar, particularly from China, where the expiry of the safeguard duty on out-of-quota sugar imports spurred purchases.

Contact:

ElMamoun.Amrouk@fao.org

MEAT AND MEAT PRODUCTS

World meat production in 2020 is forecast at 337.3 million tonnes (carcass weight equivalent), down 0.5 percent year-on-year, a markedly less downbeat forecast than earlier anticipated, but still marking a second consecutive year of decline. An expected drop in pig meat production –mostly in Asia and especially in China – caused by the continued impact of the African swine fever disease, is responsible for much of the foreseen downturn in global meat production, along with likely declines in bovine meat output in India, Australia and Brazil, among others, caused by tight supplies. By contrast, poultry meat production is anticipated to expand, albeit at slightly over half the rate recorded last year, due to robust demand, mostly reflecting the deficit and high domestic prices of pig meat in China. Modest output growth is also predicted for ovine meat. The pace of production expansion across all meat sectors has been moderated by the pandemic-related disruptions to production processes and producers’ output restraints to balance supply under uncertain demand, despite government stimulus packages targeting the industry.

World meat trade is forecast to grow to 37.6 million tonnes in 2020, up 3.9 percent year-on-year, a significantly lower growth rate than the 6.9 percent registered in 2019, reflecting import curtailments by many countries, consistent with the negative impacts of COVID-19 market disruptions to global meat trade and the deep global recession. By contrast, China’s meat imports are forecast to expand by 44 percent, or more than 3 million tonnes, from 2019, absorbing around 30 percent of the world meat exports. Much of the expected rise in global meat imports is likely to be met by exports from Brazil, the United States of America, Canada, Mexico, the Russian Federation and the European Union.

Notwithstanding the significant rise in meat imports by China, a combination of COVID-19-related economic hardships, reduced demand from the food services sector, logistical bottlenecks and limited availability of foreign exchange in some meat importing countries has weakened global import demand, compared with export availabilities, causing international meat prices to fall this year. The sharpest drop has been registered for pig meat, followed by poultry, bovine and ovine meats. Given that COVID-19-related market disruptions are likely to persist, meat demand is expected to remain subdued in the coming months, keeping international meat prices under pressure.

For additional analyses and updates, see:

Meat Market Review

http://www.fao.org/economic/est/est-commodities/meat/meat-and-meat-products-update/en/

Contact:

Upali.GalketiAratchilage@fao.org

MILK AND MILK PRODUCTS

In spite of COVID-19-related market disruptions and contrary to earlier expectations, global milk production in 2020 is forecast to expand by 1.4 percent, year-on-year, and reach 860 million tonnes. The positive outlook reflects likely production increases in key milk producing countries, principally in India, sustained by favourable monsoons and the resilience of village cooperatives’ network in collecting milk amidst logistical hurdles, and in the European Union and the United States of America, bolstered by yield improvements and government assistance, which kept producer margins stable. In addition, output is forecast to rise in China and the Russian Federation, driven by herd expansions in large-scale dairy farms, as well as in Oceania, as a result of favourable weather. By contract, despite good weather, Brazil’s output may decline owing to likely reduction of internal demand due to economic contractions.

World dairy trade in 2020 is forecast to grow to 78 million tonnes (milk equivalent), up 1.5 percent year-on-year, nearly equal the average growth rate for the preceding five years. The increase is largely attributable to persistently high import demand, sustained by China with the resurgence of economic activities, coupled with recent increases in import orders by Algeria, Saudi Arabia and Nigeria, reflecting a gradual recovery in petroleum prices. Australia, Colombia and the Russian Federation may also step-up imports in line with rising internal demand. By contrast, sharp declines in imports are anticipated in the Philippines, Mexico and Japan among others, consistent with market disruptions and economic downturns. High exportable surpluses have been the key price driver that fostered more shipments from the United States of America, Argentina, Belarus and the European Union, while accumulating stocks and economic downturns in importing countries may curb exports from New Zealand, India and Turkey.

International dairy prices, measured by the FAO Dairy Price Index, fell between February and May 2020, largely due to a slump in global import demand, caused by logistical bottlenecks, reduced food services sales and market uncertainty. However, prices began to increase since then, pushing the index for the first time in October slightly above the pre-pandemic level mostly underpinned by persistent import demand from China, the revival of imports in some oil-dependent countries and an increase in internal demand in Europe. In line with global demand and supply balances, SMP prices rose the most, followed by butter, whole milk powder and cheese.

For additional analyses and updates, see:

Dairy Market Review

http://www.fao.org/economic/est/est-commodities/dairy/milk-and-milk-products/en/

Contact:

Upali.GalketiAratchilage@fao.org

FISH AND FISHERY PRODUCTS

Global catches from wild fisheries are also expected to decline slightly in 2020, as there is an overall reduced fishing effort due to COVID-19-related restrictions on fishing vessel crews and poor market conditions. Fish supply, consumption and trade revenues are all expected to decline this year due to the impact of the pandemic containment measures on demand, logistics, prices, labour and business planning. Global aquaculture production is now expected to fall for the first time in many years, by some 1.3 percent. Sectors with longer production cycles, such as salmon, cannot adjust rapidly to the demand shifts, though shrimp and pangasius farmers have been able to quickly reduce their output significantly. Global catches from wild fisheries are also expected to decline slightly in 2020, as, overall, there is a reduced fishing effort due to COVID-19-related restrictions on fishing vessel crews and poor market conditions.

The market effects of the pandemic have brought about several far-reaching changes, many of which are likely to persist in the long term. Aggregate prices for 2020, as measured by the Fish Price Index, are down year-on-year for most traded species. The importance of retail sales has significantly increased at the expense of food services, as the hospitality sector has remained subdued. Consumers, who are trying to limit visits to grocery stores and concerned about future lockdowns, have shifted their seafood preferences towards preserved and prepared products, while demand for fresh fish has waned. The necessity of home cooking is a new focus for marketing campaigns and online distributers, while product innovations centred on convenience are proliferating. The economic downturn and rising unemployment are affecting household incomes, with demand for luxury products such as lobster weakening. At the same time, sales of canned tuna, sardines and mackerel have seen a boost.

The outlook for the next few months is continued uncertainty and a strong tendency towards risk aversion on the part of businesses and consumers alike. The recent uptick in cases in many countries underlines the continuing threat to market stability. On the positive side, product innovations, new distribution channels and the shortening of value chains that have coincided with this upheaval are likely to benefit the seafood industry for many years to come.

For additional analyses and updates, see:

The GLOBEFISH market reports at

http://www.fao.org/in-action/globefish/market-reports

Contact:

Audun.Lem@fao.org

Stefania.Vannuccini@fao.org

Preliminary assessment of the impacts of the COVID-19 pandemic on trade in bananas and tropical fruits

Apparent resilience and vulnerabilities

Sabine Altendorf

Sabine.Altendorf@fao.org

This article presents a preliminary assessment of the current market situation and potential implications of the COVID-19 pandemic for the production, trade and consumption of bananas and tropical fruits in 2020. At the time of writing, in October 2020, comprehensive preliminary monthly data on trade flows for key exporting and consuming countries were only available up to June/July 2020.[1] Price data at various stages of the value chain, as well as market information from industry sources, were accessible for only a small number of countries up to September 2020. In view of these limitations, this assessment can only present partial insights into the impact of widely implemented disease mitigation measures and the resulting supply chain disruptions and economic repercussions, which continue to unfold and affect global markets. Food and Agriculture Organization of the United Nations (FAO) is closely monitoring market developments and the effects of COVID-19 on the global banana and tropical fruit sectors. Updates to the current situation and to the short- to medium-term outlook will be forthcoming.

Global banana and tropical fruit markets under COVID-19

Amid an extraordinarily rapid decline in global economic activity and international transport, world supply and demand for bananas and tropical fruits have experienced COVID-19-related disruptions and contractions through several channels of transmission.[2] On the supply side, the adverse effects of the physical distancing measures have tended to be more immediate and pronounced for the relatively labour-intensive production and trade of tropical fruits – and to lesser extent bananas – than for most other food commodities, particularly staple foods. Given their high perishability, bananas and tropical fruits require timely and well-coordinated harvesting and post-harvest handling, as well as uninterrupted cold chains. Furthermore, some tropical fruits rely on airfreight for export. Delays in supply chains are particularly troublesome for bananas and tropical fruits due to the occurrence of shrinkage in transport, which not only affects product quality, but also reduces the weight and value of shipments received by importing countries. In many producing countries, quarantine-related delays at ports and borders, as well as extreme shortages of reefer containers and airfreight belly-capacity, have slowed trade, while market closures have interrupted producers’ access to local and national distribution outlets. Reports of produce remaining unsold and going to waste have been widespread, particularly for the less traded and more perishable mangoes and papayas, as well as for pineapples. With input factories and import routes disrupted, reduced availability and higher costs of key inputs for production and distribution have further jeopardized a smooth continuation of supply. Since expenditures on inputs can account for more than 30 percent of production costs, locally elevated prices of fertilizers and pesticides have additionally threatened sector profitability. Under these circumstances, the profitability of many farms and plantations has been severely affected, with industry sources reporting difficulties arising from cancelled orders, particularly for small- to medium-sized producers.

On the demand side, macroeconomic indicators point to a global recession in 2020, with adverse effects that would extend into 2021 and possibly beyond,[3] signalling global impacts on poverty, inequality and undernourishment.[4] Reduced consumer incomes threaten to result in reduced demand in the tropical fruits sector globally, given the high income elasticities of demand for the majority of these high-value commodities. Meanwhile, the closure of schools, canteens, restaurants, bars and hotels around the world has severely affected food consumption patterns. While precise figures are not currently available, away-from-home consumption of tropical fruits, especially avocados and pineapples, can account for a substantial share of total consumption in key import markets.[5] This is most notably the case in the United States of America and the European Union – globally the largest importers – where distributors reported difficulties in selling produce throughout the duration of lockdowns.[6] A similar situation was observed in the avocado market in China in the early phase of the pandemic.[7]

Preliminary results for the first half of 2020 – Contrasting trade performances across commodities

Given the considerable uncertainty surrounding the effects, extent and duration of the pandemic, the impact of COVID-19 on global markets is difficult to gauge with precision at this stage. Accurate assessments are further hampered by the intricacies of global production and trade of bananas and tropical fruits, which are additionally prone to seasonal patterns of supply and demand, as well as to a multitude of disruptions, including adverse weather effects and changes in the policy environment. Common reporting lags in monthly trade data, which may reflect export volumes in one month and import volumes in a different month, and which seem to have been aggravated by COVID-19, add further to the difficulties. The following can therefore only provide a preliminary and indicative assessment of observed recent developments in world markets.

Provisional data and insights from industry sources on developments in the first seven months of 2020 indicate diverging trends in world banana and tropical fruit markets, which appear to have been exacerbated by seasonal and weather-related supply fluctuations beyond the apparent impact of COVID-19.

Banana and avocado supply chains show some resilience to the crisis

In the case of bananas and avocados, world exports during this period appear to have remained stronger than expected at the onset of the crisis, which suggests that their supply chains are more resilient than hitherto assumed. Industry sources indicate that many large-scale producers of bananas and avocados managed to keep a sufficient number of workers in plantations to avoid output disruptions, thereby limiting labour shortages. On the demand side, consumers seem to have generally maintained their demand for these fruits, possibly reflecting assumed or real health benefits. The various lockdowns implemented across the world may also have allowed more time to prepare dishes with fresh fruits at home.

According to preliminary data, world exports of bananas, excluding re-exports, during the period January–June 2020, registered an increase of 2.9 percent year-on-year, due to record supplies from Ecuador and a production recovery in Costa Rica, where the banana harvest had suffered weather-induced damage in 2019. Preliminary monthly data show that Ecuador exported 4.3 million tonnes in the first seven months of 2020, representing an 8.5 percent increase compared with the same period in 2019, while Costa Rica increased its exports by 25 percent, to 1.1 million tonnes. This suggests that global banana exports reached a new peak of 12.2 million tonnes for the period January to July 2020. At the time of writing, in October 2020, preliminary data on world imports of bananas, excluding European Union intra trade, were only available until June 2020. The data show that world imports of bananas increased by 1.2 percent compared with the same period in 2019, reaching approximately 9.8 million tonnes. Amid lockdown-induced panic buying in major import markets, bananas reportedly benefited from the fruit’s convenience factor, perceived sanitary safety and longer shelf-life. As such, bananas were among the most popular fruit choices as part of consumers’ efforts to increase their intake of fruits and vegetables, which was backed by relevant governmental campaigns in key import markets, particularly in the European Union. Net banana imports by the European Union, the largest importer globally, displayed a 5.6 percent increase between January and June 2020 compared with the same period of the previous year, as reported by the Statistical Office of the European Union (Table 1). Several other key importers, including the United States of America, the Russian Federation and Japan, similarly reported higher banana purchases compared with the period January to June 2019. Double-digit import growth was also registered in several emerging importers, including Poland, Ukraine and Jordan, which notably increased their procurements from Ecuador.

Similarly, the effects of the pandemic on global supply chains for avocados appear to have been less severe than initially expected, as suggested by the available data and information. Provisional monthly data point to a global export total of 1.3 million tonnes in the first seven months of 2020, an increase of 6.9 percent compared with the same period in 2019, on the back of significantly higher supplies from Peru, Kenya and Colombia, three emerging avocado exporters. However, seasonally lower supplies in Mexico, the world’s leading exporter of avocados, which registered a 1 percent decline in exports over this period, had a moderating effect on the growth of global shipments. COVID-19-related disruptions to harvesting activities and international transport routes limited further growth. Imports of avocados by the United States of America, the major global importer, accordingly declined by approximately 3.8 percent compared with the period January to June 2019, to 540 000 tonnes in 2020. Meanwhile, imports of avocados by the European Union reportedly increased by 12.6 percent (Table 1). Industry sources in both importing blocs reported strong demand for avocados in the retail channel, as consumers maintained or even increased their demand for nutrient-rich food items. However, the COVID-19-induced closures of the hospitality sector particularly affected imports of avocados by the United States of America, since a substantial share of this fruit is commonly consumed outside of home in this key market. In this difficult market situation, average wholesale prices of avocados in the United States of America fell by 5.2 percent between January and September 2020, compared with the 2019 full year average, and by 13.2 percent compared with the January–September 2019 period.

Contracting demand for other major tropical fruits

In contrast with the comparatively positive global trade situation for bananas and avocados, the data available as of October 2020 suggest an overall decline in global import demand for most major tropical fruits, in response to COVID-19. Although reports from specialized fresh produce media suggest that supermarket sales of vitamin- and nutrient-rich fruits temporarily increased in key import markets at the onset of the health crisis and lockdowns, this situation did not last long due to the strong impacts of various logistical challenges on highly perishable fruits.

For example, global exports of pineapples, excluding re-exports, reportedly fell to 1.7 million tonnes between January and July 2020, representing a 3.4 percent decline from the same period in 2019.[8] While Costa Rica, the main global exporter of pineapples, was able to increase shipments by 1.8 percent compared with the previous year, the Philippines experienced a 7.8 percent decline in pineapple exports on account of lower demand from China and South Korea, two major importers of Filipino pineapples. Both importing countries had introduced strict lockdowns early in the year, hampering import routes, as ports and warehouses operated at drastically reduced capacity.

Based on available data, global imports of pineapples amounted to approximately 1.46 million tonnes between January and June 2020, a fall of 10.3 percent compared with the same period in 2019. The two largest importers of pineapples globally, the United States of America and the European Union, acquired respectively 7.4 percent and 11.9 percent less of the fruit over this period than during January to June 2019 (Table 1 for European Union import data). In key import markets, demand for pineapples was substantially affected by the lockdown and closure of the hospitality sector. In the United States of America, for example, food service sales of pineapples account for some 60 percent of total sales.[9]

For the commodity group mango, mangosteen and guava, available data indicate a contraction in exports of 4.9 percent during January–July 2020 compared with the same period in 2019, to a total of 1.2 million tonnes. A significant reduction in shipments of mangosteen from Thailand to China, together with lower exports of mangoes from Mexico to the United States of America and from Brazil to the European Union, was at the core of this decline. In major import markets, a considerable share of mangoes is consumed out of home, rendering the widely implemented COVID-19-related containment measures particularly detrimental to this most traded fruit in this commodity group. Global trade in mangoes, mangosteens and guavas further displayed a higher susceptibility to the adverse effects of the pandemic as a result of their high perishability and sensitivity in transport, coupled with the fact that a high share of exports is transported by air freight. As regards imports, a conclusive assessment of developments in the first six months of 2020 is rendered difficult by a number of inconsistencies in preliminary monthly data for 2020. However, European Union import data for this period indicate a 4.7 percent increase compared with 2019 (Table 1), consistent with industry reports of higher supermarket sales of nutrient-rich mangoes in this trade bloc.

Global papaya trade similarly appears to have experienced a decline in import demand alongside supply disruptions between January and July 2020, as suggested by available data. Global exports reportedly fell by 1.1 percent compared with the period January–July 2019, to approximately 197 000 tonnes, on account of a 2.3 percent reduction in papaya shipments from Mexico, the world’s largest exporter. This represents a strong decline compared with the 12 percent growth recorded for the period January–July 2019 relative to January–July 2018. Papayas are particularly vulnerable to disruptions in transport routes and supply chains, given their high degree of perishability. Accordingly, global imports of papayas reportedly dropped by 7.3 percent between January and June 2020, to approximately 160 000 tonnes. The two largest importers, the United States of America and the European Union, respectively imported 7.7 and 4.8 percent less papaya in the January–June 2020 period relative to the same period of the previous year.

Potential implications

The value chains for bananas and avocados have so far proved resilient to the COVID-19 crisis. Producers were able to overcome the risk of labour shortages, while market operators managed to keep the supply chains functioning in spite of the constraints resulting from the measures taken by governments to contain the spread of the pandemic. However, the available data are too limited to draw definitive conclusions on the resilience of these industries, while the crisis is still evolving. In addition, supply chains of other tropical fruits have not shown the same resilience, partly due to the higher degree of perishability of these products and, in the cases of papayas and mangoes, to the less integrated nature of their production and distribution processes.

Disruptions to trade and uncertainties in global markets can pose particular difficulties for those producing countries whose agricultural GDP relies heavily on the foreign exchange earnings generated by exports of bananas and tropical fruits. This is, for instance, the case for Ecuador and Guatemala, where bananas accounted, respectively, for some 42 percent and 17 percent of agricultural export revenues in 2018. The vulnerability of the banana and tropical fruit sector to the effects of the current crisis is further highlighted by the results of a comprehensive FAO study conducted in April 2020 on the channels of transmission to food and agriculture, which estimates the degree of exposure of countries to supply- and demand-side risks.[11] These risks are particularly pronounced in many major banana and tropical fruit exporting countries, where producer margins tend to be under significant pressure due to a number of factors, including highly competitive value chains, the intensifying market power of downstream actors, the occurrence of plant diseases, and adverse weather events.[12]

In view of the unprecedented magnitude of the COVID-19 pandemic, its uncertain duration and complex effects on economic growth and food security, it will be critical to develop policies aimed at providing financial support to producers so that they can remain operational, while protecting the health and safety of workers and minimizing disruptions to national and international transport routes. Such strategies will be essential to ensure that supply chains for bananas and tropical fruits continue to operate in a sustainable manner, for the benefit of producers, market operators and consumers alike. Ensuring that growth in trade of bananas and tropical fruits is inclusive and equitable and has the potential to generate substantial income gains to smallholder producers, as well as significant export earnings for many of the producing countries, will help to mitigate the damaging consequences of the COVID-19-related health and economic crises. Given that the negative economic repercussions of the pandemic’s mitigation measures are likely to worsen as the virus continues to spread, consumers’ ability to afford healthy diets will probably be affected in both producing and importing countries, contingent on people’s access to savings, credit and safety net programmes. The observed contraction in global import demand of several tropical fruits in the first six months of the year already points in this direction. Low- and middle-income countries, in particular low-income food-deficit countries, which may lack the capacity and funds to implement effective social protection programmes and economic stimuli, are especially at risk, alongside net food importing countries.

Rising inequality globally, including in high-income countries, is of further concern. Protecting consumers, particularly the most vulnerable, from nutritional deterioration requires concerted action at national and global level, including, as already deployed in many instances, the suspension of bilateral loan repayments and collaboration with international creditors on the release of emergency funding. Strengthened availability, accessibility and affordability of nutrient-rich bananas and tropical fruits on a global scale can be conducive to improving the nutritional quality of diets. This nutritional dimension is especially important in light of the globally rising incidence of malnutrition in its various forms and the increasingly heightened importance of healthy immune systems.

1 The typical reporting lag for monthly customs data is in the range of 40 days, but this can be substantially longer. In particular, the timely reporting of global customs data has been perceptibly impaired by the impacts of the pandemic in the first semester of 2020.

2 These will be published in a forthcoming comprehensive FAO market brief on the impact of COVID-19 on fruits and vegetables.

3 Leading international agencies, including the International Monetary Fund (IMF), the World Bank, and the World Trade Organization, are predicting global recessions of varying degrees and outcomes in their assessments of the global economic impact of COVID-19.

4 Analysis by the International Food Policy Research Institute, for example, finds that a 5 percent contraction in global gross domestic product (GDP) in 2020, as projected by the IMF, could result in a 20 percent increase in the number of extreme poor. Furthermore, scenario analysis conducted by FAO in June 2020 on the prevalence of undernourishment finds that a reduction in the growth rate of GDP of between 2 and 5 percentage points in all countries in 2020 could result in the number of undernourished increasing by 83 million to 132 million, with the majority of the increase coming from low-income countries: www.fao.org/3/ca9692en/online/ca9692en.html#chapter-1_1 Part 1, Box 3

5 For example, in France, the largest avocado consuming country in the European Union, one-third of total avocado supply is reported to be consumed out of the home: www.fruitrop.com/en/Articles-by-subject/Direct-from-the-markets/2020/The-impact-of-covid-19-measures-on-fruit-and-vegetables-distribution-in-France

6 See for example: www.agalert.com/story/?id=13971

7 See for example: www.freshplaza.com/article/9208990/overview-global-avocado-market/China. This article provides the following information: “China: Avocado market slowly picking up again […] The avocado market has been very tough lately, as not many people are buying avocados at this time. A lot of them are normally used in restaurants and bars, but since they were closed, fewer avocados were purchased. As a result, sales were very slow, which makes things difficult for a product that doesn’t have a very long shelf life.”

8 Due to the unavailability of monthly export data for Honduras and Ghana at the time of writing in October 2020, volumes from these two origins were excluded from the calculation.

9 Estimate by the International Pineapple Organization.

10 For the commodity cluster mango, mangosteen and guava (HS code 080450), reported shipments from Peru to the European Union were subtracted from total European Union imports due to a misallocation of data.

11 Schmidhuber, J., Pound, J. & Qiao, B. 2020. COVID-19: Channels of transmission to food and agriculture. Rome, FAO.

12 Comprehensive information on the global banana industry, as well as issues affecting the sector, can be found on the webpages of the FAO World Banana Forum: www.fao.org/world-banana-forum/en/. A recent report on the impact of COVID-19 on the banana sector in Ecuador was published by Bloomberg: www.bloomberg.com/news/features/2020-05-22/the-25-billion-banana-industry-is-being-ravaged-by-disease?srnd=premium-asia&sref=Mkhc1AWW

Recent trends in food imports bills and export earnings: the COVID-19 challenge

Josef Schmidhuber

Josef.Schmidhuber@fao.org

Bing Qiao

Bing.Qiao@fao.org

The onset of the COVID-19 pandemic triggered fears as to whether international markets would still have the capacity to meet demands from countries that depend on trade for ensuring the food security of their populations. Actual data available up to June 2020, however, suggest strong, albeit not complete, resilience of the global food markets to COVID-19 shocks. Tables 1 and 2 present these data at global level, for values (Table 1) and volumes at constant 2015 prices (Table 2), contrasted with the periods from H1-2017 to H1-2020. The commodities for which global trade underwent the highest contraction in H1-2020, compared with H1-2019 and H2-2019, can be regarded as highly income elastic, consisting of ‘beverages’ and ‘fish products’, and to some extent ‘livestock products’. These traded commodities could conceivably have been substituted with domestic products. COVID-19 has had an unarguable and profoundly negative impact on gross domestic product (GDP) in countries integrated with global markets. In June this year, the International Monetary Fund (IMF) downgraded global GDP growth in 2020 to almost -5 percent, compared with -3 percent in April 2020. In October, the IMF projected global growth in 2020 at -4.4 percent. While international prices have so far fallen in 2020 for all these high-value foodstuffs[1] lower incomes have rendered these particular products less affordable, offsetting the price effects and resulting in lower volumes transacted.

Assuming seasonal effects in patterns of international procurement, the world food import bill expanded by 0.5 percent in H1-2020 compared with H1-2019 while it contracted by 1.1 percent for the period H1-2020 compared with H2-2019. Purchases of staple foodstuffs, such as cereals, oilseeds and vegetable oils, sugar, and fruits and vegetables, which are less income elastic, recorded an increase in H1-2020 in both value and volume terms, despite generally higher prices for these products. Requiring suitable agro-ecological conditions, options for import substitution – i.e. replacing staple food crops through domestic production – are limited, at least in the short term. Furthermore, a considerable amount of trade in these products (with the exception of fruits and vegetables) takes place in bulk shipments, in a highly capital-intensive setting, and trade logistics in many routes are highly automatized, with little human interaction. Against this backdrop, the global food import bill for the full calendar year of 2020 is expected to remain close to its 2019 level, potentially exceeding it slightly in view of firming prices for most food commodities in recent months.

Decomposing sources of resilience

Among the economic groups presented, developing countries have shown by far the greatest resilience to COVID-19 in sustaining trade inflows. Indeed, for 7 of the 11 food groups, import volumes increased in H1-2020 compared with H1-2019 (Figure 4), and for meat, sugar and oilseeds, trade expanded in percentage terms by double-digit points. The global tendency for volumes of beverages and fish to decline is also shared by developing countries as a whole. The higher import demand by developing countries, relative to world levels, is a reflection of the currently projected 3.3 percent contraction in GDP[2], which stands much lower than the world projected contraction, and underscores the generally low income elasticity of food demand.

Table 3 provides a ‘factor decomposition’ of the change in food import bills globally, and the dichotomy of developed and developing countries’ bills over the period H1-2019 to H1-2020. The absolute change of USD 3.33 billion (+0.5 percent) in the global food import bill is mostly driven by the effect of higher volumes imported, and the level of expansion is significantly limited by the sharp contractions in product inflows to developed countries. While GDP for this country group is forecast by the IMF to contract by 5.8 percent,[3] it is likely that supply chain disruptions due to COVID-19 have had a greater impact on trade than the influence (if any) of falling incomes. Furthermore, consumers in developed countries may be in a position to substitute imports with domestic food inventories, at least in the short run.

Table 3 also confirms the remarkable trade resilience of developing countries to COVID-19 shocks, in that volumes of many imported foodstuffs have increased considerably, offsetting the contractions registered in developed countries, and thus helping to stabilize changes in the global food import bill. A closer inspection of the table, as well as of Figure 4, reveals that meat, oilseeds and cereals have registered the most pronounced increases in absolute terms. Hitherto, and since the outbreak of COVID-19, these commodity flows have been altered by trade policy shifts and animal disease outbreaks, and were centred around the major international destination market of China. For instance, notwithstanding that domestic prices for grains and oilseeds in China are much higher than world prices, the Phase 1 trade deal between the United States and China stipulated that China will import more agricultural products from the United States in exchange for tariff concessions on Chinese imports.[4] China’s rising demand for grains and oilseeds also led the country to source imports from other destinations, especially those situated in South America (namely Brazil and Argentina[5]) while an outbreak of African swine fever in China resulted in elevated imports of pig meat from non-affected countries (particularly the United States and the European Union).

Table 4 highlights the performance of the Americas in sustaining export quantities of many key food commodities during the COVID-19 pandemic, to the extent that export volumes of oilseeds, vegetable oils and livestock products have reached record, or near-record highs.

In summary, China maintained its role as the world’s largest net importer of agricultural products[6] under COVID-19[7]. Its import growth was the main contributor to the remarkable trade resilience seen during the pandemic; it remains important to note that the unabated import growth was not caused by the outbreak of COVID-19 in China, but took place in spite of it, and despite the ensuing global health crisis. The causal factors behind China’s import growth for food and agricultural products lie in the outbreak of the ASF disease and subsequent restructuring of the country’s agricultural sector; the causal factor for the shift in the composition of its trading partners toward suppliers from Latin America resulted from the US-China trade conflict, again a factor that emerged before the COVID-19 pandemic

Agricultural export revenues

Agricultural exports constitute an important source of revenue for many countries.[8] This is particularly true for poorer nations, whose economies remain highly dependent on the agriculture sector for GDP growth and foreign exchange earnings, and which have not yet embraced wider economic diversification. Nevertheless, exports from developing countries as a whole have been instrumental in sustaining international trade in agriculture during the COVID-19 pandemic, and have far exceeded the performance of developed countries in meeting global import needs of agricultural products.

Table 5 shows both values and volumes of agricultural exports by developed and developing countries to help assess the underpinning trends at the world level. It can be seen that developed countries outperformed developing countries in terms of agricultural export activity. For instance, in 2019, the value of absolute export earnings by developed countries was some 61 percent higher. In many product groups, developed countries surpassed agricultural exports of developing countries, both in volumes and values, and especially for non-food items, as well as for beverages, cereals and livestock products. However, the most recent trends in the export of agricultural products by developing countries reveal their dynamism in their ability to cover shortfalls in many products exported typically by their developed country counterparts. Export revenues of developed countries fell over the periods H1-2020 compared with H1-2019, and H1-2020 versus H2-2019, while developing countries increased their export earnings by 4.6 and 3.4 percent, respectively, over the two periods. Again, changes in H1-2020 in comparison with H1-2019 are scrutinized, discounting the possibility of seasonal patterns in trade, especially in terms of volumes.

The increase of 4.6 percent in the revenues of developing countries are on the back of sharp rises in the export volumes of oilseeds, sugar and miscellaneous edible products, also exceeding the volumes exported by developed countries. In fact, developing country exports of coffee, tea, cocoa and spices, as well as meat and fruits and vegetables, registered a higher pace of growth than those from developed countries. While, as mentioned earlier, increases in the growth rates of developing country exports of certain products, especially oilseeds and meat, are fundamentally unrelated to COVID-19, the same cannot be said of other agricultural products, and is testament to the vivacity of developing countries in sustaining food and agricultural exports in the wake of the pandemic.

1 See https://www.imf.org/en/Research/commodity-prices

2 https://www.imf.org/en/Publications/WEO/Issues/2020/09/30/world-economic-outlook-october-2020

3 The IMF forecast is based on “advanced economies”, an aggregate which is almost identical to the categorization of “developed countries”, except for the inclusion of the Republic of Korea, Singapore, Hong Kong, Taiwan and Macau, and the exclusion of the Russian Federation.

4 https://en.wikipedia.org/wiki/China%E2%80%93United_States_trade_war#2019.

5 Both countries, in theory, benefitted from currency depreciation making exports more competitive.

6 This is in spite of China’s currency appreciating rendering imports more expensive.

7 See https://unctad.org/en/PublicationsLibrary/ser-rp-2020d3_en.pdf

8 The definition of “agricultural” exports is derived from the World Trade Organization (WTO), which excludes fishery products.

Statistical appendix tables

Appendix Table 1 (A & B): Cereal statistics

Appendix Table 2 (A & B): Wheat statistics

Appendix Table 3 (A & B): Coarse grains statistics

Appendix Table 4 (A & B): Maize statistics

Appendix Table 5 (A & B): Barley statistics

Appendix Table 6 (A & B): Sorghum statistics

Appendix Table 7 (A & B): Other Coarse grains statistics

Appendix Table 8 (A & B): Rice statistics

Appendix Table 9: Cereal supply and utilization in main exporting countries

Appendix Table 10: Total oilcrops statistics

Appendix Table 11: Total oils and fats statistics

Appendix Table 12: Total meals and cakes statistics

Appendix Table 13: Sugar statistics

Appendix Table 14: Total meat statistics

Appendix Table 15: Bovine meat statistics

Appendix Table 16: Ovine meat statistics

Appendix Table 17: Pigmeat statistics

Appendix Table 18: Poultry meat statistics

Appendix Table 19: Milk and milk products statistics

Appendix Table 20: Fish and fishery products statistics

Appendix Table 21: Selected international prices for wheat and coarse grains

Appendix Table 22: Wheat and maize futures prices

Appendix Table 23: Selected international prices for rice and price indices

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

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

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

Appendix Table 27: Selected international meat prices

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

Appendix Table 29: Fish price indices

Appendix Table 30: Selected international commodity prices

NOTES

GENERAL

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

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

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

• Tonnes refer to metric tonnes.

• All totals are computed from unrounded data.

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

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

• Up to 2019/20 the European Union includes 28 member states. From 2020/21 the European Union includes 27 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/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 2014–2016 period.

COUNTRY CLASSIFICATION

In the presentation of statistical material, references are made to special country groupings: Low-Income Food-Deficit Countries (LIFDCs), Least Developed Countries (LDCs). The LIFDCs include 51 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 47 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

Futures prices for wheat, maize and soybeans made significant turnarounds from the first half of this year, with wheat and soybeans reaching multiyear highs. US Department of Agriculture (USDA) projections for smaller 2020/21 domestic crops and quarterly stocks, coupled with a record export sales pace for US maize and soybeans, reversed the unfavourable price environment driven by the COVID-19 pandemic and trade tensions to produce an optimistic outlook. In addition, small reductions in wheat production forecasts in various regions, together with La Niña-related predictions of a worsening drought across the US southern plains, helped to propel wheat prices to their highest level since 2014. Developments in exogenous markets, such as foreign exchange and energy, had mixed effects on markets. The US dollar index declined by about 10 percent from the high level reached in March, helping to support most commodity prices. Conversely, crude prices, as tracked by the West Texas Intermediate contract which has hovered beneath the USD 40 per barrel mark since June, acted as a counterweight. Global equity and bond markets rebounded dramatically following the reopening of almost all major economies. On balance, the various trade winds helped to support agricultural prices.

VOLUMES AND OPEN INTEREST

From June onwards, trade volumes followed a typical declining seasonal pattern for maize and wheat, while rising for soybeans as export sales of the oilseed reached historic levels. Volumes for all three commodities remained below the record years of 2018 for wheat and soybeans and 2019 for maize. Open interest – the number of outstanding matched purchases and sales for each commodity contract – was lower for all three commodities y/y, although it appeared to be on the rise in the case of soybeans, again probably due to robust export indications. Options trading, which showed significant increases over the past few years, reflected an impressive 30 percent gain to open interest totals for all three commodities, compared with futures alone. In general, relative to the pandemic-induced contraction experienced by the global economy, US grains and oilseeds futures trade remained surprisingly steady and responsive to fundamental developments, particularly expanded trade.

VOLATILITY

Both implied and historical volatility levels for wheat, maize and soybeans exhibited discernible increases since June as fundamentals began to tighten and prices surged. Levels for soybeans which had dipped close to record low levels (historical volatility) of 11 nearly doubled, while the increases for wheat and maize were less pronounced. All three commodities exhibited levels within a normal range of historical volatility (based on 30 days) for the second half of the year, while displaying a small surge in implied volatility (calculated by the level of option premiums on underlying futures contracts) for the same period. In the energy sector, the Crude Oil Volatility Index, which spiked to a record level of 325 as West Texas Intermediate oil prices plummeted into negative values in April, regained a semblance of normality, trading at levels mostly between 35 and 50.

FORWARD CURVES

Forward curves for wheat, maize and soybeans exhibited dramatic changes during the second half of the year, with all three transforming from contango (upward sloping) to backwardation (downward sloping) within the 2020/21 crop year. Decreases in stocks and crop sizes, a surge in US maize and soybean export demand and La Niña weather concerns combined to create much tighter balance sheets than once predicted. The loosening of economic restrictions, imposed to slow the spread of COVID-19, further underscored the tightening situation. The maize forward curve between the December 2020 and December 2021 contracts moved USD 25 per tonne, switching from contango to backwardation since August as the United States Department of Agriculture (USDA) significantly trimmed its record ending stock prediction. Similarly, the y/y soybean curve between November 2020 and November 2021 inverted from a small carry to USD 40 backwardation, to reflect an extremely low ending US stocks number in 2021. The wheat forward curve, typically in a steep contango configuration, moved about USD 11 per tonne between the December 2020 contract and the new crop month of July 2021, inverting slightly during October.

INVESTMENT FLOWS

Managed money established bullish stances in all three commodities. It added to a small net long wheat position while reversing its bearish strategies in maize and soybeans to accumulate moderate to large net long positions, especially in soybeans. Commercials held standard short positions in all three to offset the wave of producer cash sales during harvest. As a result of movement in the forward curves, spread positioning (the equal holding of long and short contracts of two different maturities within one commodity futures contract) attracted considerable interest across multiple trading categories, especially when combined with options strategies, according to reports by the US Commodity Futures Trading Commission. Swaps dealers (dealers in passive fund investments) made incremental increases to their holdings of net long positions for all three commodities since the first half of the year, but their levels remained well off the highs of 30 to 40 percent of open interest attained in 2010. Following years of poor performance, agricultural money managers (as tracked by Barclay Hedge) showed a positive year-to-date return of 10 percent as of October 2020, their best performance since 2010. The Deutsche Bank Agricultural Index Fund – the largest passive agricultural fund tracking 10 futures markets, including wheat, maize and soybeans – rose from an all-time low in June of USD 13.50 to USD 14.90 in November.

Ann Berg

a.e.berg@netzero.net

Ocean freight rates

International Grains Council (IGC)

www.igc.int

OCEAN FREIGHT MARKET (MAY 2020 – OCTOBER 2020)

Markets for dry bulk carriers, which transport grains/oilseeds, sugar, minerals, metals and construction materials, staged a strong recovery during the past six months, although volatility was prevalent at times. Global grains and oilseeds flows were largely unaffected by measures aimed at containing the spread of coronavirus, with major dry bulk ports operating as normal, although some inland logistical bottlenecks were reported in the United States of America and Argentina.

The Baltic Dry Index (BDI), which reflects movements in timecharter prices for main bulker categories, touched a near all-time low in mid-May on coronavirus-related uncertainty about trade prospects and negative sentiment in outside markets. However, values rebounded sharply thereafter on news of easing lockdowns in some countries and tentative signs of recovering economic activity. After a retreat during summer months, generally buoyant trade, linked to increasing activity in China, saw the BDI resume growth and reach a one-year peak in early-October. Still, disappointing demand amid mounting worries about surging COVID-19 cases and new restrictions in some regions pressed quotations across main routes more recently, dashing vessel owners’ hopes for end-of-year upside. Despite recent declines, the Index more than doubled since late-April, but was down by around one-quarter y/y as at end-October.

While some forecasts indicate the potential for a recovery in the world economy in the year ahead, this has become less certain in recent weeks as a strong escalation in the pandemic and associated containment measures curb economic activity. Nonetheless, global consumption of grains and oilseeds looks likely to expand in the next twelve months, potentially bolstering import demand in some regions and propping up seaborne volumes.

Voyage freight rates (which include fuel costs) across key exporters of grains and oilseeds also strengthened markedly during the period, although overall upside was contained by softer bunker prices. The IGC Grains and Oilseeds Freight Index (GOFI) – a trade-weighted measure for nominal transportation costs on around 300 selected routes – rose by a net 55 percent over the past six months on increases across all underlying origins.

Rates for Capesize bulkers – ships mainly hauling iron ore and coal – were particularly volatile throughout the period, the sub-Index growing more than twofold since late-April. Amid surplus tonnage capacity in main areas, values initially dipped to the negative territory in May, for the second time ever, but posted spectacular advances thereafter on increasing iron ore trading, rising to a nine-month high in early-July and breaking the record for the largest daily increase. The market lacked a clear direction in the following several weeks owing to variable fixing volumes at key origins, including Australia, Brazil and the northern Atlantic, but earnings spiked again in early-October on renewed iron ore purchases by China. Yet, with demand falling short of expectations after China’s Golden Week holidays and, with softer sentiment prevailing in Europe and South America, the market mostly eased in recent weeks.

Average Panamax quotations firmed by a net 81 percent in the six months to end-October. Steep advances in the earlier half of the period were chiefly tied to an upbeat sentiment in South America, where record soyabean exports were reported from Brazil. Also linked to signs of improving supply and demand fundamentals at the US Gulf and in Europe, the corresponding Baltic sub-Index approached a ten-month high by mid-July. While increased vessel availability in Europe, coupled with generally softer demand for coal dispatches, contributed to a downturn in the latter half of the month, fresh maize and soyabeans business in the Atlantic underpinned more recently, as did an upturn in minerals enquiries in the Baltic Sea area, lifting the sub-Index to a new multi-month peak in August.

Even though activity out of South America and the US Gulf remained brisk, with the vessel line-up in the latter area reaching an eight-year peak, the market cooled in the period since as more tonnage ballasting from Asia appeared in the Atlantic. Spillover from Capesize losses and heightened worries about prospects for Australia-China coal trade applied pressure on earnings recently, albeit a pick-up in mineral loadings out of Indonesia and new enquiries in the northern Pacific offered late support.

Highlighting firm demand for oilseed runs from Brazil to China, nominal Panamax journey rates from Santos to Dalian rose by 54 percent during the past six months, to around USD 37 tonnes. Accelerating dispatches from the US Gulf reportedly restrained nearby elevation capacity at local export terminals, with delivery costs for 66,000t cargos to China assessed up by 42 percent over the same period, at USD 42 tonnes.

Supramax and Handysize segments, representing smaller vessel classes, witnessed larger gains compared to the rest of the dry bulk complex. With corresponding Baltic Indices mostly trending higher since mid-May, average earnings rallied by 131 percent and 148 percent, respectively. Good fixing activity in Asia and the Indian Ocean, including for coal deliveries from Indonesia, initially underpinned rates, while growing enquiries for grains and oilseeds-related journeys at major origins, including the US Gulf, South America and the Black Sea region, featured as the market driver from June onwards. Nominal HSS (heavy grains, soyabeans and sorghum) voyage freight costs for Supramax trips from the Russian Federation (Novorossiysk) to Egypt (Alexandria) – a major global destination for grains – strengthened by USD 8 tonnes since April, to around USD16 tonnes, while similar deliveries from Argentina were estimated to be up by USD 10 tonnes, at USD 24 tonnes.

FAO Food Price Index

FAO Food Price Index continued its upward trend in October

The FAO Food Price Index[1] (FFPI) averaged 100.9 points in October 2020, up 3.0 points (3.1 percent) from September and 5.7 points (6.0 percent) higher than its value a year ago. The October value, the highest since January 2020, represented the fifth consecutive monthly increase. Much firmer prices of sugar, dairy, cereals and vegetable oils were behind the latest rise in the FFPI, while the meat sub-index fell slightly for the second consecutive month.

The FAO Cereal Price Index averaged 111.6 points in October, up 7.5 points (7.2 percent) from September and as much as 15.8 points (16.5 percent) above its value in the corresponding month last year. The October rise marked the fourth month of consecutive increase. Wheat export prices rose further in October, reflecting strong global demand amidst shrinking export availabilities, poor growing conditions in Argentina and continued dry weather adversely affecting winter wheat conditions in parts of Europe, northern America and the Black sea region. International maize prices also rallied to over six-year highs, largely underpinned by a fast pace in purchases by China and higher than earlier anticipated drawdown of stocks in the United States of America as well as sharp declines in export supplies in Brazil and Ukraine. Feed barley and sorghum prices also increased in October, supported by strong demand and spill-over from rising maize and wheat prices. By contrast, international rice prices fell to seven-month lows, as main-crop harvests got underway in Asia, intensifying efforts to attract buyers.

The FAO Vegetable Oil Price Index averaged 106.4 points in October, up 1.8 points (1.8 percent) month-on-month and posting a nine-month high. The continued strength of the index largely reflected firmer palm and soy oil prices, while those of rapeseed oil declined moderately. International palm oil quotations rose for a fifth consecutive month, underpinned by below-potential production prospects in leading producing countries and robust global import demand. In the meantime, soyoil values were supported by continued supply tightness in South America. By contrast, after rising five months in succession, international rapeseed oil values decreased in October, amid increased uncertainty regarding demand in the EU following the recent deterioration of the COVID-19 situation across the region.

The FAO Dairy Price Index averaged 104.4 points in October, up 2.2 points (2.2 percent) from September, marking the fifth consecutive monthly increase and lifting the index 3.6 points (3.5 percent) above its value in the corresponding month last year. In October, price quotations for all dairy products represented in the index rose, with cheese rising the most, followed by skim milk powder, whole milk powder and butter. Price increases in October reflected some degree of market tightening for near-term deliveries, underpinned by robust import demand from Asian and Middle Eastern markets amidst expectations for less export availabilities from Oceania later this year when production will be declining seasonally. In addition, increases in internal demand for future deliveries in Europe, where production is nearing its seasonal low, also contributed to spot market tightening and price strengthening.

The FAO Meat Price Index[2] averaged 90.7 points in October, down slightly (0.5 points or 0.5 percent) from September, marking the ninth monthly decline since January, and standing 10.9 points (10.7 percent) lower than its value a year ago. Pig meat prices dropped, as a fall in the quotations of German products, reflecting continued influence of the import restrictions imposed by China on Germany, outweighed an increase in those from Brazil due to robust import demand. Meanwhile, bovine meat prices declined due to weak demand in the United States of America, coupled with rising shipments from South America, although supplies from Australia drifted lower due to rising demand for cattle for herd rebuilding. Poultry meat prices also fell slightly because of reduced orders from China and Saudi Arabia. By contrast, prices of ovine meat rose on steady internal demand and low export supplies, especially in Australia.

The FAO Sugar Price Index averaged 85.0 points in October, up 6.0 points (7.6 percent) from September and 7.2 points (9.3 percent) from last year. This increase reflected mostly the prospects of a lower sugar output in both Brazil and India, the two largest sugar producing countries, due to below average rainfalls. Sugar prices were also supported by developments in Thailand, where sugar output is seen lower by almost 5 percent from last year as a result of protracted dry conditions. Additional upward pressure was provided by fund buying, as evidenced by the weekly Commitment of Traders (COT) report. Furthermore, sugar prices displayed high volatility, driven also by uncertainties in crude oil market and movements in the Brazilian Real against the United States Dollar.

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

2 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.