MARKET HIGHLIGHTS

A record crop in 2013 helps world inventories to replenish. International prices have fallen in response but import demand remains strong while export availabilities are only just sufficient. As a result, any problems affecting the crops to be harvested will influence price movements for wheat more than for other cereals.

WHEAT

A record crop in 2013 helps world inventories to replenish. International prices have fallen in response but import demand remains strong while export availabilities are only just sufficient. As a result, any problems affecting the crops to be harvested will influence price movements for wheat more than for other cereals.

COARSE GRAINS

A strong recovery in production stemming mostly from a record maize crop in the United States lifts world stocks to comfortable levels and sharply depresses international prices. While trade expands, export availabilities are adequate, a factor which raises competition for markets and keeps prices under downward pressure.

RICE

After several months of stability, international rice prices plunged in September. Slowing import demand is likely to weigh on the market again in 2014. Despite limited growth in 2012 and again in 2013, world production is forecast to exceed utilization, resulting in yet another increase in world rice inventories.

CASSAVA

Global output is forecast to reach a new record in 2013, driven by expansion in Africa and Asia. However, in Africa, the presence of virulent cassava diseases casts some doubt on how robust future growth will be. In Asia, much depends on competitiveness of cassava substitutes, especially maize.

OILSEEDS

The supply and demand forecasts for 2013/14 point to a further improvement in oilseed/oil/meal fundamentals. Record global oilcrop production, combined with moderate growth in oil and meal consumption, should foster a replenishment in global inventories, especially of meals, thus reducing market tightness.

SUGAR

World sugar production is forecast to increase marginally from 2012/13, but enough to cover projected global consumption and prompt a build-up in global stocks. World sugar trade is anticipated to increase significantly in 2013/14, as falling international sugar prices boost demand from the traditional importing countries.

MEAT

World meat production is anticipated to grow by 1.4 percent in 2013. Prices have remained at historically high levels since the beginning of 2011 and, while there is some variation among the different types of meat, there is no sign of their decreasing overall, despite reduced feed costs.

DAIRY

International dairy products prices have declined from their April peak, but still remain at historically high levels. Although milk production continues to increase steadily in many countries, especially in Asia, output in some of the main exporting countries has been constrained.

FISHERIES

Aquaculture continues to boost overall fish supply, pushing quotations down from earlier levels. Fish consumption per capita keeps growing with aquaculture in the process of overtaking capture fisheries as the main source of supply for direct human consumption.

FAO FOOD PRICE INDEX

This November 2013 release of the FAO Food Price Index (FFPI), also published in this report, introduces a number of revisions to the way the FFPI is calculated, including changes to its commodity coverage. The new approach did not significantly alter the values of the series. The revised FFPI has also been extended back to 1961. The FFPI averaged 205.8 points in October 2013, 2.7 points (1.3 percent) above September, but still 11 points (5.3 percent) below its level in October 2012.

CONTENTS

MARKET SUMMARIES

MARKET ASSESSMENTS

Wheat

Coarse grains

Rice

Cassava

Oilseeds, oils and meals

Sugar

Meat and meat products

Milk and milk products

Fish and fishery products

SPECIAL FEATURES

FAO Food Price Index revisited

G-33 proposal: early agreement on elements of the draft Doha accord to address food security

MAJOR POLICY DEVELOPMENTS

Grains

Rice

Oilseeds

Sugar

Meat

Dairy

STATISTICAL TABLES

MARKET INDICATORS

Investment flows

Ocean freight rates

Food import bills

The FAO price indices

MARKET SUMMARIES

FAO’S FOOD PRICE INDEX REVISITED

The FAO Food Price Index (FFPI) was introduced in 1996 as a public good to help in monitoring developments in the global agricultural commodity markets. The only major modification made to it - until now- was in 2009, when its base period was updated to 2002-2004. During the significant price hikes in 2008, the FFPI gained prominence as an indicator of potential food security concerns for vulnerable developing countries. Since then, with the exception of 2009 and 2010, prices of agricultural commodities have remained at relatively high levels compared with those prior to 2008.

The analysis presented in the Special Feature of this report was designed to discover whether the changes in the global agricultural commodity markets and the improvements in information technology required the FFPI to be reviewed. Some changes were made to the commodity coverage and to the manner in which the agricultural commodity prices were used in the calculation of the index, but the base period and the form of the index were maintained. The changes introduced, moreover, did not significantly alter the values of the series. In addition, the FFPI was extended back to 1961 to allow long-term evaluation of market developments.

* 10 months average

CEREALS

World cereal production (including rice in milled equivalent) is expected to increase by 8 percent in 2013, to 2 498 million tonnes. This forecast is almost 10 million tonnes higher than foreseen in October[1], mostly reflecting upward adjustments to production estimates in Canada, China, the EU, the United States and Ukraine. The sharp increase in 2013 cereal production mostly stems from a recovery of maize crops in the United States and of wheat crops in CIS countries. World rice production in 2013 is expected to grow only modestly.

World cereal utilization in 2013/14 is put at 2 418 million tonnes, 3.5 percent higher than in 2012/13. Total food use of cereals is forecast at 1 099 million tonnes, up 1.7 percent from 2012/13. Larger supplies and lower prices are expected to boost feed use of cereals by 5.3 percent, to 847.6 million tonnes. Global stocks, ending in 2014, are also anticipated to increase, by 13 percent to 564 million tonnes, with coarse grains alone up by 30 percent, mostly in the United States. Wheat and rice stocks are also projected to rise, by 7 percent and 3 percent respectively. The expansion in world cereal stocks would result in the global cereal stocks-to-use ratio reaching 23.0 percent, well above the historical low of 18.4 percent in 2007/08.

World cereal trade in 2013/14 is forecast to reach 314.4 million tonnes, 1.7 percent higher than in 2012/13 and slightly above the level expected in October. International trade in coarse grains is projected at a record 135 million tonnes, up 2.1 percent from 2012/13. Wheat trade is forecast to increase by 1.9 percent, to 142 million tonnes, still below its all-time high in 2011/12. By contrast, after falling by 2 percent in 2013, trade in rice could decline by a further 0.5 percent to 37.4 million tonnes in 2014.

1  Rice in milled equivalent.

2  Trade refers to exports based on a July/June marketing season for wheat and coarse grains and on a January/December marketing season for rice.

3  Low-income Food-Deficit countries.

[1]  Refers to the October 2013 issue of FAO Cereal Supply and Demand Brief at: http://www.fao.org/worldfoodsituation/csdb/

Contact:

Abdolreza.Abbassian@fao.org

Paul.Racionzer@fao.org

WHEAT

Global wheat production in 2013 is expected to grow by 7.4 percent to a new record of 708.5 million tonnes. Most of the increase reflects the recovery of crops in the CIS countries from last year’s drought-reduced levels. Looking into 2014, early indications point to larger wheat area in the United States while prospects are mixed in Europe, especially in the Russian Federation and Ukraine where unfavourable weather hampered plantings.

World trade in 2013/14 is forecast at 142 million tonnes, 1.9 percent higher than in 2012/13, mainly on larger anticipated imports in Asia more than offsetting declining purchases in Europe. Export supplies seem more abundant this season, especially among the major exporters, with shipments from the Russian Federation and Ukraine forecast to increase by 5 million tonnes and 3 million tonnes respectively.

Total wheat utilization in 2013/14 is put at 696.1 million tonnes, 1.4 percent higher than in 2012/13, with food use accounting for most of the expansion. World inventories are forecast to reach 167 million tonnes, an increase of about 6.7 percent from their sharply reduced opening levels and 3.4 million tonnes more than foreseen in October. At this level, the world wheat stocks-to-use ratio could rise to 23.6 percent in 2013/14. However, the ratio of major wheat exporters’ closing stocks to their total disappearance is expected to remain low, at around 13.8 percent, which points to generally tighter export availabilities for wheat than for other cereals.

1  Trade refers to exports based on a common July/June marketing season.

2  Major exporters include Argentina, Australia, Canada, EU, Kazakhstan, Russian Fed., Ukraine and the United States.

3  Derived from the International Grains Council (IGC) wheat index.

Contact:

Abdolreza.Abbassian@fao.org

Paul.Racionzer@fao.org

COARSE GRAINS

World production of coarse grains in 2013 is forecast at a record 1 295 million tonnes, 11.4 percent up from the previous year, largely driven by a strong recovery in maize production in the United States from its 2012 drought-reduced level. A number of other major producers also contributed to this year’s large production increase.

Global trade in 2013/14 is put at 135 million tonnes, a new record and 1.5 million tonnes higher than reported in October. The main feature in the 2013/14 season is the recovery of maize supplies in the United States, which is forecast to boost exports from the country by 44 percent.

Total utilization of coarse grains in 2013/14 is projected to increase by 5 percent to an all-time high of 1 233 million tonnes. Feed and other uses are forecast to register a strong growth, supported by improved supplies and lower prices.

World inventories by the close of crop seasons in 2014 are forecast to reach 217 million tonnes, 30 percent, or 51 million tonnes, above their sharply reduced opening levels and 4.5 million tonnes higher than reported in October. As a result, the world stock-to-use ratio is expected to recover from its historically low level of 13.5 percent in 2012/13, to 17.4 percent. The major exporters’ stock-to-disappearance ratio is also anticipated to rebound from only 7.6 percent in 2012/13 to 13.7 percent in 2013/14.

1  Trade refers to exports based on a common July/June marketing season.

2  Major exporters include Argentina, Australia, Brazil, Canada, EU, Russian Fed., Ukraine and the United States.

Contact:

Abdolreza.Abbassian@fao.org

Paul.Racionzer@fao.org

RICE

International rice prices tumbled in September, reflecting the imminent arrival of new crops on the market and the need to free storage space. The slide was also facilitated by a more lenient implementation of the high price policy in Thailand, which resulted in much lower Thai export quotations, but also weighed on those of its competitors.

Contradicting earlier expectations of a bumper season, the outlook for 2013 world rice production was recently downgraded, amid a worsening of crop prospects in China and India, the two largest producers. As a result, the forecast for global rice production (in milled equivalent) was lowered to 494 million tonnes, implying only a modest expansion of 0.9 percent from the revised 2012 estimate.

International rice trade is expected to decline both in 2013 and 2014. Next year, Indonesia, the Islamic Republic of Iran, the Republic of Korea and the Philippines are anticipated to reduce their purchases, due to abundant domestic supplies. China’s imports, on the other hand, are likely to remain high, especially if the gap between domestic and international prices widens. Among exporters, India is foreseen to curb shipments in 2013 and again in 2014, remaining nonetheless the leading rice exporter in both years. Expectations of lower international prices may depress 2014 deliveries from Pakistan, the United States and Viet Nam. Part of these shortfalls is expected to be filled by Thailand, where the recent fall of export quotations is helping the country recoup its competitive edge.

Rice utilization is forecast to rise by 2.6 percent in 2013/14, with the implementation of India’s National Food Security Law contributing to lifting average per capita food consumption.

Despite its modest growth, world production is expected to exceed utilization in 2013/14, resulting in a further accumulation of stocks. As a result, the stock-to-use ratio is predicted to rise from 35.7 percent in 2013 to 36.0 percent in 2014.

1  Calendar year exports (second year shown).

2  Major exporters include India, Pakistan, Thailand, the United States and Viet Nam.

Contact:

Concepcion.Calpe@fao.org

Shirley.Mustafa@fao.org

CASSAVA

World cassava output in 2013 is expected to reach 256 million tonnes, a marginal increase from the level of 2012, but still the fifteenth annual rise in succession. The expansion is being fueled by rising demand for food in the African continent and increasing industrial applications of cassava in East and Southeast Asia, especially for ethanol and starch. World trade in cassava products, much sustained by industrial demand, is set to match the high volume of 2012. This is the result, by and large, of the price competitiveness that cassava has gained over competing products and also market stabilization policies in Thailand, the world’s leading international supplier of cassava products. International prices of chips have been remarkably stable in spite of strong demand, while cassava starch prices have begun to slide in the wake of more competitive maize quotations.

The outlook for 2014 points to a continued expansion of production in Africa, where cassava remains a strategic crop for both food security and poverty alleviation. However, the increasingly rapid spread of cassava brown streak disease casts some doubt on how robust future growth can be in the region. In Asia, prospects for further expansion of the sector are far from certain, as much depends on how cassava fares with substitutes. In recent months, international quotations of maize have fallen precipitously, which has already begun to dampen demand for cassava. The outlook will also be heavily influenced by the degree of support that Thailand will accord to its domestic sector, either the reinstitution of the “price pledging scheme” or continued sales at a discount from official stockpiles.

1  Source: Thai Tapioca Trade Association.

Contact:

Adam.Prakash@fao.org

OILSEEDS

World oilcrop production could climb to an all-time high, supported by record soybean crops in South America. While large soybean crops point to a healthy expansion in world supplies of meals/cakes, global supplies of oils/ fats should also rise thanks to a recovery in high oilyielding seed output and steady growth in palm oil. Moderate growth in world consumption of oils and meals is expected to continue.

Global output of oilseed products should match world utilization for the second consecutive year, although a sizeable surplus is possible in the case of meals/cakes. As a result, further replenishments in world stocks should be achievable, especially with regard to oilmeals. Based on current prospects, the stock-to-use ratio is projected to improve significantly from last season for meals, but to remain unchanged for oils/fats.

The present 2013/14 outlook suggests there is scope for international meal prices to finally come down from their record high levels. Additional downward pressure on meal prices is likely to come from rising global supplies of feedgrains. As to the oils/fats market, adequate supplies and ample stocks are expected to keep prices stable at their current relatively low level.

This season’s outlook relies heavily on the realization of bumper soybean harvests in South America. Any unexpected weather problem in the region would have a direct, strong impact on the global supply and demand situation. With traders closely monitoring weather developments in South America, prices in the oilseed complex are likely to remain volatile.

While international trade in oils/fats is expected to keep expanding moderately, growth in meal transactions should rebound after last season’s slowdown. As meal prices become more affordable meal import demand should increase – although the abundance of feedgrains may temper such growth.

NOTE: Refer to table 2 in the Oilseeds section of the Market Assessments chapter, for explanations regarding definitions and coverage.

Contact:

Peter.Thoenes@fao.org

SUGAR

World sugar production is forecast to increase only slightly in 2013/14, as falling outputs in the EU, the United States and the Russian Federation offset expansions in Thailand, India and South Africa. The rise is likely to be limited in Brazil, the world’s largest sugar producer and exporter, where unfavourable weather conditions have hampered harvesting operations. Large export availabilities are expected to boost trade in 2013/14 by 12 percent, with strong purchases projected to be made by traditional importers aiming to beef up stocks as a protection against future price instability. World sugar consumption is set to grow by about 2 percent in 2013/14, sustained by increases in several developing countries that will benefit from falling domestic prices. Despite its modest growth, global sugar production is anticipated to surpass consumption for the fourth consecutive year, with the surplus expected to hover around 4.7 million tonnes, resulting in a further build up of stocks. However, at this early stage of the season, there are many uncertainties surrounding the size of the projected production surplus.

Contact:

Elmamoun.Amrouk@fao.org

MEAT AND MEAT PRODUCTS

At the international level, prices have remained high by historical standards for the past two years. The FAO Meat Price Index averaged 184 in October 2013, little changed when compared to a year earlier. So far this year, a reduction in feed costs has facilitated some price decrease for poultry, while prices of the other meat categories have remained either unchanged, in the case of bovine and ovine meat, or increased, in the case of pig meat.

Global meat trade is forecast to hover around 30 million tonnes in 2013 – or 10 percent of production. At this level, it would be 1.1 percent higher, representing a reduction in growth compared to 2012, and well below the rates of 6 and 7 percent seen in 2010 and 2011, respectively. The slowdown is a reflection of improved national supplies in a number of importing countries and a fall in production in some of the principal exporters. However, there are marked differences in trade in the different varieties of meat, with moderate growth forecast for bovine meat and a substantial increase for ovine meat, while trade in poultry may remain unchanged and pig meat decline.

Contact:

Michael.Griffin@fao.org

MILK AND MILK PRODUCTS

World milk production in 2013 is forecast to grow by 1.9 percent to 780 million tonnes – a similar rate to that in previous years. Asia and Latin America and the Caribbean are expected to account for most of the increase, with only limited growth elsewhere.

World trade in dairy products is projected to decrease by 0.9 percent in 2013 to 53.0 million tonnes of milk equivalent amid supply limitations. This compares with an annual average increase of 7 percent in the previous four years.

Asia will remain the main market for dairy products, accounting for some 55 percent of world imports, followed by Africa, with 15 percent. Significant additional demand is expected from China, the Islamic Republic of Iran, Singapore and Pakistan. Elsewhere in Asia, Saudi Arabia, the United Arab Emirates, Indonesia, Japan, the Philippines, Malaysia, Vietnam and Thailand remain important markets, but their import levels are not expected to change markedly and in some cases may decrease. In Africa, elevated international prices are projected to reduce imports as a whole. The principal importers that may be affected are Nigeria, Libya and South Africa. In Latin America and the Caribbean, a number of significant milk powder importing countries, including Venezuela, Cuba, Colombia, Brazil and Peru, may also see purchases constrained by high prices. By contrast, imports by the Russian Federation are anticipated to increase, stimulated by strong demand for butter and SMP.

Contact:

Michael.Griffin@fao.org

FISH AND FISHERY PRODUCTS

Both values and volumes entering the international fish markets are showing moderate growth. The market situation overall continues to be difficult, in particular in traditional developed country markets. The slightly higher prices for some farmed species are more a symptom of supply shortages than strong demand.

The FAO Fish Price Index shows that overall price levels remain high, although they have receded from the top levels of late 2012. Supply problems for farmed salmon and shrimp have boosted aquaculture quotations whereas prices of wild-caught whitefish species, tuna and pelagic species have weakened. Prices of other farmed species, such as seabass and seabream, have fallen due to supply increases far exceeding immediate market requirements.

Contact:

Audun.Lem@fao.org

MARKET ASSESSMENTS

WHEAT

PRICES

Wheat prices rose sharply in recent weeks although they still remained below last year’s levels

Following a relatively steep decline in July and August, international wheat prices have regained most of their losses. In October, the benchmark US wheat, No.2 Hard Red Winter, f.o.b. Gulf, averaged USD 333 per tonne, up 3 percent from June. Stronger pace in exports from the United States was supported by a weaker dollar, combined with worries over wet conditions delaying winter plantings in the Russian Federation and Ukraine as well as deteriorating crop conditions in Argentina, due to cold weather and prolonged dryness. However, wheat prices in general still remained below the previous year’s levels, with higher quality milling wheat values between 10 to 17 percent lower than last year, and feed quality wheat as much as 20 to 25 percent lower. A record wheat crop, pushing up world supplies to more comfortable levels, combined with a strong recovery in maize availabilities kept wheat prices from most origins below the previous year’s levels. One exception has been Argentina, where an extremely tight domestic supply situation has driven export prices, slightly higher than at the same time last year, to an averaged USD 344 per tonne in October.

In October, the Chicago Board of Trade (CBOT) wheat futures for December delivery averaged USD 253 per tonne, down 15 percent from the beginning of this year and 21 percent lower than in the corresponding period last year. While the CBOT wheat futures since September were underpinned by short covering and strong import demand, favourable supply prospects and weakness in maize and soybean prices kept CBOT wheat values below their previous year’s levels. By contrast, higher quality (protein) wheat futures, traded at Kansas City Board of Trade (KCBT), remained firm, in part reflecting a continued tight export availability of this type of wheat. For more detailed analysis of developments in the futures see Investment Flows in the Market Indicators section of this report.

PRODUCTION

Latest forecast puts 2013 wheat production at record high

FAO’s latest forecast for global wheat production in 2013 stands at 708.5 million tonnes, 7.4 percent up from last year’s level and a record high. Most of the increase in global wheat production reflects the recovery of crops in the major producing CIS countries in Europe and Asia after last year’s drought-reduced levels. Latest information puts the 2013 wheat outputs up by 36 percent in both the Russian Federation and Ukraine, while in Kazakhstan, a 66 percent recovery from last year’s low is expected.

Elsewhere among the main Northern Hemisphere producing countries, aggregate wheat output of the EU also increased significantly, rising 9 percent from the previous year to the highest level since the 2008 record. By contrast, wheat output fell in the United States by some 7 percent, despite increased plantings, reflecting adverse conditions over the winter that led to above-average abandonment. In Canada, however, despite delayed planting, wheat production prospects remain positive and latest forecasts point to a record output, 22 percent above 2012.

In Far East Asia, latest estimates show the 2013 wheat crop virtually unchanged from the previous year’s record level, while in the Near East, production increased under generally satisfactory conditions. The 2013 harvest results were favourable overall for North Africa, but with mixed outcomes at national level: outputs in Egypt and Morocco were the highest on record, while production slightly declined in Algeria and was sharply reduced in Tunisia due to dry conditions.

1  Trade refers to exports based on a common July/June marketing season.

2  Major exporters include Argentina, Australia, Canada, EU, Kazakhstan, Russian Fed., Ukraine and the United States.

3  Derived from the International Grains Council (IGC) wheat index.

*  Countries listed according to their position in global production (average 2011-2013)

In the Southern Hemisphere, the main 2013 wheat harvests are ongoing or about to start in the coming weeks. In South America, prospects are uncertain in Argentina, where the area planted increased from last year’s reduced level but a spell of dry weather in August to mid-September affected crops and may have reduced yield potential in some areas, despite the arrival of beneficial rainfall later in the season. Similarly, in Brazil, although plantings increased, crops were also affected by inclement weather during the season, in this case unseasonably cold temperatures and frosts in August, which resulted in a significant downward revision to earlier output forecasts. Nevertheless, production is forecast well above the sharply reduced 2012 harvest. In Australia, the latest official forecast of mid-September for the 2013 wheat output stands at 24.5 million tonnes, about 11 percent up from last year on account of increased plantings and higher yields. Although prospects have recently improved in Western Australia, the largest producing state, with the arrival of abundant rainfall after previous drought conditions, any gains have likely been offset by a continued deterioration in New South Wales reflecting extreme hot and dry conditions. In Southern Africa, harvesting of the winter wheat crop is currently underway and production is expected to reach about 2.1 million tonnes, slightly below last year’s crop due to a contraction in South Africa.

Wheat planting for 2014

In many parts of the Northern Hemisphere, the winter wheat crops for harvest in 2014 are already being planted or are due to be sown in the next few weeks. In the United States, as of 21 October, about 80 percent of winter wheat planting was reported to be complete,

about average for that time of the season. Good sowing conditions throughout much of the Hard Red Winter Wheat area are reported to have encouraged some expansion of wheat area, especially where last year’s production was limited by drought. Based on the condition of crops in late October and assuming less abandonment than last year, the United States seems well placed to have a larger wheat area for harvest in 2014. In Europe, conditions for winter cereal planting in the EU have been generally favourable and the overall area planted to wheat is expected to change little from the previous year. In the European CIS region, after a favourable start to the planting season, adverse conditions interrupted planting progress, dampening prospects for next year’s wheat crops. In the Russian Federation, latest indications point to a reduction in the winter wheat area after wet weather hampered planting. Similarly, in Ukraine, cold wet weather delayed and reduced planting. In Asia, planting of the 2014 winter crops, mainly wheat, is underway in China, India and Pakistan.

TRADE

Larger wheat supplies boost trade in 2013/14

FAO’s forecast for world trade in wheat (including wheat flour in wheat equivalent) in 2013/14 (July/June) has been raised by 1 million tonnes since October to 142 million tonnes, up 1.9 percent (2.7 million tonnes) from 2012/13 but still 4 percent (5.5 million tonnes) below the all-time high of 147.5 million tonnes registered in 2011/12. The latest upward revison reflects small adjustments to the projected imports by Azerbaijan, Israel, Indonesia and Thailand.

The forecast expansion in world trade in 2013/14 is largely driven by higher imports in Asia, more than offsetting declining imports in Europe. In Asia, total wheat imports in 2013/14 are currently forecast at 69.7 million tonnes, up as much as 5 million tonnes from 2012/13. However, China would account for the bulk of this increase in imports into Asia. Near-record domestic prices (peaked in September) and strong demand for high quality wheat are seen to boost wheat purchases by China (Mainland) to 7.5 million tonnes in 2013/14, up 4.5 million tonnes from the previous season and the highest since the mid-1990s. Wheat imports in Indonesia are forecast to reach 7.2 million tonnes, up 500 000 tonnes from the previous season. Indonesia does not produce wheat and, hence, its wheat imports continue to rise steadily, keeping pace with domestic consumption. Imports by Pakistan are also forecast to increase sharply, by 200 000 tonnes to 950 000 tonnes given the high domestic prices and dwindling stock levels. Other countries in Asia importing more wheat in 2013/14 include the Philippines, Israel, Saudi Arabia and Yemen while imports by the Islamic Republic of Iran could decline by 1 million tonnes to 4.5 million tonnes, mostly on very large carryovers from the previous season and a slight increase in this year’s production.

In Africa, aggregate wheat imports in 2013/14 are put at 38 million tonnes, 1 million tonnes higher than in 2012/13. In North Africa, imports by Egypt are expected to reach 9.5 million tonnes, some 1.2 million tonnes more than the previous season’s reduced level on signs that higher imports may be needed this season for the domestic subsidy programme. Wheat imports by Tunisia are also forecast to surge, from 1.5 million tonnes in the previous season to 2.4 million tonnes in 2013/14. The increase reflects a sharp decline in domestic production this year. By contrast, a record production in Morocco could lead to a sharp (1.7 million tonnes) decrease in imports to 2.3 million tonnes. Imports by most countries in the sub-Saharan region are forecast to remain close to the previous season’s levels. Kenya is expected to increase its wheat purchases in 2013/14 to 1.1 million tonnes, up 350 000 tonnes from the previous season, on slightly reduced domestic production and a steady rise in demand for wheat flour.

In Europe, imports in 2013/14 are forecast to decline to 7.6 million tonnes, down 800 000 tonnes from the 2012/13 estimate. This anticipated decrease mostly reflects falling demand in the Russian Federation where imports are expected to be halved to 600 000 tonnes because of the recovery in domestic production. A bumper harvest in the EU is also expected to keep imports below the previous season’s level. In Latin America and the Caribbean, imports in 2013/14 are forecast to change little in most countries. Deliveries to Brazil, are forecast at 7.5 million tonnes, up slightly from the previous season with larger than normal purchases from the United States to make up for the reduced supplies from Argentina, its traditional supplier. By contrast, Mexico’s imports in 2013/14 are put at 3.8 million tonnes, slightly less than in the previous season reflecting the increase in domestic production.

Regarding exports, compared with the situation in 2012/13, export supplies in the 2013/14 marketing season are more abundant, especially among the major exporters. Shipments by the Russian Federation and Ukraine are forecast to increase the most, by almost 5 million tonnes and 3 million tonnes respectively. In addition wheat exports from Canada, the EU and the United States are also projected to exceed previous season’s levels. By contrast, sales from Argentina could dip to 4 million tonnes, their lowest levels in over two decades, reflecting a very tight domestic supply situation as a result of a poor harvest in 2012 and the expectation of below-average output again this year. Exports from Australia may decline too, as ending stocks are seen to remain low despite the anticipated recovery in production. Among other exporters, slightly lower shipments are forecast for Brazil, Paraguay and Turkey.

UTILIZATION

Total wheat utilization to increase in 2013/14 mostly on higher food use

Total wheat utilization in 2013/14 is forecast to increase to 696.1 million tonnes, 1.4 percent higher than in 2012/13 and just slightly (0.2 percent) below the 10-year trend. Higher food use would account for most of the expansion in total wheat utilization. Total wheat use for direct human consumption is forecast to reach 482 million tonnes, up 1.6 percent from 2012/13. At this level, world wheat consumption, on a per capita basis, would be steady at around 67 kg per annum. Developing countries account for the bulk of the wheat used for food consumption. In 2013/14, total wheat used for food in the developing countries, as a group, could reach 348 million tonnes, up 2.1 percent from the previous season. Just two countries, China and India, account for 48 percent of total wheat consumed in the developing countries. Food use of wheat in the developed countries in 2013/14 is expected to reach 134 million tonnes, up marginally from the previous season.

Total feed use of wheat in 2013/14 is forecast at nearly 134 million tonnes, up 0.6 percent from the previous season but below the peak of 147 million tonnes in 2011/12 when feed wheat consumption rose sharply in many countries, particularly in China. The anticipated strong recovery in supplies of coarse grains in 2013/14 is expected to lower feed use of wheat. In China, feed use is forecast to approach 19 million tonnes in 2013/14, down 12 percent from the previous season and 34 percent below its peak in 2011/12. Also in the United States, feed use of wheat is heading towards a significant decline in 2013/14, falling by 28 percent to 7.6 million tonnes. However, in the EU, traditionally the largest market for feed wheat where almost 40 percent of wheat production is destined for animal feed, this season’s feed use is set to increase by 10 percent to 52 million tonnes, reflecting a strong recovery in production.

Among the other uses of wheat, total industrial use of wheat is forecast by the International Grains Council to increase from 18.6 million tonnes in 2012/13 to 19.4 million tonnes in 2013/14. Higher use of wheat for production of ethanol, which is forecast at 7.9 million tonnes, up slightly from 7.3 million tonnes in 2012/13, accounts for most of the projected small increase.

STOCKS

World wheat inventories rise but export availabilities remain relatively tight

Following a strong recovery in global wheat production this year, world wheat inventories by the close of crop seasons in 2014 are forecast to reach 167 million tonnes, an increase of about 6.7 percent, or nearly 10 million tonnes, from their sharply reduced opening levels. The forecast has been raised by 3.4 million tonnes since October, mostly in line with the latest upward revisions to production forecasts, especially in Canada.

Among the countries where stocks are projected to increase the most, inventories in China are seen to increase by over 5 million tonnes, in Canada by 3.3 million tonnes, in the EU by 2.6 million tonnes and in the Islamic Republic of Iran and the Russian Federation by almost 1.7 million tonnes each. By contrast, in the United States, given the decline in production in 2013 and expectation of large exports in 2013/14, ending stocks are likely to shrink by over 4 million tonnes, to around 15 million tonnes, the lowest level since 2008 when stocks fell to 8.3 million tonnes.

Based on current forecast, the world wheat stocks-to-use ratio in 2013/14 would reach 23.6 percent, slightly higher than 22.5 percent in 2012/13 and well above the historical low of 19.9 percent registered in 2007/08. However, the ratio of major wheat exporters’ closing stocks to their total disappearance (defined as domestic utilization plus exports), which is considered a better measure for availabilities in global markets, is expected to remain low, at around 13.8 percent, similar to the previous season and only slightly above the 12.9 percent low registered in 2007/08. This points to the fact that, globally, stocks may be at a comfortable level, but export availabilities of wheat are much tighter than those of other cereals.

COARSE GRAINS

PRICES

Large maize supplies drive down international prices

Good production prospects and expectation of a sharp recovery in global supplies of coarse grains, maize in particular, resulted in prices of all coarse grains falling below the previous year’s levels. The decline has been most pronounced for maize and sorghum but international prices of oats and barley (feed) also weakened, especially during the harvesting period earlier in the season. The benchmark US maize price (yellow, No. 2, f.o.b.) averaged USD 201 per tonne in October, down 34 percent from the start of the year and as much as USD 119 per tonne, or 37 percent, below October 2012. The anticipated strong production recovery from last year’s drought-reduced levels in the United States has been the single most important factor behind the sharp fall in international maize prices this season. In addition, large export availabilities of maize in Brazil and Ukraine helped in pushing down world prices. Falling maize quotations also weighed on prices of other coarse grains, sorghum in particular. Barley prices were also influenced by large supplies of feed wheat.

In October, the Chicago Board of Trade (CBOT) maize futures for December delivery averaged USD 173 per tonne, down nearly USD 122 per tonne, or 41 percent, from the corresponding period last year. The fall in the CBOT futures has accelerated since September as improved weather conditions have boosted prospects for a record crop in the United States. However, continued strong demand from China, weaker dollar and spill-over strength from soybeans and wheat limited the fall. For more detailed analysis of developments in the futures see Investment Flows in the Market Indicators section of this report.

PRODUCTION

Global coarse grains output at record

FAO’s latest forecast for world production of coarse grains in 2013 stands at a record 1 295 million tonnes, 11.4 percent up from the previous year, largely driven by a strong recovery in maize production in the United States from its 2012 drought-reduced level. Global maize output in 2013 is now forecast at 993.8 million tonnes, up 13.5 percent from 2012. Maize production in the United States, the world’s largest producer, rebounded by some 29 percent from its drought-reduced level in the previous year, and at the current forecast level would be 20 million tonnes above 2009, the previous all-time high. In China, the consistent strong growth in maize production in recent years has continued in 2013 with this year’s output forecast at 213 million tonnes, up 3.6 percent from the previous high, set last year. In Europe, the 2013 maize output is estimated to have increased significantly in the EU and in the Russian Federation and Ukraine. In Western Africa, overall crop prospects are favourable in the Sahel but uncertain in coastal countries. The Sahel faced irregular and insufficient rains at the beginning of the season, but a significant increase in precipitation and soil water reserves in the main producing areas since July has improved crop prospects. In the coastal countries of the Gulf of Guinea, harvesting of the first maize crop has started in the south. Precipitation has remained irregular in several regions, notably in the southern parts of Ghana, Togo, Benin and Nigeria, affecting maize yields in parts. Although rainfall has been more favourable in the northern parts of these countries, overall crop prospects remain uncertain. Early forecasts for the subregion as a whole put 2013 maize output at 16.9 million tonnes, down from last year but slightly above the short-term average. In Eastern Africa, aggregate maize output is forecast to fall somewhat from last year’s bumper level, but should remain well above the average of the past five years.

In the Southern Hemisphere, the main maize crops were harvested earlier in the year. Good to record harvests were gathered throughout Latin America and the Caribbean. By contrast, in Southern Africa, maize production declined for the third consecutive year in 2013, largely due to the impact of a mid-season dry period, particularly in western parts. Despite production gains in some countries, including Lesotho and Mozambique, the aggregate output of the subregion was estimated at 22.9 million tonnes, 2.1 percent down from 2012 although still close to the short-term average. In South Africa, the largest producer of the subregion, maize output fell 2.8 percent to about 12.4 million tonnes, with a sharp reduction in white maize more than offsetting an increase in the yellow maize crop. Planting intentions for South Africa’s 2014 crop point to a 4 percent contraction for maize. Improved rains over the next month, however, may help to stimulate an increase in the area planted to maize.

1  Trade refers to exports based on a common July/June marketing season.

2  Major exporters include Argentina, Australia, Brazil, Canada, EU, Russian Fed., Ukraine and the United States.

*  Countries listed according to their position in global production (average 2011-2013)

FAO’s latest forecast for world output of barley in 2013 stands at about 142 million tonnes, 8.1 percent up from the 2012 level. Outputs have increased in most of the world’s major barley producing countries, most notably in North Africa and the CIS countries in Europe, where outputs are forecast to recover from last year’s drought-reduced levels.

The latest forecast of world sorghum output in 2013 is 63.7 million tonnes, 4.8 percent up from 2012. The bulk of the growth is expected in the United States, where output is seen to recover sharply from the exceptionally low levels of the past two years. Elsewhere, prospects are generally satisfactory for the harvests underway or soon to start in Africa’s main producing countries in the Western and Eastern subregions.

TRADE

World trade in coarse grains in 2013/14 to rise to a record

International trade in coarse grains in 2013/14 (July/June) is currently put at 135 million tonnes, up 2.1 percent from 2012/13, setting a new record. The FAO forecast for trade in 2013/14 is around 1.5 million tonnes higher than was reported in October, with higher forecasts for imports by China, Kenya and the Republic of Korea accounting for most of the upward revision.

Global maize trade in 2013/14 is forecast at 103.5 million tonnes, up nearly 3 million tonnes from the previous season’s level and a new record. In Asia, total maize imports are set to increase by almost 5 million tonnes, or 10 percent, to a new high of 55.8 million tonnes. The biggest increase in imports among the Asian countries is forecast for China (Mainland), where despite expectation of a record harvest this year, maize purchases could reach an all-time high of 7 million tonnes, up 2.7 million tonnes from the previous season. In recent weeks, China accelerated its maize purchases from the United States, where maize prices have fallen to three-year lows and are below domestic prices in China. Maize imports by Japan, the world’s largest maize importer, are forecast to rebound after a dip in 2012/13, reaching 15.4 million tonnes on lower prices compared to last year. Similarly in the Republic of Korea, the world’s second largest maize importer after Japan, maize imports are forecast to increase by around 600 000 tonnes to 9 million tonnes as the country is expected to take advantage of this year’s lower maize prices in world markets. Maize imports by Viet Nam are also seen to increase, by 400 000 tonnes to 1.6 million tonnes to meet growing feed demand, as domestic production is expected to remain nearly unchanged compare to the previous year.

Maize imports in Africa could reach 15.3 million tonnes in 2013/14, up 1 million tonnes, or 7 percent, from the reduced volume in 2012/13. Larger imports are forecast for Kenya mainly because of a decline in domestic production. Also in Latin America and the Caribbean, maize imports are expected to reach a higher level with the largest increase expected in Mexico, where imports could reach 8.1 million tonnes, 2.4 million tonnes more than in 2012/13 as domestic feed demand would exceed this year’s production. Elsewhere, a sharp fall in imports is forecast for Europe, mostly reflecting a recovery in feed wheat supplies in the EU, which could result in a cut of 3.5 million tonnes in maize imports from the previous season, to 7.5 million tonnes in 2013/14. Similarly, maize imports by the United States which in 2012/13 soared to a record level of 3.7 million tonnes (July/June) because of the drought-induced tight supply situation, are expected to fall to well under 1 million tonnes.

World barley (excluding malt) trade in 2013/14 is predicted to reach 19 million tonnes, down slightly from the previous season. In Asia, where the bulk of the trade is concentrated, total imports are put at 15.5 million tonnes with imports by China reaching 2.5 million tonnes, 450 000 tonnes more than in 2012/13 due to strong demand for higher quality imported barley. Purchases by Saudi Arabia, the world’s largest barley importer, are put at 7.7 million tonnes, down 100 000 tonnes from the previous season. In Africa, imports of barley could increase to 1.5 million tonnes, up marginally from 2012/13 with nearly all the anticipated increase in Tunisia because of this year’s poor domestic crop. In Europe, however, imports by the Russian Federation could be halved to 250 000 tonnes, given the anticipated recovery in domestic supplies this season.

Source: WASDE-USDA (September 2013)

Global trade in sorghum is forecast to reach 8.5 million tonnes in 2013/14, up nearly 1 million tonnes from the previous season. Purchases by Mexico, the world’s largest sorghum importer, are forecast to increase by 700 000 tonnes, to 2.8 million tonnes, mostly because of drought-reduced production. Exceptionally large imports by China are also forecast, where imports this season could reach 1 million tonnes, 800 000 tonnes more than in the previous season. Sorghum is attracting more interest in China, as it is not subject to a tariff-rate quota (TRQ) and its prices in world markets are below the domestic maize prices. By contrast, smaller imports are forecast for the EU due to large supplies of alternative feed grains this season, including barley and maize.

Regarding coarse grains exports, the strong recovery in maize supplies in the United States, which has already resulted in a significant decline in international prices of maize, is expected to boost its shipments to 29 million tonnes, 9 million tonnes (44 percent) more than in the previous season’s sharply reduced export volume. At this forecast level, maize shipments from the United States would still fall well short of an average annual export level of around 50 million tonnes in the past ten years (see Figure 8). Indeed, a number of other exporting countries are emerging as strong competitors, a development which is likely to continue also in 2013/14. Maize exports from Brazil, which in 2012/13 surpassed the United States, are forecast at 20.5 million tonnes in 2013/14, thus placing the country as the world’s second largest maize exporter after the United States. Maize exports from Ukraine are forecast at nearly 17 million tonnes, up 3 million tonnes from the previous season, which would place the country almost at a par with Argentina, previously the second (and now the third) largest maize exporter. With regard to export markets for other coarse grains in 2013/14, barley shipments from the EU, the world’s largest barley exporter, are forecast to remain steady at around 4.7 million tonnes. Steady exports are also anticipated from Australia, Canada and Ukraine, at 4 million tonnes, 1.5 million tonnes and 2.2 million tonnes respectively. However, barley exports by the Russian Federation are anticipated to increase by 400 000 tonnes to 2.7 million tonnes while shipments from Argentina could decline by 800 000 tonnes to 3 million tonnes as a result of falling production. In the sorghum market, shipments from the United States are projected to double the previous season’s reduced level to 4.2 million tonnes, with most of the increase driven by higher imports by China and Mexico. This rise in sorghum shipments from the United States would largely offset declining exports in Argentina and Australia.

UTILIZATION

Large supplies and lower prices could result in much higher use of coarse grains in 2013/14

World utilization of coarse grains in 2013/14 is projected to reach an all-time high of 1 233 million tonnes, representing an expansion of around 5 percent from the previous season. At this level, total utilization would exceed the 10-year trend by nearly 1 percent, pointing to a notable reversal from the situation in the previous two seasons when tight supplies of coarse grains pushed their utilization below the long-term trend.

Total feed utilization of coarse grains in 2013/14 is currently forecast to approach 700 million tonnes, some 6.2 percent higher than in 2012/13. A recovery in world supplies and lower prices of major coarse grains are among the main factors for the expected sharp increase. The aggregate feed use in the developing countries, as a group, is likely to reach 361 million tonnes, 7.2 percent higher than in 2012/13 and a record. Among the developing countries, the strongest growth is anticipated in China (up 13 million tonnes, or 10 percent) and Brazil (up 4 million tonnes, or 10 percent). In the developed countries, feed use is projected to increase by 5.3 percent to 339 million tonnes. Most of this expansion is expected in the United States, where feed use is projected at 136 million tonnes (up nearly 17 million tonnes, or 14 percent). This compares to a steady level of around 119 million tonnes registered over the previous two seasons, primarily due to very tight domestic maize supplies.

World food consumption of coarse grains is forecast to reach 207 million tonnes, 2 percent more than in 2012/13. All of the increase is expected in the developing countries, especially in Africa but also in Latin America and the Caribbean, where maize is a major staple. At the global level, the anticipated food consumption of coarse grains would keep average per capita consumption stable at around 29 kg.

Total industrial use of coarse grains in 2013/14 is forecast to register a strong growth of 6 percent to nearly 300 million tonnes, supported by improved supply conditions and lower prices. Total industrial use of maize (for production of ethanol, starch and sweeteners) is projected by the International Grains Council to approach 262 million tonnes, 6 percent higher than in the previous season, with most of the increase occurring in the United States (up 5 percent to 155.5 million tonnes) and China (up 9 percent to 61 million tonnes). In the United States, the latest official forecast puts the use of maize for production of ethanol at 124.5 million tonnes, 5 percent higher than the previous season’s reduced level but still below the peak of 127.5 million tonnes registered in 2010/11 (see Table 3). However, given the constraint posed by the “blend wall” and assuming no changes to the current ethanol mandate in 2014, it is possible that the use of maize for ethanol production in the United States will be smaller than currently anticipated.

STOCKS

World stocks to recover sharply and reach their highest level since 2000

The anticipated strong recovery in global production of coarse grains in 2013 is expected to result in a significant replenishment of stocks. World inventories of coarse grains by the close of crop seasons in 2014 are currently forecast to reach 217 million tonnes, 30 percent, or 51 million tonnes, above their sharply reduced opening levels. The latest forecast is also 4.5 million tonnes higher than reported in October, reflecting upward adjustments in Canada, the EU and the United States. The anticipated massive increase in the level of world reserves will result in the world stock-to-use ratio recovering from its historically low level of 13.5 percent in 2012/13 to 17.4 percent in 2013/14, which would be the highest since 2008/09. Among the major coarse grains, maize stocks are forecast to increase most, by almost 37 percent from their low opening levels to 177 million tonnes, while barley stocks are expected to rebound by over 14 percent to 25 million tonnes.

Most of the increase in world stocks of coarse grains is expected to take place among the major exporters, in particular in the United States, where ending stocks (mostly maize) are projected at 50 million tonnes, up almost 31 million tonnes (160 percent) from a critically low level of just over 19 million tonnes at the start of the season. A large build-up is also anticipated in the EU, where ending stocks could exceed 24 million tonnes, up 8 million tonnes (or 50 percent) from their opening levels with maize and barley increasing by 4.5 million tonnes and 2.3 million tonnes, respectively, while rye inventories may double, increasing by 800 000 tonnes. Sharply higher maize stocks, up 5.5 million tonnes, are also forecast for Brazil given the record crop and reduced export prospects compared to 2012/13. As a result, the major exporters’ stock-to-disappearance ratio (i.e. domestic consumption plus exports), is forecast to recover from the historical low level of only 7.6 percent in 2012/13 to 13.7 percent in 2013/14 – the highest since 2009/10. This indicates a more abundant supply situation in the current marketing season compared to 2012/13.

RICE

PRICES

After several months of remarkable stability, international rice prices finally receded in September, driving the FAO All Rice Price Index (2002-04=100) down by 5 percent to 226 points, its lowest level since April 2012. Prices tumbled in all the rice segments, especially the lower quality Indica, which dipped by 7.6 percent amid weak import demand in Africa and Asia. Japonica rice prices also shed 5 percent, on growing competition for traditional markets in Asia. The slide was less steep for aromatic rice prices, which subsided 2.2 percent in September, a reaction to the general weakness of the sector. In October, prices stabilized around the previous month’s level, with a slight rebounding for indica rice compensating for a 1 percent dip in Japonica prices. The FAO Food Price Index averaged 235 points in the first ten months of the year, 2 percent more than in the corresponding period in 2012. However, prices were subject to diverging trends as they averaged 23 percent higher than last year for Aromatic rice, while Japonica prices declined by 1 percent, the higher quality Indica by 2 percent and the lower quality Indica by 5 percent.

Seen from an origin perspective, the September decline in prices was most pronounced in Thailand, where the benchmark white rice, 100%B fell by 9 percent to USD 460 per tonne. However, prices abated in virtually all origins, especially in the major Asian exporting countries, i.e. India, Pakistan and Viet Nam. They held steadier in the Americas, where market conditions remain relatively tight.

PRODUCTION

Adverse weather since August mars earlier prospects of a bumper season

The 2013 paddy season is well advanced, as most countries have harvested their main crops, but will only conclude in the first half of next year, when the Northern Hemisphere countries garner their secondary crops, now at the planting stage.

In the past few months, the outlook for global rice production in 2013 deteriorated substantially, following a scaling down of prospects in China (Mainland) and India, the two leading producing countries. As a result, global rice production is now gauged at 494 million tonnes (milled basis), barely 0.9 percent, or 4.2 million tonnes more than in 2012. This compares with an absolute increase of over 10 million tonnes per year, on average, in the previous ten years. If confirmed, this would be the second consecutive season of relatively slow world growth.

Much of the 2013 increase in world production is coming from Asia, especially India, where production is expected to recover, sustained by abundant monsoon rains. However, damage caused by insufficient rains in eastern states and cyclone Phailin in early October has led to a 2 million tonne downward revision of the country’s output to 106 million tonnes, which would still exceed last season’s poor outcome by 1.5 percent. Most of the other Asian producers are foreseen to harvest larger crops, with sizeable absolute increases expected in Bangladesh, Cambodia (despite recent floods), the Republic of Korea, Myanmar, Pakistan, the Philippines, Sri Lanka and Thailand. Because of excessively wet conditions and insufficient sunshine, production in Indonesia is forecast to fall short of the government’s ambitious target, but still surpass last year’s record. Likewise, production in Viet Nam is forecast to end marginally higher than last year, constrained by poor price expectations. In China, untimely and scarce precipitation in the central eastern states over the summer resulted in a substantial downward revision of the intermediate crop, currently expected to barely reach last year’s level. In addition, the late rice crop is predicted to shrink by 6 percent, reflecting dry conditions. As a result, China is forecast to produce 138.9 million tonnes in 2013, 0.7 percent or 1 million tonnes less than in 2012 and the first reduction since 2003.

In Latin America and the Caribbean, the sector is expected to recover, although not sufficiently to bring production back to the 2011 high level. Most countries in the region will harvest larger crops this season, sustained by favourable growing conditions, especially Brazil, Guyana, Paraguay and Venezuela. By contrast, in Bolivia, unremunerative prices combined with adverse weather conditions are officially forecast to bring about a 26 percent decline. In Central America and the Caribbean, virtually all countries are forecast to conclude their season positively.

In Oceania, despite mixed growing conditions, Australia achieved record yields of over 10 tonnes per ha, which along with an expansion of plantings, boosted output to its highest level since 2002. However, while the country is preparing to sow the 2014 season crop, there is already some concern about water shortages, which may prompt a cutback of the area planted to rice next season.

Current forecasts for Africa point to a 1 percent drop of production. The decline would mainly result from a severe 21 percent contraction in Madagascar, the second largest producer in the region, which suffered from untimely rainfall and locust outbreaks. Prospects are also negative for Benin, Burkina Faso and Senegal, where the season was hindered by a belated arrival of the rains. With these exceptions, most of the other African producers are anticipated to garner larger crops than last year.

In Europe, production is forecast to drop by 9 percent in the EU, reflecting negative results in virtually all rice growing countries, in particular Italy, where excessive precipitation and low temperatures this summer stalled planting and crop development, and Spain, which reacted to unfavourable price expectations by reducing the area under rice. By contrast, the outlook is positive for the Russian Federation. In North America, the United States is anticipated to face a 7 percent contraction, despite record yields, largely reflecting a price-induced reduction of plantings.

TRADE

Trade in rice to fall in 2013 and 2014, as several traditional rice importers reduce purchases

FAO has cut its earlier forecasts for international rice trade in calendar 2013 and 2014 by about 200 000 tonnes and 500 000 tonnes respectively. The revision for the 2013 trade partly trailed the flows reported so far in 2013, while for 2014, the reduction was mainly based on current prospects for production in 2013, which will largely determine the need for countries to rely on world markets next year. Based on the latest figures, trade in rice is forecast to fall by 2 percent in 2013 to 37.6 million tonnes and by a further 0.5 percent to 37.4 million tonnes in 2014, remaining well short of the all time record of 38.4 million tonnes reached in 2012.

The decline in world rice trade expected in 2013 would partly rest on a 8 percent contraction of purchases by Far East countries, to 9.6 million tonnes. In particular Indonesia and the Philippines, two of the traditional rice importers, are reducing their dependence on world markets, reflecting their success in promoting production within the framework of self-sufficiency programmes. In the subregion, only the Republic of Korea is predicted to step up imports substantially, to compensate for the 2012 production shortfall. Among the other large importers, China (Mainland), Malaysia and Nepal are to maintain their purchases close to 2012 levels. In the case of China, official imports are forecast to remain stable, at around 2.4 million tonnes, although large flows are said to be entering the country unrecorded. For the second consecutive year, Bangladesh is to import only a minimal volume, as official purchases for public distribution programmes concentrate on domestically produced rice. Imports to African countries are foreseen to drop by 5 percent to 12.9 million tonnes overall, with much of the reduction brought about by Egypt, Nigeria and Senegal. By contrast, countries in Near East Asia are to buy 6 percent more in 2013, on larger shipments to the Islamic Republic of Iran, Jordan, Syria and Turkey. Shipments to Latin America and the Caribbean countries are also forecast to rise by 4 percent, sustained mainly by Brazil, Colombia and Mexico, while Cuba, Ecuador, Honduras, Peru and Venezuela may buy less. In the rest of the world, official forecasts point to a 9 percent surge of imports by both the United States and the EU. Most of the 2013 contraction of world exports is expected to stem from reduced sales by Brazil, India, Myanmar and Viet Nam, only partly compensated by increased deliveries from Egypt, Thailand, Pakistan, Paraguay and the United States. Despite the decline, India is still expected to ship around 10.2 million tonnes, maintaining its position as the leading supplier, followed by Thailand and Viet Nam, which are now both expected to deliver 7 million tonnes.

Although still very tentative, the volume of rice exchanged in 2014 is expected to decline somewhat. This would partly reflect reduced imports by Asian countries, set to fall by 2 percent to 17.3 million tonnes, again, largely on account of Indonesia and the Philippines. In addition, the Republic of Korea and the Islamic Republic of Iran are predicted to cut their purchases next year, as the two countries appear well supplied. On the other hand, in light of the 2013 decline of production, imports by China (Mainland) may rise, but much will depend on the domestic versus imported rice price relationship in the country. So far, China has not taken any step to check the large inflows of rice. On the contrary, in September 2013, it renewed the 1 percent tariff quota of 5.32 million tonnes, half earmarked for State Trading Enterprises and half for private traders, and signed a memorandum with Thailand to import 1 million tonnes of rice over five years. Under current prospects, shipments to African countries are forecast to remain in the order of 13 million tonnes, as increased deliveries to western African countries, especially Mali and Nigeria, compensate for smaller deliveries to the southern part of the continent, in particular Madagascar. In Latin America and the Caribbean, imports are set to fall by 2 percent to 3.8 million tonnes, driven largely by reduced purchases by Brazil and Venezuela. By contrast, the expected fall of production in 2013 may again translate into larger purchases by the EU and the United States, now forecast to rise by 11 percent and 4 percent, respectively. Regarding exports, India is expected to bear much of the brunt of the 2014 contraction in world trade, shipping 9 million tonnes of rice or 1.2 million tonnes less than estimated for 2013. Indeed, although the government holds huge stocks, India’s pace of shipments may slow next year, amid falling international prices and rising domestic needs after the passing of the National Food Security Bill into law (see the major policy developments section). Expectations of lower international prices are also anticipated to depress exports from Pakistan, the United States, Uruguay and Viet Nam. Much of these shortfalls are to be filled by Thailand, where the government has recently allowed prices to slide, restoring part of the country’s competitive edge. As a result, Thai exports may rebound by over 21 percent to 8.5 million tonnes. Deliveries from Brazil and Egypt are also forecast to end higher.

UTILIZATION

Public distribution programmes to contribute to rising per capita rice consumption in 2013/14

Global rice utilization in 2013/14 is forecast to reach 489 million tonnes, 2.6 percent, or 12 million tonnes, more than in the previous year. About 84 percent of the total would correspond to human food consumption, 3 percent to feed and 13 percent to other utilizations, which include seeds, industrial uses and post-harvest losses. The volume of rice consumed as food is to increase by 1.9 percent to 410 million tonnes in 2013/14, sustained by population growth but also by a rise of per capita intake to 56.9 kg from 56.6 kg in the previous year. Although stabilizing, retail rice prices remain relatively high in many countries compared with last year. Nonetheless, increasing incomes and urbanization are sustaining demand, especially in the less affluent countries. In addition, the implementation of India’s National Food Security Act is expected to give an additional boost to per capita rice consumption in the country. According to the law, which was signed in September 2013, 75 percent of the rural population and 50 percent of the urban population in the country will be eligible to receive 5 kg of foodgrains (wheat, rice and millet) per month, per person, at exceptionally low prices. However, because the public distribution may displace direct market purchases, it is difficult to pre-empt the true impact of the scheme, which is tentatively estimated to raise per capita rice consumption in India by 2.1 percent to 73.2 kg.

1  Calendar year exports (second year shown).

2  Major exporters include India, Pakistan, Thailand, the United States and Viet Nam.

STOCKS

World stocks continue to rise

Reflecting the recent deterioration of the 2013 production prospects, the forecast for global rice stocks at the close of the 2014 marketing seasons has been cut by 3 million tonnes. Nonetheless, with global production still above utilization, world inventories are forecast to undergo an increase of 5.3 million tonnes to 183 million tonnes in 2014, marking the ninth consecutive year of accumulation. At that level, inventories would be 3 percent larger than their opening level, with the stockpiling concentrated in Asia, particularly in China, where inventories are foreseen to reach 99.8 million tonnes. Likewise, stocks are expected to end substantially higher in Viet Nam and in Thailand, where the government has extended the pledging programme. The increases in 2013 production will also boost carryovers in Japan, the Republic of Korea and the Philippines. Virtually all the other countries are anticipated to close their marketing years with about the same or smaller reserves. They may decline by around 2 million tonnes to 22 million tonnes in India, as the increases in consumption fostered by the National Food Security Law dent the existing public inventories. Carryovers are also predicted to drop in Indonesia, Myanmar and the United States.

Based on the current estimates, the increase in world carryover stocks would heighten the world rice stock-to-use ratio from 35.7 percent in 2013 to 36.0 percent in 2014. Overall, the five major rice exporters (India, Pakistan, Thailand, United States and Viet Nam) are anticipated to increase their end-of-season inventories from 46.6 million tonnes in 2013 to 48.6 million tonnes in 2014, resulting in their stock-to-disappearance ratio rising from 28.0 percent to 28.2 percent over the two years.

/1  Quotations in the month specified in the third column were compared to their levels in the preceding three, twelve and twenty-four months. Price comparisons were made in nominal local currency units.

*  Wholesale prices.

Sources: FAO/GIEWS GIEWS Food Price Data and Analysis Tool; U.S. Bureau of Labor Statistics (BLS); Associazione Industrie Risiere Italiane (AIRI).

CASSAVA

PRICES

International quotations of cassava remain subdued

Monthly reference prices of internationally traded cassava, a market that is mostly confined to East and Southeast Asia, have registered little movement or are in decline. Notable falls concern Thai starch quotations (Super High Grade, f.o.b. Bangkok), which after reaching a 24-month peak in May 2013, lost 15 percent of their value, reaching USD 435 per tonne in October 2013. Prices of Thai chips (f.o.b. Bangkok) have remained remarkably flat over the past 24 months, fluctuating within a narrow band of USD 228 and USD 255 per tonne, and are currently being traded towards the lower end of the band.

These price developments have come as regional demand for Thai cassava products has been at an all-time high and Thai domestic root prices of cassava have remained firm. The stability of cassava chip quotations is related to the release of official stockpiles that have been made available to private traders at a discount, a move that provides greater price certainty to regional buyers while also ensuring the long-term commercial viability of cassava-based ethanol, the principal market for chips. Regarding cassava starch, recent falls in quotations have followed accompanying declines in the international price of maize, which constitutes cassava’s main substitute.

The continuing slump in the demand for pellets for animal feed in traditional import markets has increasingly exposed internationally traded cassava products to the rapidly changing dynamics of industrial sectors. Cassava blended with proteinrich meals, such as soymeal, is an effective substitute for coarse grains and wheat in feed, but throughout much of 2013, adequate grain supplies in the EU once again limited its need to import cassava feed ingredients.

1  Source: Thai Tapioca Trade Association.

PRODUCTION

Global cassava production on the increase in 2013

World cassava output in 2013 is forecast to reach 255 million tonnes, a marginal increase of 1 percent from the estimated level of 2012, but would constitute the fifteenth annual consecutive rise. The expansion continues to be underpinned by the increasing industrial use of cassava in East and Southeast Asia, especially ethanol and, in tandem, by demand for cassava as a food product in sub-Saharan Africa, a testament to the growing role of the crop in regional food security.

Throughout sub-Saharan Africa, by far the world’s largest growing region, the crop is being increasingly targeted in government food security initiatives and as a stimulus to improve rural livelihoods. Not only does the crop require few inputs in cultivation, it provides farmers with flexibility in the timing of harvest and, compared with other staples, the crop also competes favourably in terms of price and the diversity in which the commodity can be used in diets. In West Africa, cassava continues to be at the centre of programmes for its greater commercialization, especially as a strategic crop to reduce cereal imports, notably in the form of High Quality Cassava Flour (HCQF). In the rest of the region, the root crop’s tolerance to erratic weather conditions makes cassava all important in climate change adaptation strategies, especially in East and Southern Africa. However, as the crop is still largely grown under subsistence agriculture conditions, an accurate assessment of cassava production in the region is particularly difficult. Even so, an expansion of over 1 percent, to 137 million tonnes, is foreseen in 2013.

* Estimate

** Forecast

Beginning with Nigeria, the world’s leading producer, official estimates set the trajectory of the harvest to reach a record 55 million tonnes in 2013. Renewed political support for the utilization of cassava is, by and large, behind the prospective 2 percent increase in Nigeria’s crop. Among the other large sub-regional producers, sustained investment is likely to boost Ghana’s cassava output by 4 percent to over 15 million tonnes in 2013. As for central, southern and eastern Africa, the 2013 production outlook has been mired by outbreaks of cassava brown streak disease (see box). The disease has been reported in Kenya, United Republic of Tanzania, Rwanda, Uganda, Mozambique and Malawi, curtailing any prospect of output growth that would have transpired in the absence of the disease. While the rapid introduction of new improved varieties is providing a boost to productivity in the region, it brings with it a major risk in the form of disease transmission, as the propagation method relies on distributing stems from potentially infected plants. Concerns are now surfacing that the disease could appear in West Africa’s cassava growing belt.

In Asia, 2013 cassava production is set to increase by around 1 percent to over 85 million tonnes. The industrial utilization of cassava in the form of alcohol and ethanol has been the main driver of the near 50 percent expansion in the crop’s cultivation throughout the region in the past ten years alone.

A sustained rebound of output in Thailand, Asia’s largest producer, is underpinning the region’s production prospects for 2013, as Thailand gears its sector towards expanding supplies to regional markets. The pink hibiscus mealybug outbreak that afflicted Thailand’s cassava crop in 2010 and in 2011 appears to be under control with production foreseen to increase by 6 percent to 28 million tonnes in the current year. In the past, cassava in Thailand benefited from significant government assistance, principally in the form of price support under a “pledging scheme”. However, with the advent of intense export competition in the region and rising domestic root prices, producer assistance by way of price supports has not been forthcoming. Instead, authorities have intervened through releasing official stock piles of cassava products to shore up competiveness and to stabilize demand. In a further bid to improve Thai competitiveness, officials have announced an “agro-zoning scheme” in which ideal land for cassava cultivation will be identified and farmers will be equipped with better technological knowledge, advice on financing and improved marketing tools.

In China, cassava production is likely to be sustained at around 4.5 million tonnes, virtually unchanged from the past five years. Despite a rapidly growing cassava-based ethanol sector within its own borders, China continues to source the feedstock from the region, where it also has made significant investments to ensure long-term supplies – which have been behind large-scale expansions of the crop in Cambodia, Lao People’s Democratic Republic and Viet Nam during the past five years. In the former two countries, cassava production is foreseen to increase from last year, especially in Lao People’s Democratic Republic (30 percent), but in Viet Nam, the crop is expected to contract 20 percent in 2013. A lack of diversified output markets, together with highly competitive procurement, brings considerable risk exposure, especially downside price risk that has led many of Viet Nam’s cassava farmers to plant more remunerative crops.

How does cassava brown streak disease affect cassava?

Photo: Global Cassava Partnership

Cassava brown streak disease (CBSD) is a devastating disease that causes loss of cassava root production and quality. It can render susceptible varieties unusable if cassava roots are left in the ground for over nine months. CBSD is now occurring in areas that were believed unsuitable for the disease. Cassava brown streak disease causes substantial root yield loss, up to 100 percent. This is worsened by the fact that the symptoms are elusive, i.e. cannot be recognized easily by untrained or inexperienced people, and may not appear until the cassava plant has stayed in the ground longer than 9 months. Worse still, some farmers even confuse the symptoms with those caused by the more familiar Cassava mosaic disease (CMD). The gravity of the situation is that almost all varieties bred or selected for resistance to CMD are susceptible to the “new strain” of CBSD occurring in Uganda, inland areas of Tanzania and western Kenya. Additionally, the disease causes loss in both quality and quantity of storage roots (tubers). Storage roots showing CBSD symptoms are not fit for human or animal consumption.

In contrast to the rest of the region, cassava sectors in Indonesia and the Philippines are more important for food security than for industrial uses. Dietary diversification programmes in the two countries have targeted cassava as a substitute for rice. For instance, in the Philippines, cassava is a priority commodity under the Food Staple Sufficiency Program (FSSP) that also aims to strengthen national resiliency by focusing on food staples that can withstand climate change. In South Asia, cassava also plays a role in food security. In India, lucrative producer prices in the major growing state of Tamil Naidu are expected to lift production to 8.2 million tonnes in 2013.

Source: Thai Tapioca Trade Association (TTTA), FAO

1  In product weight of chips and pellets

The cassava production outlook for Latin America and the Caribbean, on balance, points to a moderate increase from 2012. Production in Brazil, the region’s largest producer, is expected to rebound from last year’s weather-hit crop on the back of higher farmgate prices and is likely to offset trend declines in cassava production of the region’s other sizable producers, including Paraguay, Colombia and Peru.

UTILIZATION

Rising demand from food and fuel sectors

Regarding food utilization, many countries have undertaken initiatives that promote cassava to meet rising dietary needs, especially in sub-Saharan Africa. The consumption of cassava in the form of fresh roots and granulated and flour-based products continues on an upward trend in the region. With the expected overall production increase in 2013, per capita food availability in the subregion could rise by around 1.5 kg to around 117 kg per year in fresh root equivalent. Measures to promote domestic cassava flour over imported cereals, either for direct consumption or through blending, remain active throughout the world and constitute an important determinant in boosting cassava food consumption. For instance, Brazil mandates the blending of 10 percent cassava flour with wheat flour for bread making, an initiative estimated to absorb 50 percent of the country’s cassava crop.

In Nigeria, legislation for a 10 percent blending mandate took effect in 2005 but only 5 percent was enacted, owing to a shortage of cassava flour. However, in an effort to deepen the blending ratio, Nigeria imposed a further levy on imported wheat flour last year, bringing the overall duty to 100 percent, and in tandem, bakeries are now required to apply blending rates of 20 percent. As a measure to further support the initiative, the Federal Ministry of Agriculture and Rural Development has instituted a “cassava bread development fund” worth US$66 million. Nigeria currently imports over 4 million tonnes of wheat at an estimated cost of USD 1 billion. Given the importance of cassava to Nigerian diets, officials are also examining proposals to biofortify the commodity to counter vitamin A deficiency, which is rife in the country.

In a further stimulus to the cassava food sector, several countries in the Caribbean and in Eastern Africa are reported to be using cassava in the brewing of beer. For instance, Kenya is providing excise tax rebates to beer made from cassava. In Mozambique, breweries are using as much as 70 percent cassava in the production of beer.

The demand for cassava from ethanol sectors, especially in Asia, continues as a major driver of growth in world cassava utilization. A typical ethanol distillery potentially produces around 280 litres (222 kg) of 96 percent pure ethanol from 1 tonne of cassava roots with 30 percent starch content. In China, based on the quantity of imported chips and domestic cassava availabilities, well over 1 billion litres of ethanol could be produced from cassava in 2013. The utilization of cassava-based ethanol is also prominent elsewhere in the region, especially in Thailand and Viet Nam. However, in Viet Nam, the uptake of cassava for ethanol production is expected to remain subdued until a mandate requiring 5 percent of all gasoline sold in the country to be ethanol blended comes into force in 2014. The country is then expected to utilize its entire cassava crop to meet the mandate. The utilization of starch made from cassava is also noteworthy in the region, especially in China, Indonesia and Japan, where it is applied in food manufacturing.

Utilization of cassava as animal feed, in the form of dried chips and pellets, is mostly concentrated in Latin America and the Caribbean, especially Brazil. Elsewhere, demand for cassava feed ingredients remains weak, exemplified by the total collapse in the international market for cassava pellets. For instance, in Europe, including cassava in the manufacture of animal feed ingredients, which had been prominent in the past, has been virtually non-existent in the last five years. In Asia, the use of roots as a direct animal feeding stuff has also been in decline, given the higher returns obtained from processing cassava roots for industrial applications. However, compound feed demand involving cassava in Thailand could rise substantially owing to higher poultry production.

TRADE

Buoyant demand for Thai cassava sustains global marketplace

The volume of world trade in cassava is expected to reach 17 million tonnes (chip and pellet weight equivalent), 0.5 million tonnes less than last year’s record volume, but nonetheless an exceptional year for trade. International cassava transactions have mainly been driven by industrial demand for the product, particularly from China, and 2013 is no exception.

Thailand looks set to surpass 12 million tonnes of cassava exports (mostly chips and starch) in 2013, around 1 million tonnes more than it shipped in 2012. The growth in import demand for Thai cassava has come at the expense of its rival exporter, Viet Nam, where deliveries are expected to be down by 29 percent from last year on account of lower availabilities. Calls are mounting within the country to suspend cassava exports as capacity in Viet Nam’s ethanol sector remains under filled. While authorities have rejected the calls, they are examining an export tax regime on cassava.

Similarly, exports by Cambodia are expected to fall by 50 percent. Much of Cambodia’s cassava enters Thailand, but import restrictions imposed by Thailand have led to the decline.

Imports of chips and pellets continue to be driven by the need to fulfil capacity in the growing ethanol sector of China. With chip demand at around 10 million tonnes, China is set to monopolize international trade in this product in 2013. As for cassava starch and flour, growth in global transactions looks set to come to a standstill in 2013 with less than 7 million tonnes foreseen to be traded. Declines in international maize quotations have accelerated of late, making the starch market, in which cassava competes as a substitute, much more competitive.

Prospects for a wider international market beyond Asia remained largely elusive up until last year, when Nigeria entered the global arena securing an order to supply China with 1 million tonnes of cassava chips. Nigeria also recently signed a Memorandum of Understanding with China to export 3.2 million tonnes in the future. Nigerian authorities are increasingly gearing-up the sector to supply international markets by, for example, establishing a special fund for cassava exports for traders and setting aside dedicated land for the trade venture. Last year, the Nigerian Railway Corporation commenced transporting chips from cassava-growing states to the port of Lagos for onward bound shipments.

OUTLOOK

Growth prospects for world cassava sectors remain 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. Countries considering mandatory blends of cassava flour with (mostly imported) wheat flour in bread making will reap the benefits of falling import bills and foreign exchange savings. These considerations are providing cassava sectors in the region with a more assured long-term footing and are, by and large, behind an annual average growth rate that has outpaced population growth throughout the past decade. Sustaining growth will also largely depend on measures to contain the spread of CBSD and to control the disease in affected areas.

By contrast, cassava sectors in Asia are being strongly guided by highly competitive industrial procurement, including starch and ethanol, which renders the outlook somewhat uncertain. Nevertheless, a recent planting survey conducted in Thailand indicated that cassava output in the 2014 growing year is expected to increase by almost 2 per cent, in spite of lower plantings than in the 2013 season. With the prospect of a near-record crop, together with supportive national policies, Thailand is expected to maintain its heavy influence on the sector region-wide. With the traditional cassava pledging scheme currently inoperative, releases of cassava supplies from public inventories have been a major factor behind the stability of prices, especially chips, witnessed during the year. Continuation of official support to the sector will be instrumental in sustaining production and exports from Thailand in 2014, and also in setting benchmark competiveness for other suppliers.

A continuation in the fall of international maize prices constitutes another source for uncertainty, particularly for the cassava starch sector, as competitively priced maize quotations may lead industries to shift toward the grain substitute.

OILSEEDS, OILS AND MEALS[1]

PRICES[2]

2013/14 market fundamentals likely to lend relief to prices throughout the oilseed complex

The 2012/13 (October/September) marketing year saw an improvement in fundamentals for the oilseed complex as a whole. While markets for oilseeds and oils/fats responded with a softening in prices, meal quotations remained conspicuously high due to continued tightness in the world soybean balance. By the end of 2012/13, the FAO price indices for oilseeds and vegetable oils had dropped by, respectively, 47 and 37 points compared to the corresponding values of one year earlier. By contrast, FAO’s meal price index fell by only 24 points.

International oilseed quotations remained high in historic term and only started easing around March 2013, when prospects of an improvement in global soybean production started to firm. International vegetable oil prices fell more gradually and ended 2012/13 with three-year lows. The prominent drop in vegetable oil values reflects continual production increases, in particular in palm oil, which coincided with protracted weakness in global demand for oils/fats. With palm oil inventories climbing to unprecedented levels in Malaysia and Indonesia, international palm oil quotations – and consequently the overall vegetable oil index – quickly lost strength. Regarding international meal prices, export quotations for soymeal (which carry an 80 percent weight in FAO’s price index) ended the 2012/13 season at around USD 560 per tonne, only 10 percent below the all-time highs registered in late 2012. Persistent price strength has been caused by protracted tightness in the global soybean balance, marked by two consecutive seasons of below average inventory levels.

The current supply and demand outlook for 2013/14 points to a further improvement in oilcrop fundamentals. With global output of oilseed products expected to outpace world utilization – possibly including a sizeable surplus of meals/cakes – a marked replenishment in global stocks should be achievable. The resulting marked improvement in the global stock-to-use ratio for meals suggest that there is considerable scope for international meal prices to soften – also because additional downward pressure is expected to come from rising global supplies of feedgrains. The recent easing in Chicago Board of Trade (CBOT) soybean futures prices (from around USD 500 per tonne in end-August to USD 460 in mid-October) seems to point in the same direction. However, it could take some time for meal values to ease. This is because until early next year, i.e. when the new South American crop gets harvested, the United States will be the world’s only main supplier of soybeans (considering that South America’s old crop has basically been sold out due to supply tightness in the United States earlier this year). In other words, for a lasting relaxation in global meal prices to occur, the market’s confidence in the level and regional distribution of global soybean stocks needs to be restored first.

As to the oils/fats market, the prospect of adequate global supplies, abundant stocks and a stable stock-to-use ratio suggests a stabilization of international prices at their current relatively low level.

As the outlook for 2013/14 relies heavily on the realization of a bumper soybean harvest in South America, any unexpected weather (or disease) problem in that region would have a direct, strong impact on the global supplyand-demand situation. With the trade closely monitoring weather developments in South America, prices in the oilseed complex can be expected to remain volatile during the coming months.

OILSEEDS

Oilseed production likely climbing to all-time record in 2013/14

In 2013/14, global oilseed production is projected to rise by 4 percent, possibly exceeding 500 million tonnes for the first time. Production should expand markedly for all major oilcrops except cottonseed. In volume terms, soybeans are expected to lead the expansion, followed by rapeseed and sunflowerseed.

After last year’s record-breaking output, 2013/14 global soybean production is tentatively forecast to rise another 5–6 percent, to an all-time high of 282 million tonnes. The forecast largely rests on prospective production increases in Argentina, Brazil and the United States, which, combined, are projected to harvest 15 million tonnes more than last season. In the United States, where harvesting is still underway, prolonged spells of dry weather have compromised the crop yield potential. Despite a relatively modest average yield level of 2.75 tonnes/ha, US output should still rise – thanks to record high plantings. If confirmed, the latest available production estimate of 85.7 million tonnes (3.7 million tonnes more than last year) would end the downward trend of the last three years. For South America, where sowings have only just started, another record-breaking crop is possible: aggregate output is tentatively set at 156 million tonnes, a sweeping 7–8 percent above 2012/13. With average yield levels projected on-trend at 2.8–2.9 tonnes/ha (assuming normal weather conditions throughout the growing season), the production boost would be driven by a hefty rise in area planted. The region’s total soybean area is tentatively put at 54 million ha, 5 percent up from last season – and 40 percent higher than 10 years ago. Firm domestic and international soy prices, especially relative to maize (see Figure 6), are driving the hike in plantings. Considering that soybean is a predominantly export-oriented product in both Brazil and Argentina, weakness in the two countries’ currencies should also contribute to higher plantings. Production is projected to increase 8 percent in Brazil, reaching a staggering 88 million tonnes, which would make Brazil the world’s leading soybean producer, ahead of the United States. Brazilian farmers are expected to expand plantings by additional conversion of pasture land as well as by limiting maize sowings. Argentina is forecast to harvest 52.5 million tonnes, similar to the record level registered in 2010. In the region’s third biggest producer, Paraguay, the expansion in production could come to a halt if the government decides to pursue its plans to tax soybean production and exports. In other parts of the world, China has reported a further contraction in output, while India’s production is seen climbing to a record level thanks to higher plantings.

Note: The split years bring together northern hemisphere annual crops harvested in the latter part of the first year shown, with southern hemisphere annual crops harvested in the early part of the second year shown. For tree crops, which are produced throughout the year, calendar year production for the second year shown is used.

Global rapeseed production is anticipated to rise for the third consecutive year, possibly climbing to an all-time high of 68 million tonnes. Record or near-record crops have been harvested in the key producing countries of the Northern Hemisphere, with most of the rise occurring in Canada and Europe. In Canada, almost ideal weather conditions lifted production to 16 million tonnes, 10 percent above the 2011/12 record. Sizeable year-on-year improvements are also reported from the EU, CIS countries and China. By contrast, in Australia, insufficient rainfall has led to a reduction in area planted, possibly leading to a decline in production. With regard to sunflowerseed, global production should recover fully from last year’s drop. Concentrated in the EU and CIS countries, the prospective rise is driven mainly by improved yields. Global cottonseed production is set to fall for the second consecutive year, as higher production in parts of South America and South Asia might not be sufficient to offset reduced harvests in China, the United States and Australia.

OILS AND FATS[3]

Oils/fats supplies set to expand sizeably in 2013/14

Preliminary crop forecasts for 2013/14 translate into a global oil/fat production estimate of 199 million tonnes – up almost 5 percent from last season and thus growing faster than in the last two years. Oil extraction from the group of annual oilcrops is estimated to rise by 5.3 million tonnes, under the lead of soy, rape and sunflowerseed oil. As to perennial oilcrops, palm oil is forecast to add 2.6 million tonnes to global oil/fat production. Palm oil share in total oil/fat output should remain around 30 percent, in spite of a small slowdown in production growth. With regard to the two leading producers, production is expected to continue expanding at a faster pace in Indonesia than in Malaysia. The two countries are projected to account for 52 and 33 percent, respectively, of world palm oil production. Global copra oil production should remain about unchanged, while olive oil and fish oil production could recover from their recent falls.

Global oil/fat supplies (comprising 2013/14 production and 2012/13 carry-out stocks) are forecast to rise to 232 million tonnes, which would exceed last season’s record by 4–5 percent. Growth is sustained by higher carry-over inventories from 2012/13. Domestic availability of oils/ fats is set to climb to all-time highs in nearly all main producing countries. The exceptions are the United States and Malaysia, where supplies should remain close to last season’s level on account of reduced opening stocks, and Australia, where domestic production may fall as a result of poor harvests. Commodity-wise, the prospective improvement in global oil/fat supplies will be led by palm oil, followed by soy and rapeseed oil. As for sunflower oil, supply growth will likely be curtailed by low carry-in stocks.

Global oils/fats consumption to reach new record

After last season’s slowdown, a rebound in global oil/fat consumption is possible in 2013/14. Continued economic growth in selected countries in Asia (and in parts of South America and Northern Africa), combined with higher supplies and the gradual fall in international prices for oils/ fats should stimulate demand. Total consumption is pegged at a record 198 million tonnes in 2013/14, up 4 percent year-on-year. Given its competitive price relative to other oils, palm oil would remain the growth leader, followed by soy, rape and sunflowerseed oil.

1  Includes oils and fats of vegetable, animal and marine origin.

2  Production plus opening stocks.

3  Residual of the balance.

4  Trade data refer to exports based on a common October/September marketing season and relate to the sum of trade in oils (meals) plus the oil (meal) equivalent of oilcrops traded.

5  Major exporters include Argentina, Brazil, Canada, Indonesia, Malaysia and the United States.

6  All meal figures are expressed in protein equivalent; meals include all meals and cakes derived from oilcrops as well as meals of marine and animal origin.

7  Major exporters include Argentina, Brazil, Canada, India, Indonesia, Malaysia, Paraguay and the United States.

Among developing countries, which together account for two-thirds of global demand, utilization should expand by another 4–5 percent. Growth would remain concentrated in Asia under the lead of China, but consumption gains are also expected in India, Indonesia and other Asian nations, where steady economic and population growth keeps stimulating demand for food and oleochemical products. In Africa and Latin America, annual consumption growth is expected to remain below 3 percent. Among developed nations, demand could improve after several years of subdued growth, driven by a recovery in supplies.

Regarding the uptake of oils/fats by the biodiesel industry, demand growth is expected to remain below that recorded in recent years. In several biodiesel producing countries, factory utilization rates are likely to remain well below nominal capacity levels. Growth potential is mostly limited to developing countries where national policies continue to encourage production for either domestic use or export. Countries that may implement higher biodiesel consumption targets next year include Brazil, Indonesia, Malaysia and the Philippines, which may raise the importance of palm oil and other tropical oils as feedstock. Among developed countries – which include the world’s leading producers and consumers of biodiesel – longer term prospects for oils/fats as biodiesel feedstock remain bleak, given growing concerns about the overall sustainability of crop-based biofuels. The EU, for instance, is considering lowering its medium-term consumption targets for crop-based biofuels from the levels that were announced in 2009. In the meantime, national biofuel regulations, border measures and certification requirements will continue to influence markets for biodiesel and their feedstock. EU measures regarding the importation of biodiesel from certain origins are one case in point. Biodiesel production levels also continue to depend on the vegetable/mineral oil price relation; a further narrowing in the crude oil/palm oil discount, for instance, would make palm-oil-based biodiesel production more profitable.

Supply and demand balance for oils/fats to improve gradually

After two seasons of tight supplies, total 2013/14 production is anticipated to exceed total demand – albeit by a relatively small margin of 1.5 million tonnes, or less than 1 percent. The anticipated consumption and production levels should allow a further rise in global inventories, notably of soybean, rape and sunflower oil. Presently forecast at 34 million tonnes (measured as oil/fat inventories plus the oil contained in stored oilseeds), ending stocks are set to reach a multi-year high. The exception is palm oil, where, unlike in the last three seasons, demand may exceed production, leading to a drawdown in inventories. In the majority of stockholding countries, inventory levels are anticipated to grow, mainly reflecting improved domestic output. In the United States, however, the expected production rise may not be sufficient to meet domestic and export demand, possibly leading to a further contraction in reserves.

Based on the expectation of rising global oil/fat demand, the projected stock increases would not lead to a noticeable improvement in global stock-to-use ratios. Yearon-year, the global stock-to-use ratio is forecast to remain unchanged, whereas a minimal increase is expected in the stock-to-disappearance ratio for major exporters.

Moderate growth expected in global oils/fats trade

In 2013/14, global trade in oils/fats (including the oil contained in traded oilseeds) is forecast to increase by little more than 3 million tonnes, or 3 percent. The rise will mainly be on account of soy oil, followed by palm oil – with record transactions anticipated for both oils. Trade in rape and sunflowerseed oil should recover from the contractions experienced last season.

Concerning exports, Indonesia is expected to boost its palm oil shipments by almost one million tonnes to a record 22 million tonnes – nearly one-fourth of global oils/fats trade. Palm oil sales by Malaysia, by contrast, should remain flat at 18 million tonnes, in line with the country’s only modest production increase. Incremental sales from the soy complex would originate exclusively from Argentina and Brazil, based on booming domestic production. In the United States, where supplies should remain tight despite this year’s production recovery, exports could contract for the fourth consecutive season, falling to a 6-year low. Reduced shipments are also likely in Australia (rapeseed) and the Philippines (copra) on account of poor harvests, while higher sales are anticipated in Ukraine and Canada (rapeseed), as well as in the Russian Federation (sunflower).

With respect to imports, buyers in Asia, led by China, continue to account for much of the growth in global import demand. Although China is estimated to expand its purchases by 1 million tonnes, imports would grow less than in the past, reflecting weak domestic consumption growth and only minor stock replenishment. In the EU, the world’s second largest import market after China, import requirements could fall because of record domestic availabilities. In India, incremental import requirement should be small relative to past years, thanks to abundant harvests.

MEALS AND CAKES[4]

Global meal supplies to rise markedly in 2013/14

Provided the current crop forecasts for 2013/14 materialize, global meals/cakes production would grow to 126 million tonnes (expressed in protein equivalent), improving last year’s record by about 5 percent. Soymeal should account for most of the increase: mirroring the projected boost in global production, incremental soymeal output is estimated at 5 million tonnes. The remainder would come from rape and sunflower meal, production of which could rise by, respectively, 0.7 and 0.4 million tonnes.

Global oilmeal supplies, which comprise 2013/14 production and 2012/13 carry-out stocks, should climb to an all-time record of 144 million tonnes (expressed in protein equivalent), also thanks to last season’s stock replenishment. Supply expansion is expected to be concentrated in South America, notably Argentina and Brazil. In the region, total supplies could surge by 10 percent (year-on-year), climbing to an all-time record and propelling the region’s share in global supplies to 41 percent. In the United States, domestic availabilities should partially recover from the massive drops of the last two years but remain well below past records. Sizeable improvements in meal supplies are also expected in Canada, the EU, India and Ukraine. By contrast, marked drops are likely in China, where supplies could fall for the third consecutive season, reflecting both low 2012/13 carry-out stocks and a further decline in domestic soy production. Also in Australia, domestic availabilities could fall as a result of poor harvests.

Global meal consumption expected to expand in 2013/14

After stagnating in 2012/13, world meal consumption is forecast to resume growing, possibly reaching a record 122.5 million tonnes (expressed in protein equivalent). Soymeal should be the growth leader, followed by rape and sunflower meal.

Current forecasts rest on the assumption that demand by the livestock sector could grow based on improved economic growth in some countries and a softening in international meal prices. It should be noted, however, that improved global grain availabilities, notably maize and feed-quality wheat, could limit the growth in meal demand. Among developing countries, where about two-thirds of global consumption takes place, growth in meal demand should go on, albeit at a lower rate than in the past five years. In China and the rest of Asia, which is the world’s top consuming region, consumption is projected to rise by 3–4 percent. In developed countries, meal demand should recover almost entirely from the sizeable fall recorded last season. Although meal use is expected to recover in both the United States and the EU, consumption levels could remain well below the respective historic records.

Global meal production likely to exceed demand

Unlike last year, when global meal production exceeded consumption by only 0.6 percent causing continued tightness in the world meal balance, world production in 2013/14 is forecast to surpass consumption by 3.4 million tonnes (in protein equivalents) or almost 3 percent. Based on this production surplus, which would apply primarily to soybean meal, a pronounced replenishment of inventories should be achievable this season: global meal stocks are anticipated to increase by a hefty 15–16 percent or around 2.7 million tonnes (expressed in protein equivalents and comprising the meal contained in stored oilseeds). The stock build-up should be concentrated in key producing and exporting countries, especially in Argentina, Brazil, but also in Canada, India and the EU – all countries that are set to benefit from higher meal production based on good harvests. In the United States, by contrast, meal inventories are expected to be kept at last season’s record-low level, mainly to allow a recovery in domestic consumption. The sizeable build-up of stocks in some key meal exporting countries is partly attributed to the prospective higher availabilities of feedgrains, which are bound to compete with oilmeals on the international market.

Assuming the projected rise in stocks materializes, stock-to-use ratios can be expected to improve significantly in 2013/14: the global stock-to-use ratio and the major exporters stock-to-disappearance ratio are set to jump to 3 and 6-year highs, respectively. With these improvements, especially among the leading exporting countries, international meal prices can be expected to lose some of their recent strength.

Global meal trade expected to resume expanding

After last season’s dismal growth, in 2013/14, world trade in meals/cakes is projected to climb to an all-time record of 78 million tonnes (expressed in protein equivalents and including the meal contained in oilseeds traded) – about 6–7 percent up from last season. The possible fall in international meal prices from their current record level is expected to underpin global appetite for imported meals – although import growth might be attenuated by higher global availabilities of feedgrains.

The rise in global trade will be strongly driven by higher meal demand in China and other importing countries in Asia. After last season’s exceptional stagnation, China’s import demand could expand by as much as 13 percent in 2013/14. With soybean imports tentatively put at an all-time record of 67 million tonnes, China remains the world’s leading meal buyer, accounting for one third of global import demand. Aggregate imports by the rest of Asia are seen rising by about 4 percent. The EU, until recently the world’s leading buyer, could see an increase in meal imports, after two successive years of decline. However, the rise should be small, considering that domestic meal availabilities as well as feedgrain supplies are set to grow.

Export growth is seen almost exclusively in soybean meal from South America. Assuming current crop forecasts materialize, Argentina and Brazil as well as Paraguay are poised to ship record or near-record volumes in 2013/14. The three countries’ combined share in global shipments could rise to 54 percent – mostly at the expense of the United States. Indeed, US shipments are forecast to remain close to last season’s subdued level, because much of this year’s output increase should be absorbed by the domestic feed sector. Meal sales by Ukraine, other CIS countries, India and Canada should increase, underpinned by higher domestic supplies, whereas, in Australia, harvest setbacks could curb export availabilities.

[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 which are used as feed ingredients. Therefore, rather than referring to oilseeds, the analysis of the market situation is mainly undertaken in terms of oils/fats and cakes/meals. Hence, production data for oils (cakes) derived from oilseeds refer to the oil (cake) equivalent of the production estimates for the relevant oilseeds, i.e. they do not reflect the outcome of actual oilseed crushing. Furthermore, the data on trade in and stocks of oils (cakes) refer to the sum of trade in and stocks of oils (cakes) plus the oil (cake) equivalent of oilseed trade and stocks.

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

[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]  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.

SUGAR

PRICES

Sugar prices have recently strengthened on the back of lower expected production surplus for 2013/14 season

International sugar prices, as measured by the ISA daily prices for raw sugar, were set on a declining trend at the beginning of 2013, continuing the steady decline that has characterized the market since 2011. The downward trend is attributed to a large expansion of production in response to historically low global stock-to-use ratios, which underpinned the market between 2008/09 and 2010/11.

Prices averaged US 19.31 cents per pound between January 2013 and June 2013, a decrease of 20 percent from the same period in 2012. However, since July, prices have moved upward following reports that unfavourable weather condition constrained sugarcane harvesting operations in the Centre-South region of Brazil, the world’s largest sugar producer. Overall, sugar quotation increased by 9 percent from July to October 2013. Although this early in the season, the size of the production surplus remains uncertain, indications are that it will be much smaller than early estimates and not as large as the past two years. If these early assessments prove true as the season progresses, it will certainly lend some upward support to the world sugar quotations.

PRODUCTION[1]

World sugar production to grow modestly in 2013/14

According to the latest FAO estimates, world sugar production is expected to reach 180.2 million tonnes in 2013/14, a marginal increase over the 2012/13 season, but still a record level. Unfavourable weather conditions in several major producing countries limited what potentially could have resulted in a large production surplus, a situation that would have impacted negatively prices for the rest of the season. Instead, the reduction in aggregate output has meant that production and utilization are relatively balanced in comparison to the previous two years when production largely outweighed utilization. For this season, the bulk of the expansion is expected to take place in the developing countries, where production is forecast to expand by 1.4 percent, compared with a decline of 3.4 percent in the developed countries. Under the current forecast, world production in 2013/14 will surpass consumption by about 4.7 million tonnes, in comparison with 7.5 million tonnes and 6 million tonnes, in 2012/13 and 2011/12, respectively. However, at this early stage, the estimated surplus in 2013/14 is likely to be subject to revisions as the season progresses.

In South America, production is estimated to increase by less than 1 percent, amid generally unfavourable weather conditions, notably in Brazil. In fact, Brazil’s sugar output is to remain at about the same level as last year, despite an expected bumper crop, as heavy rains hindered harvesting operations. In addition, sugar yields per tonne of sugarcane are reportedly lower than their level of last year, with sugar production thus far estimated to reach 39.7 million tonnes, up 0.3 percent from 2012/13. Another uncertainty related to sugar production is how much of the sugarcane harvested will be devoted to ethanol production. Brazil’s sugar output is subject to changes in the ethanol/ sugar price ratio, which eventually determines how much of the two products will be produced out of sugarcane. The higher the price ratio, the larger the amount of cane converted into ethanol at the expense of sugar. Given the recent strengthening of sugar returns, and increasing the mandatory amount of ethanol to be blended into gasoline to 25 percent, after it had been cut to 20 percent in October 2011, it is now expected that the sugarcane harvest will be split equally between the two products. Sugar production is also expected to increase in Colombia, the second largest producer in the region, and Argentina, despite unfavourable growing conditions in the main producing region of Tucuman.

In Central America, early estimates for 2013/14 indicate that sugar production in Mexico is expected to decline, prompted by large supply availabilities in 2012/13, which led to reduced incentives to expand sugarcane areas for the new season. In Guatemala, higher than expected sugarcane yields boosted sugar output in 2012/13, but no further increase is anticipated for 2013/14. In Cuba, sugar production is expected to continue its recovery, driven by investment in increasing sugar productive capacities at both farm and factory level. A series of policy measures, including higher official support to cane prices, also helped incentivise farmers, and production is now estimated to expand by 16 percent for the new season. In Africa, 2013/14 sugar production is projected to rise on the back of largely favourable weather conditions. South Africa, Egypt, Swaziland and Sudan are set to harvest larger crops, while output is expected to remain at last year’s level in Kenya. In Zambia, sugar production has increased by 90 percent since 2006, driven by investment in irrigation and the price incentives introduced under the 2009 EU Economic Partnership Agreement (EPA). Sugarcane production is expected to benefit from improved climatic conditions, higher harvested areas and better yields in South Africa, the largest producer in the region. The crop is estimated to be the biggest since 2005/06.

In Asia, sugar output is expected to increase by 1.3 percent compared with the 2012/13 marketing season, due to expansions in India, Thailand and Pakistan. At the same time, production is set to fall in China, Indonesia and Turkey. In India, despite a fall in areas planted to sugarcane, good monsoon rain boosted yields, raising total estimated production to 25 million tonnes, 0.5 million tonnes larger than in 2012/13. It is expected that the recent partial deregulation of the sugar industry, abolishing the required 10 percent levy on sugar mills and deregulating sales in the open market, will dampen production cycles which characterize the sugar subsector in India. Latest estimates indicate that 2013/14 sugar output in Thailand, the world’s second largest sugar exporter, will increase by 11 percent, as favourable weather conditions and area expansion boosted aggregate production. Similarly, production increases are expected in Pakistan where the area planted to sugarcane has expanded in response to relatively high sugar returns witnessed over the past three seasons. The attractive prices also encouraged the use of fertilizers and other inputs, which boosted sugar crop yields. In contrast, sugar production in China is expected to decline in 2013/14, due to a reportedly 2 percent decline in planted areas. Over the past couple of years, financial assistance, as well as the subsidized inputs that sugar mills provided to farmers, were major contributing factors in boosting plantings. However, with limited available areas for expansion due to competition with other crops, further increases in output will have to come from high yielding varieties or improved crop management and productivity gains at the mill-factory level. Outputs in 2013/14 are forecast to fall in Indonesia and Turkey, and remain stagnant in Vietnam. The contraction in Turkey is mainly due to a reduction in planted beet areas following a cut in quota allocations for the new season.

In Europe, the latest estimates for the EU point to a decrease in sugar production, as unfavourable weather conditions hampered beet yields, notably in France and Germany. The total beet area also is reportedly down, with significant decreases in Germany and Italy. As expected, the EU Commission, Parliament and Council came up with a compromise solution in June for the 2014–2020 Common Agriculture Policy. This included the elimination of sugar production quotas and minimum sugar beet prices in September 2017. With the elimination of quotas, the EU is projected to become more self-sufficient in sugar production in the medium-term.

Production in 2013/14 is expected to contract significantly in the Russian Federation, as an increase in the area planted to grains was at the expense of beet, which explains the reported fall of about 20 percent in beet sowings. The cutback in planting was also prompted by the scarcity of storage facilities and limited processing capacity – a situation the Federation faced in 2011/12, when it harvested a record-level crop.

Sugar production is also expected to contract sharply in Ukraine, where the cultivated area is reportedly significantly lower than last year. Ample supplies in 2012/13 against limited processing capacity led farmers to substitute grains for beet, as beet prices are less competitive than alternative crops such as maize, sunflower and wheat. In Australia, sugar output is projected to rise by 2.2 percent, spurred by favourable harvesting as well as good planting conditions for next year. The weakening of the Australian dollar against the US dollar has helped boost sugar return in local currency.

In the rest of the world, production in the United States is forecast to fall from its 2012/13 level, as ample supplies have put pressure on domestic sugar prices. The USDA is now facing a challenging task of managing a large sugar surplus with minimal cost to the government. The stock-to-use ratio is projected at 19.5 percent in 2013/14, well above the historical level of 14.5 percent. Although the USDA has already purchased sugar and re-sold it at a loss to bioenergy producers as part of the Feedstock Flexible Program (FFP), this might not be sufficient to offset the quantities likely to be forfeited by sugar processors.

UTILIZATION

Falling domestic sugar prices to underpinned growth in consumption

Global sugar consumption is anticipated to reach 175.5 million tonnes in 2013/14, 3.3 million tonnes, or 2 percent more than in 2012/13, in line with the 10-year trend. Large supply availabilities and lower international and domestic prices are expected to support increases in per capita sugar intake in 2013/14. Falling domestic sugar prices were witnessed in all the major markets, including Brazil, India and NAFTA region. Under current prospects, world per capita sugar consumption is anticipated to rise slightly, from 24.3 kg in 2012/13 to 24.5 kg in 2013/14. In developing countries, aggregate sugar utilization is estimated to expand by 2.8 percent, or 3.4 million tonnes, to 125 million tonnes, which will account for 71 percent of global consumption. In the generally more mature markets of developed countries, consumption is to remain about the same level as in the previous season corresponding to 50.5 million tonnes. However, a deterioration of the 2013/14 global economic prospects, especially in developing countries, could undermine demand expansion, as manufacturing and food preparation sectors, which account for the bulk of aggregate sugar consumption, are highly influenced by the economic environment. Also, the depreciation of the currency of several major sugar importers against the US dollar – which makes imports in domestic currency more expensive – could lead to weaker intake of sugar in these countries, which include Indonesia, the Russian Federation, Egypt, Syrian Arab Republic and Japan.

TRADE

Trade to expand significantly in 2013/14 boosted by lower international prices

The forecast for world sugar trade in 2013/14 (October/ September) stands at 54.5 million tonnes, a 11.7 percent increase over the previous season. The main feature of sugar trade in the 2013/14 season is the availability of supplies from the main traditional origins including Brazil, Thailand, Australia and India. Brazil is expected to supply 45.5 percent of world trade in 2013/14. However, the final volume it sells abroad will depend on the quantity of sugarcane production processed into ethanol, especially considering the recent increase in the mandated blend ratio and gasoline prices. Demand for ethanol will also be driven by the need of the United States to meet its advanced mandate requirements through imported ethanol-based sugarcane from Brazil. Also, a further depreciation of the Brazilian real against the US dollar could stimulate additional export into the world market.

Likewise, Thailand, the second largest exporter, is expected to expand sugar deliveries, by as much as 5.5 percent amid ample domestic supplies and competitive export pricing. The bulk of the country’s export is forecast to be shipped in raw form (about 60 percent) to neighbouring countries, including Indonesia, Malaysia and the Republic of Korea. Exports to China are expected to expand given the fall in Chinese production. Thailand is also projected to fill its 2014 tariff rate quota (TRQ) with imports from the United States of 15 027 metric tonnes (raw value), despite decreases in the US domestic sugar prices. As a result of the projected rise in sugar output, shipments from India are estimated to reach 2.1 million tonnes, up 1.3 million tonnes from last season. India’s competitiveness on the international market is being constrained by rising production costs and falling world prices, which may limit further gains in world markets. Deliveries from Australia, the world’s third largest supplier in 2012/13, are set to rise, supported by greater domestic production and exportable surplus, reaching to just below the country’s historic high of 3.61 million tonnes. The weakness of the Australian dollar with respect to the US dollar is also likely to benefit exports. South Africa is also expected to step up exports, with the bulk of shipments directed to the Southern Africa Customs Union (SACU) market, and to the United States to fill its 2014 TRQ allocation.

Exports by Guatemala are foreseen to be larger than last year, given ample supply availabilities and competitive pricing. Sugar has become a key source of foreign exchange earnings for the country, with large investments targeting refined sugar export markets, especially in the United States, the Republic of Korea and Canada, the main destinations of Guatemala’s sugar export. The country is now the fifth largest global sugar exporter. Sales by Mexico are anticipated to decline in 2013/14, due to greater production and falling international prices. The Government of Mexico recently established a trust fund to facilitate exports of sugar surplus to NAFTA and international markets, in an attempt to lift internal prices. However, the final amount of shipped sugar will still depend on the realized production for 2013/14 and the extent to which high fructose corn syrup (HFCS) substitutes for domestic sugar use. Production gains are also anticipated to enable Cuba to step up exports, with about 0.4 million tonnes directed to China, as part of an export agreement between the two countries.

Imports by Asian countries are forecast to expand in 2013/14 as a result of falling international prices, and slower growth in production. Much of the increase would result from higher purchases by Indonesia and China, reflecting expectations of lower gains in domestic output, steady demand from the food and beverages industry, and lower import prices. State purchases in both countries are foreseen to slowdown, as stocks return to comfortable levels. In 2013/14, Indonesia is now expected to become the world’s largest sugar importer. Similarly, in Europe, shipments to the EU are forecast to rise due to a contraction in domestic availabilities. Estimates for imports may be revised upwards considering the conclusion of a free trade agreement between the EU, Colombia, Peru and six central American countries, namely Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama. These free trade agreements will allow additional duty-free TRQs, amounting to 264 000 tonnes of sugar and increasing at an annual rate of 3 percent. As a result of falling domestic production, imports by the Russian Federation, once the world’s largest sugar market, are expected to rise from 900 000 tonnes in 2012/13 to 1.6 million tonnes in 2013/14, still below the 2.8 million tonnes imported in 2010/11. Likewise, shipments into Japan and Malaysia are predicted to increase, while imports into India and Morocco are projected to fall, given the prospect of improved domestic availabilities. In the rest of the world, purchases by the United States, about half of which are managed through a TRQ system of 1.4 million tonnes, may drop somewhat in light of falling domestic prices and comfortable stock levels, while, imports into African countries are expected to be subdued, in general, amid strong gains in production expected for the 2013/14 season.

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

MEAT AND MEAT PRODUCTS

Moderate production growth; trade mixed

World meat production is anticipated to expand modestly in 2013 to reach 308.3 million tonnes, an increase of 4.2 million tonnes, or 1.4 percent, compared to 2012. Growth will be concentrated in the developing countries, which are also the main centres of rising demand.

At the international level, prices have remained high by historical standards for the past two years. The FAO Meat Price Index (2002-04=100) averaged 184 in October 2013, little changed when compared to October 2012. So far this year, a reduction in feed costs has facilitated some price decrease for poultry; however, prices of the other categories of meat have remained either static, in the case of bovine and ovine meat, or increased, in the case of pig meat.

International meat trade is forecast to reach 30.1 million tonnes in 2013 – representing 10 percent of global production. Overall, trade is predicted to increase by 1.1 percent, a slower pace than in 2012, and well below the rates of 6 percent and 7 percent seen in 2010 and 2011, respectively. This is a reflection of improved national supplies in a number of importing countries and a fall in production in some of the principal exporters. However, there are marked differences in trade in the different varieties of meat, with moderate growth forecast for bovine meat and a substantial increase for ovine meat, while poultry may remain unchanged and pig meat decline.

BOVINE MEAT

Production: Strongest growth in South America/Oceania; North America falls

Bovine meat production is forecast to hover around 67.5 million tonnes in 2013, a mere 0.2 percent more than in 2012. Over the past 5 years, this figure has changed little; in 2009, for example, it stood at 67.3 million tonnes, almost the same level as it is today. The limited upwards movement is being led by the developing countries, which collectively account for almost 60 percent of production and where 2.0 percent growth is anticipated. As for the developed countries, they are predicted to face a decline of 2.2 percent, mainly due to a sharp fall in North America.

In South America, cattle availabilities and slaughter have been rising, particularly in Argentina, Brazil, Paraguay and Uruguay, following two years of herd rebuilding. For Argentina, this process has been amplified in 2013 by an augmentation of slaughter rates in the face of higher production costs; consequently, output could increase by 7 percent to 2.7 million tonnes. In neighbouring Paraguay and Uruguay, strong growth is also anticipated, spurred by international demand and sustained cattle prices, and supported by excellent pasture conditions. Brazil, the world’s second largest beef producer after the US, is on track to reach a record 9.5 million tonnes. In Asia, India, the fifth largest bovine meat producer, is forecast to record additional growth – approximately half of production goes to export. Output continues to rise in the Republic of Korea, reflecting government slaughter subsidies and falling profitability in the light of competition from lower priced domestic pork. In China, production remains around 6.5 million tonnes, a level which has been unchanged for the past four years, as the sector comes to terms with labour shortages and high costs that have obliged many small-scale producers to cease operations.

Most parts of Africa have received reasonable rainfall during the current season, which has improved pasture conditions and led to a moderate increase in bovine meat production, overall. Egypt could witness a limited recovery, after the extensive culling in 2012 due to a foot-and-mouth disease (FMD) outbreak. An exception to the trend may be South Africa, where output could be unchanged, as dry conditions negatively affected pastures, and feed and forage availability. Overall, developed countries’ production is forecast to drop by 2.2 percent, as several of the major producers contract. The United States, the world’s largest producer, is on track to record a 4 percent fall due to diminished slaughter – a situation that stems from a decline in the production of calves linked to drought-related herd reduction. The same factors may lead to a 7 percent drop in neighbouring Canada. In the EU, the world’s third largest beef producer at 7.6 million tonnes, the decline is expected to be more modest, only 2 percent, as the long-term reduction in the Union’s cattle herd is slowing – with dairy cattle set to increase in 2013 and beef cattle showing only a small reduction. By contrast, in Oceania, a fall in feed prices have boosted production in Australia. In the Russian Federation, improved herd management should contribute to an increase in output.

Trade: China’s imports grow; Brazil retains premier export position

Despite prices being at their highest levels ever, world trade in bovine meat is anticipated to grow in 2013, by 4.9 percent, to 8.4 million tonnes. Consumer demand, rising incomes and a shortage of domestic supplies in some countries have been important contributors to the expansion in trade.

China may see imports exceed 900 000 tonnes, representing 11 percent of trade. Demand continues to be stimulated by rising incomes. Additionally, some consumers have switched from poultry to other meats following an outbreak of avian influenza at the start of the year. Supplies in 2013 have been sourced mainly in Australia followed by Uruguay, New Zealand, Canada and Argentina. Elsewhere in Asia, imports by Japan, Vietnam and Malaysia could increase moderately, while purchases by the Republic of Korea are anticipated to remain depressed, as a consequence of ample domestic supplies and price competition from other types of meat. Sales to the Russian Federation and the United States, the two main importers, are forecast to decrease as a result of the exceptionally high prices – and in the case of the Russian Federation, rising domestic supply. EU imports are anticipated to rise, stemming from a production decrease and high internal prices.

Growth in exports is forecast for both Brazil and Australia, by 4 percent and 8 percent, respectively, in response to generally strong demand, which has also stimulated shipments by India and the United States. These four countries together supply over 65 percent of bovine meat trade. Elsewhere, New Zealand, Uruguay, Paraguay, Argentina and Belarus, which together represent roughly a further 20 percent of trade, are all anticipated to see amplified sales – substantially so in all cases, except New Zealand. Conversely, shipments by Canada, Mexico and Nicaragua are forecast to decrease significantly and those of the EU to remain stable.

PIGMEAT

Growth in Asia to sustain production

Continuing several years of expansion, production of pig meat is expected to grow by 1.7 percent to a record level of 114.6 million tonnes in 2013. Most of the increase is forecast to come from developing countries, where almost two-thirds of production originates. Conversely, the developed countries overall are expected to face a small decline. Asia is the leading pig meat producing region, accounting for almost 60 percent of the total. Strong consumer demand and government support policies are anticipated to result in China’s output reaching 54.8 million tonnes, nearly half of world output. Recovery from FMD depletion continues to boost production in the Republic of Korea. Elsewhere in Asia, slight to moderate growth is forecast in Vietnam, the Philippines, Japan, Thailand and Indonesia – in some instances, limited by competition from other types of meat.

In the Americas, Brazil, the world’s fourth largest producer, is set to increase output, stimulated by improved prices. Steady growth is also anticipated for Mexico, underpinned by improved genetics and productivity, which are translating into more piglets per litter and higher animal weights.

In the EU, at 22.5 million tonnes, the second most important producer after China, compliance with animal welfare requirements relating to the housing of sows is expected to depress output for a second year. In the United States, lower feed costs and increased slaughter, associated with an expansion of the breeding herd, mean that it is on track to register growth, albeit limited. Canadian producers’ struggles to remain profitable have resulted in a number ceasing operations – consequently a small decrease in output is anticipated. In the Russian Federation, reduced feed prices and government policies favouring large-scale farms are expected to prompt a 4 percent expansion.

Trade declines

Reduced output among some of the principal exporting countries and a decrease in demand by several major importing countries are projected to lead to a decline in 2013 pig meat trade with shipments dropping by 2 percent, to 7.4 million tonnes. Imports by Asian countries, representing half of total trade, are set to record a decrease of 2.4 percent. Procurement by the Republic of Korea is forecast to register a substantial drop for the second year in a row, falling by around 100 000 tonnes, or 20 percent. This sharp decline is consequent on a build-up of stocks and low domestic prices following a strong recovery of production after a FMD outbreak in 2011. Japan, the largest importer, is anticipated to cut purchases by 4 percent, due to expanding production and competition from poultry and imported beef. Imports by China are expected to rise 6 percent, as domestic production has been unable to keep up with demand. In Europe, deliveries to the Russian Federation fell by 15 percent in the first eight months of this year and are expected to finish the year well below 2012, reflecting growing production, a fall in domestic prices and animal health-related import restrictions. In the Ukraine, after imports more than doubled in 2012, animal disease and public health restrictions introduced during the first part of the year have led to a sharp fall off in purchases, now anticipated to finish the year 30 percent lower. Imports are also down substantially in Belarus, mainly due to restrictions on trade with the Russian Federation related to outbreaks of African swine fever in some regions. Elsewhere, Mexico and the United States purchases are anticipated to decrease, while some smaller-scale importers, including Australia and Angola, could see imports grow.

In terms of exports, limited availability in the EU, the United States, Canada and Brazil, which account for 85 percent of world sales, represents a constraint to trade. Additionally, Brazil has faced health and animal diseasebased access restrictions in some markets. As a group, the above four countries are anticipated to record a 3 percent reduction in sales. This will be counterbalanced to a limited extent by larger shipments by smaller-scale exporting countries, including China, Chile, Mexico and Thailand. Sales by Mexico, in particular, have risen substantially so far this year, assisted by its newly recognized status as free of classical swine fever.

POULTRY

Production: China weighs on growth

Global poultry production is anticipated to rise by 1.8 percent to 107 million tonnes. Unlike bovine and pig meat, growth is foreseen in both developing and developed country groupings. Competitive pricing of poultry relative to other meats is an important element in its momentum. However, while production has been stimulated by lower feed costs in many countries, disease concerns in China have limited overall growth. Estimating 2013 output for China – currently the second largest producer but on trend to replace the United States as the major producing country in the coming years – remains difficult because of culling and limitations on the retail sale of live poultry following an outbreak of H7N9 influenza strain in the early part of the year. Furthermore, consumer confidence in poultry meat has diminished and sales have suffered. Consequently, China’s poultry output has been provisionally set as unchanged from 2012, in contrast with the 2.6 percent increase originally projected. The outlook is more positive for the rest of the world. In the United States, a 2.4 percent increase is anticipated as production recovers from stagnation in 2012, aided by improved profitability. Elsewhere, growth is forecast for the EU, Brazil and the Russian Federation and continued rapid expansion is anticipated for India. Among the top 20 producing countries, apart from the uncertainty surrounding China, only Japan might register a fall in output, of 0.7 percent, in response to oversupply and associated reduced prices.

Trade stalls

Poultry is the most traded category of meat, representing almost 45 percent of total trade. While the volume has doubled over the past decade, growth slowed in 2012 and is forecast to be little changed this year. Imports for Africa as a whole are forecast to rise by some 4 percent. Among the main importing countries, Angola, Benin, Ghana and Egypt are all anticipated to purchase more, as income growth strengthens demand, while imports of South Africa are forecast to remain unchanged . In Egypt, culling associated with avian influenza, combined with FMD-induced high beef prices, have provided an additional stimulus to imports. Imports by Asian countries, the main trade destination, are forecast to be little changed. While slight to moderate growth is foreseen for Saudi Arabia, Vietnam, Iraq, the United Arab Emirates and Kazakhstan, among others, imports by China are forecast to be static as consumer concerns over H7N9 have weighed on demand. In Japan and the Republic of Korea, abundant domestic supplies have reduced demand for imports. In Europe, deliveries to the Russian Federation are expected to fall by 3 percent. Imports by the Federation remain at less than half of what they were in the mid-2000s, because of a considerable increase in domestic production. Likewise, rising poultry production in the European Union is forecast to prompt a drop of 5 percent in imports. In the Americas, Mexico is anticipated to decrease its imports, while those of Canada may rise slightly.

The four leading exporters, Brazil, the United States, the EU and China, which together account for almost three-quarters of global trade, have seen little expansion in sales in recent years. Instead, most growth has come from second-tier exporters, including Argentina, Turkey, the Ukraine, Belarus, Iran and the Republic of Korea. Of the big four, the United States is expected to see sales remain unchanged while the others are anticipated see a fall in trade. In the second grouping of countries, some should maintain growth, for example Argentina, Turkey and the Ukraine, while the others are anticipated to see either no increase or a decline, as a result of stagnant or falling import demand from their principal markets. Exports from Turkey, which may be up a much as 20 percent for the year, have benefited from rising regional demand, especially from Iraq and Syria. Exports by Argentina have risen steadily in recent years, underpinned by demand from Venezuela. Over the past five years, exports from the Ukraine have also increased substantially, directed mainly to its immediate neighbours and the Near East.

OVINE MEAT

Production: steady in most countries

Ovine meat continues to show modest growth, following a period of stagnation, and is forecast to rise 1.5 percent to 13.7 million tonnes. Developing countries account for three-quarters of output, with the largest producers being China, India, Nigeria, Pakistan and Algeria. Satisfactory pasture conditions have set the basis for flock rebuilding for many of the major producing areas of Asia and Africa. Ovine meat is an important element in the diet of countries in North Africa and the Near East and particular developed countries, including New Zealand, Iceland and the United Kingdom. In developed countries, the main growth is forecast to come from Australia and New Zealand. In the case of Australia, sheep meat production began increasing in 2011 and is set to continue. For New Zealand, drought during the early part of the year resulted in increased culling and consequent herd reduction. Therefore, while meat production for 2013 grew, the outlook is for a decline for the 2013/14 season as a result of a reduction in the breeding flock. In the EU, the second largest producer, the long-term decline in output may have been arrested.

Demand rising in China and the Near East

Trade in ovine meat is set to register a second strong year and could grow by 16 percent to 961 000 tonnes. Most of the increase is anticipated to stem from China, where imports have risen significantly in the past three years. Also, substantial growth in demand is evident in a number of markets including the EU, the United States, the United Arab Emirates, Qatar and Malaysia. Almost 85 percent of world trade, excluding live animals, is supplied by Australia and New Zealand. A shift in market demand to China and the Near East is leading to a change in the type of meat shipped, with a movement towards whole carcasses, including offal, as opposed to a preference for only the higher value cuts which characterizes the markets of the EU and the United States. India has also seen sales grow this year, mainly to the Middle East, especially the United Arab Emirates and Saudi Arabia. Uruguay has also boosted its exports, focussing on China and Brazil.

MILK AND MILK PRODUCTS

PRICES

Remain at high levels

Internationally, dairy product prices have fallen back somewhat from their peak in April, but still remain at elevated levels, substantially above a year earlier. The main contributing factor is the limited availability of produce for export.

The FAO Dairy Price Index stood at 252 points in October, 25 percent above the same month in 2012. For the main dairy commodities, the change between the same periods has been: whole milk powder (WMP), up USD 1 153 per tonne or 44 percent; skimmed milk powder (SMP), up USD 906 per tonne, or 26 percent; butter, up USD 1 166 per tonne, or 32 percent; and cheddar cheese, up USD 500 per tonne or 13 percent.

With the Index currently hovering around the 250 mark, as New Zealand recovers from the brusque closure of the previous season, dairy prices are anticipated to move lower - in particular for WMP and SMP, which were most affected by the spike in the early months of the year. This latter event illustrates the extent to which the international market is exposed to sudden changes in milk production and availability of milk products, in particular, as publicly financed inventories are at minimal levels in the EU and the United States, and almost non-existent elsewhere.

PRODUCTION

Steady growth in 2013

World milk production in 2013 is forecast to grow by 1.9 percent to 780 million tonnes – a similar rate to in recent years. Asia is expected to account for most of the increase, with output in India, the world’s largest milk producing country, set to grow by 5.3 million tonnes to 141 million tonnes. Rising disposable incomes and population growth are the two main dynamics behind the increase in India’s production. Expansion in herd size, as well as improved productivity, is an important engine in the expansion. Increased output is also anticipated in China, Pakistan and Turkey, spurred by steady growth in consumer demand. The Republic of Korea is slowly recovering from the 2011 foot-and-mouth disease outbreak which required the slaughter of 8 percent of its dairy herd and led to a corresponding drop in production.

In Africa, a moderate increase in milk output is anticipated for 2013, assisted by generally favourable weather conditions. Expansion in output is anticipated for Algeria, Morocco and Uganda, where government policies in support of dairy development and an expansion of processing capacity have contributed to the increase. For East Africa overall, adequate rainfall this season has promoted pasture growth. For Kenya, outbreaks of foot-and-mouth disease in central and northern parts of the country have had a negative impact on production. In South Africa, a prolonged, mid-year dry spell may result in output falling.

Rising incomes and firm regional and international demand have favoured dairy production growth in several countries in Latin America and the Caribbean. Additionally, most South American countries have enjoyed good pasture conditions during 2013. Overall, sub-regional milk production is foreseen to expand by 2.9 percent in 2013, a rate similar to 2012, to 70 million tonnes. Gains are forecast for Brazil, Chile, Colombia, Ecuador, Paraguay and Uruguay. The overall positive outlook has stimulated investment in new technology and improved animal genetics. In Argentina, production is expected to decrease in the face of falling domestic demand and limitations on exports. For Central America, milk output in Mexico, the largest producer in the subregion, has been constrained by chronically dry to drought conditions in many parts of the country, leading to herd reduction and the withdrawal of a number of small-scale producers from the industry. Production in Costa Rica is expected to show a moderate increase.

In North America, milk production in the United States is forecast to increase by only 0.9 percent to 91.6 million tonnes. Output is recovering from the sustained dry conditions of 2012 and early 2013. Production in Canada is set to remain stable at 8.5 million tonnes, within the limits set by the milk quota system.

In Europe, EU milk production is forecast to remain unchanged in 2013 at 156 million tonnes – following a slow start to the year due to exceptionally cold, wet weather, output recovered. According to 2013 EU census data, the number of dairy cattle increased for the first time in many years. In recent months, EU producers have benefitted from rising milk prices and a fall in the cost of concentrate feed. Milk production in 2013 in the Russian Federation is anticipated to decrease somewhat as its feed supplies were limited during the first part of the year, affecting profitability and leading to contraction in the dairy herd. In neighbouring Ukraine, production is on an upward trend, assisted by government incentives which promote farm-level efficiency and the use of modern technology.

In Oceania, sustained high prices for dairy products on the international market and associated levels of profitability have stimulated the dairy sector. However, both Australia and New Zealand experienced prolonged hot, dry weather at the start of 2013, which led to a sharp fall-off in milk production. In New Zealand, up until January, output for the 2012/13 season was running 6 percent ahead of the previous one, which was itself a record, but it subsequently plummeted, ending1.3 percent down, at 19.5 million tonnes. Abundant rain in April and beyond helped pastures re-establish – the new season started well and in September was running 6 percent above 2012/2013. In Australia, the 2012/13 season was down 3 percent at 9.2 million tonnes, affected by lower milk prices, unfavourable weather conditions, high feed costs and limited fodder supplies. For the current season, while milk prices have improved, cool weather in most parts of the country has limited output. Therefore, 2013/14 production is expected to be unchanged compared to the previous season.

*  Excluding trade between the EU Member States. From 2013: EU-28

TRADE

Limited export availability underpins prices

Trade in dairy products is projected to decline by 0.9 percent, to stand at 53 million tonnes of milk equivalent. This compares to an average growth of 7 percent in the previous four years. The two principal exporters, New Zealand and the European Union, which together account for 55 percent of world trade, and also Australia, are all anticipated to see a fall in sales. To a degree, this will be compensated for by growth in exports by the United States, India and Belarus.

In 2013, additional demand is expected from China, the Islamic Republic of Iran, Singapore and Pakistan. Elsewhere in Asia, Saudi Arabia, the United Arab Emirates, Indonesia, Japan, the Philippines, Malaysia, Vietnam and Thailand remain important markets, but the level of their imports may not change markedly and in some cases could decrease. Elevated international prices are projected to reduce imports by Africa as a whole. The principal importers that may be affected include Algeria, Nigeria, Libya, Morocco and South Africa. A number of significant milk powder importing countries in Latin America and the Caribbean, including Venezuela, Cuba, Colombia, Brazil and Peru, may also see purchases constrained by high prices. Finally, imports by the Russian Federation are anticipated to increase, stimulated by strong demand for butter and SMP.

Whole milk powder (WMP) – Prices at historic highs

World exports of WMP are projected to fall in 2013, by 5.5 percent to 2.3 million tonnes. This compares with average annual growth of 6 percent in the previous three years. High international prices have led many countries to reevaluate their import needs. Sustained demand is forecast for Asia, the main market, while some importers in North Africa and Latin America and the Caribbean may limit or reduce purchases in the face of elevated prices. China has retained its position as the principal importer of WMP and should see a further expansion in purchases – imports up to August were 25 percent above the same period in 2012. Purchases by Singapore are also set to grow. Elsewhere in Asia, high prices have depressed demand, and imports into several major markets, including the Philippines, Sri Lanka, Indonesia, Thailand and Malaysia are currently substantially down. Similarly, purchases by Venezuela, Algeria and Nigeria have been reduced. In the first two countries, social programmes are an important driving force behind demand, and budgetary limitations cannot accommodate prevailing prices. In Brazil, rising domestic production is expected to lead to imports being displaced.

The market for WMP is very geographically diverse, stemming from its wide use in both the processing industry and for direct retail sale. Of the major exporting countries, New Zealand, the EU, Argentina and Australia are anticipated to account for most of the fall in sales. Some of the smaller-scale exporting countries, such as Belarus, the United States and Costa Rica, are expected to take advantage of current market conditions, although the additional volume will be not be sufficient to counterbalance the anticipated reduction in trade in WMP.

Skim milk powder (SMP) – Prices at elevated levels

Trade in SMP is anticipated to grow by 3.3 percent to 1.9 million tonnes. This contrasts with an average annual increase of 10 percent for the previous three years. In the face of tight export availability, SMP prices shot up alongside those of WMP early in the year and, while they have since fallen back somewhat, remain 26 percent above October 2012. Supplies of SMP to the world market are expected to be constrained, as manufacturers juggle with finite milk supplies. SMP is central to the milk processing industry in many countries and, as such, market demand is widespread. The principal markets are (in order of volume) Mexico, China, Indonesia, Algeria, the Russian Federation, the Philippines and Malaysia, followed by Vietnam, Saudi Arabia, Egypt and Singapore. China, in particular, is anticipated to increase imports substantially. Augmented purchases are also possible by Indonesia, Algeria, Egypt and Vietnam. Conversely, imports by Mexico, and Thailand may decline, while those of the Philippines and Malaysia are anticipated to be unchanged.

Over 80 percent of world exports are supplied by the EU, the United States, New Zealand and Australia. For 2013, increased sales are projected by the United States to partly make up a shortfall in exports by the other three countries. In addition, India and Belarus are expected to increase exports substantially. India is a particularly interesting case, as it is the world’s largest milk producing country, but has in the past participated little in the international marketplace. For the year to July, India’s export of SMP, at 75 000 tonnes, were already double the amount shipped for the whole of 2012. Its main customers are neighbouring Bangladesh and markets in the Near East and North Africa, including Egypt, Algeria, Saudi Arabia and Yemen.

Butter – Prices up substantially on a year ago

Trade in butter is forecast to fall by 1.8 percent, to 882 000 tonnes. Mid-year trade figures show that four out of the five principal exporters – New Zealand, the EU, Belarus and Australia – have all sold less for the year so far, while on the other hand, exports by the United States have increased substantially – although not by enough to compensate for the others. One reason for the decline in New Zealand’s exports is that limited milk supplies have been reoriented towards WMP production, because of more attractive returns. At the same time, the country remains the world’s predominant supplier of butter, providing half of total trade. Current high prices have created the opportunity for greater United States’ participation in the international marketplace, as it has the possibility of drawing upon the substantial supplies linked to its domestic market. In the case of the EU, where the same would apply, due to rising demand, internal prices have remained substantially above international ones, limiting trade possibilities.

Demand for butter imports comes mainly from Southeast Asia, the Middle East and the Russian Federation, although, as with many other milk products, China has substantially increased purchases in recent years. Additionally, as a result of trading agreements, the EU is both an important butter importer (ranking sixth) and exporter (ranking second). Overall, many of the principal markets, including the EU, China, Iran, Singapore and Morocco, are expected to reduce imports or only maintain 2012 levels. Smaller markets, such as Australia, the Philippines, Turkey, Malaysia and Algeria are also anticipated to purchase less. Conversely, higher imports are forecast for the Russian Federation, Mexico, Egypt and the Islamic Republic of Iran.

Cheese – Less volatile than other dairy products

Among the dairy commodities, cheese was least affected by the surge in international prices for dairy products at the beginning of the year. Even in the case of a generic cheese, differences in taste, consumer preference and the use of branding mean that prices are not as volatile as for milk powder and butter fat, which are destined mainly for reconstitution and other processing and, thus, are not generally visible to the individual consumer. Trade in cheese is forecast to grow by 1.8 percent in 2013, to 2.6 million tonnes. The rate of increase will be less than in recent years, as processors in the main exporting countries struggle to balance strong international demand for dairy products with limited supplies of milk.

The international cheese market is the most difficult dairy market to classify. One apparent anomaly is that a number of major cheese producing and exporting countries are also important importers, including (in order of volume) the United States, Saudi Arabia, the EU, Australia and Switzerland. Most often, purchases by this group of countries reflect import quotas under trade agreements and also the highly specific nature of some cheeses, including those with restrictions on the use of their names and areas of origin. Another group of the most significant importing countries, which includes the Russian Federation, Japan, Mexico, the Republic of Korea, Iraq and, now, China, focuses more on industrial cheese, both for direct consumption and for use by the processing industry, although each market has its specific requirements and preferences. Overall, four importers, the Russian Federation, Japan, the United States and Saudi Arabia, account for 42 percent of purchases. The EU remains the major cheese exporter, supplying 30 percent of world trade, not including the substantial amount of cheese that is traded among the EU countries themselves. Other important exporters are the United States, Saudi Arabia, New Zealand, Australia, Belarus, Egypt, the Ukraine, Switzerland, Argentina, Turkey and Uruguay.

Most major exporting countries are expected to maintain trade levels slightly up on those of 2012. An exception is anticipated to be the United States, where exports are set to rise sharply, in part as a result of reduced exports from New Zealand, due to the steep fall-off in milk production during the first part of the year. In this case, similarities between the type of cheese that each country exports have facilitated importers switching source of supply.

FISH AND FISHERY PRODUCTS

GLOBAL FISH ECONOMY

Markets continue to be influenced by uncertain economic sentiments in traditional markets. In Japan, a weaker currency has made imports more expensive. And in the US, imports for the first half of the year were flat in both values and volumes. Developing country demand has been more positive with domestic demand boosting both imports and local production, particularly of farmed products.

Import duties for fish and fishery products for exports to developed country markets are generally low or non-existent. Thus, market access in the fisheries sector has become more a question of the exporter’s ability to adhere to regulatory requirements in the importing country than an issue of tariffs. However, the proliferation of new voluntary market-based standards linked to sustainable production, traceability and certification are adding cost to the product with little immediate benefit to producers.

The outlook for the rest of the year is one of firming demand and somewhat higher prices in the run-up to end-of-year festivities. A number of species continue to be in short supply and prices will remain at sustained level. Early 2014 is likely to see a somewhat weaker market again.

Whitefish, one of the most important commodities in global production and trade, has received a lot of attention this autumn from industry operators who have seen the whitefish market revitalized. The revitalization is due to the recovery of a number of wild whitefish stocks and continued growth of farmed whitefish species.

Several conferences have been held globally, with focus on specific species. The INFOPESCA-FAO World Tilapia Conference, held in September in Brazil, presented the latest trends for the species. Its annual production has reached 3.5 million tonnes, expanding in Asia, South America and Africa with new supply targeting domestic and regional consumption rather than international markets. In Europe, demand for the species remains limited, indicating the need for active marketing and promotional activities to raise market awareness.

The values of the FAO Fish Price Index for January-May 2013 published in the June 2013 issue of Food Outlook have been revised to reflect official trade statistics made public after the date of publication. The FAO Fish Price Index is based on official import data from the world’s major importing markets for fish and fishery products. The values for January to May 2013, published in the June report, were estimated by FAO. The numbers published in this report (up to July 2013) are all based on official statistics.

The CONXEMAR-FAO World Whitefish Congress, held in September in Spain, brought together world experts on major whitefish species. Although some stocks are still under pressure, the recovery of cod in Northern European waters has created a new market for fresh cod in continental Europe.

The Groundfish Forum, held in October in Austria, brought industry leaders together to discuss the supply situation and demand trends. World whitefish markets used to be dominated by traditional groundfish species such as cod, hake, saithe and pollack. Now, with the advent of aquaculture, this has completely changed. Tilapia and catfish have made inroads in traditional groundfish markets which has also permitted the sector to expand substantially and reach new consumer groups.

REVIEW BY FISH PRODUCT

Groundfish

In spite of speculation that cod prices would be low, cod actually registered a general price increase during the late spring and summer. However, an almost 1 million tonne 2013–2014 cod quota for the Barents Sea – 25 percent higher than last year - is expected to push prices down in the near future, at least for the more traditional products. Abundant supply of fresh cod led to dramatic growth in Norwegian exports during the first half of 2013, with the US imports of cod from the world’s major processor and re-exporter, China, also increasing. Haddock is less plentiful, and prices have risen on the European market. Russian catches of pollock increased slightly during the first half of 2013 but US imports of double frozen pollock blocks decreased by as much as 28 percent, due to China’s supply problems. German imports of Alaska pollock fillets also declined. In New Zealand, the hoki quota is expected to be increased further for the coming season to 150 000 tonnes, up from 130 000 tonnes in 2012 and demand for hoki is good. Surimi exports from the US increased during the first half of the year in volume terms but value was down as prices fell. In Japan, demand for surimi was evidently weak in the first half of 2013, whereas demand in China is currently too strong to be met by domestic production alone and imports of both prepared surimi products and raw material have risen. Overall, it seems that there is a widely diversified market for whitefish products that is behaving quite differently these days from the norms of the past, with cod prices rising even with increased supplies.

Tilapia

Official figures for 2012 tilapia production in China have not been released yet, but total volume has been estimated at 1.5 million tonnes, up from 1.4 million tonnes in 2011, in response to increased domestic and foreign market demand. However, thus far in 2013, industry sources report at least a 30 percent decline in production in the first half of the year, due to farmers’ financial constraints in restocking of ponds. This decline has pushed prices up amidst renewed interest from buyers in China’s major market, the US. The US is now also increasing imports of fresh fillet from Central America, to an import volume of 14 100 tonnes in the first two quarters, while total imports of tilapia were down 10 percent to 97 000 tonnes. Meanwhile, EU imports of frozen tilapia fillet are up this year, although volumes are still relatively low. Asian exporters, particularly China, supply 99 percent of the EU market.

China continues to dominate tilapia supplies for the international market, but production has fallen by 30 percent in the first half of this year. Demand in consuming countries is increasingly being met by domestic producers, and local production is keeping the market firm as tilapia farming gains more attention worldwide. In addition to Taiwan PC expanding production and increasing market share, African producers are now seeing tilapia’s potential for domestic consumption and for export. Tilapia from Uganda will soon be available on the market in Germany, and the African Development Bank (AFDB) is financing tilapia projects in Zimbabwe.

Pangasius

The Viet Nam Association of Seafood Exporters and Producers (VASEP) has forecast pangasius production to reach about 800 000 tonnes in 2013, much lower than the target of 1.2–1.5 million tonnes. Production in the first seven months of 2013 was lower than a year ago with output from the main producing regions down by an average of 10 percent. VASEP reports that many processors barely made profits, and market and price volatility discouraged farmers from maintaining production levels this year. In a move to cut costs and prevent excessive competition and price reductions among local exporters, VASEP proposed setting up one company to represent all local pangasius exporters selling products to the EU. The US, the single largest market, increased import value by nearly 13 percent in the first two quarters of 2013, but tight supply in Viet Nam meant only a minor increase in volume. Although EU imports of frozen pangasius fillet increased in the first quarter of 2013, overall they were down 12 percent in the first half of the year compared with the same period last year, with Spain remaining the highest importer. However, at the same time, Latin America, Southeast Asia and the Middle East showed higher import values. Viet Nam will now seek to divert products to markets other than the depressed EU market, while steady demand from across the globe is expected to drive production development in other producing countries, particularly in Asia.

Small pelagics

Following the decision by the Faroese authorities to ignore EU quota negotiations, the EU followed through with its threat to impose trade restrictions on the Faroe Islands in August, and Norway has followed suit. This means that mackerel and herring from the Faroes are banned in the EU and Norway, and the impact on the industry may soon be felt. The EU is also considering taking similar steps against Iceland for the same reason, although the Icelandic government is looking to arrive at a solution by diplomatic means. Meanwhile, weather off the coast of Norway hindered the mackerel fishery at the beginning of September, leading to a drop in Norwegian exports, despite a record mackerel stock. Norwegian mackerel prices during the second quarter of 2013 were down but now seem to have stabilized, although abundant supplies will not necessarily translate into lower prices in all markets. The Faroes have also set a unilateral quota for herring that is more than three times higher than its earlier share, and the EU and Norway have objected. Herring is considerably less plentiful than mackerel, and the quota for Norwegian spring spawning (NSS) herring was cut to 619 000 tonnes. After a sustained downward trend, lower supplies of herring during this season are expected to see prices rise again or at least remain at present levels. In Brazil, authorities have ordered a five-month fishing ban to protect the Brazilian sardine (Sardinella brasiliensis) stock. In Peru, the fishing quotas for the second anchoveta season have been set at 2.3 million tonnes for its north/south region and 430 000 tonnes for the southern ports. During the first season, Peru landed 1.98 million tonnes, almost its entire quota of 2.05 million tonnes.

Fishmeal

The rising price trend for fishmeal continued through the second quarter of 2013, increasing approximately 43 percent between mid-2008 and mid-2013, while soymeal prices remained relatively flat during the same period. This growing price differential may provide incentives for terrestrial farmers to substitute fishmeal with less expensive feed alternatives. Total fishmeal production in Chile and Peru declined 21 percent year-on-year in the first half of 2013, although Denmark and Norway made up some of the production gap. China was the main market for Peruvian fishmeal exports in 2013. In Europe, Iceland’s fishmeal production has been limited because of strong demand for mackerel and herring for human consumption, while Norway reported limited catches this summer. Demand in Germany for fishmeal by the end of the second quarter of 2013 was still strong compared with the previous year, although UK fishmeal imports have been declining. In the US, demand for fishmeal continues to be driven primarily by strong consumer demand for terrestrial meat such as chicken and pork.

Source: IFFO

* These figures refer only to IFFO member countries

Fish oil

The fish oil price continued its steady rise, reaching new highs in mid-2013. Growing demand for aquaculture products will also increase demand and, hence, prices, as fish oil is the primary ingredient in fish feeds for carnivorous fish species. Demand for fish oil as a nutritional supplement also continues to grow. Quota restrictions on raw material species will also contribute to price pressure and volatility. Global consumption of farmed fish, which is expected to surpass the consumption of wild-caught species in 2015 (if not sooner), will ensure the demand trend remains strong. Fish oil production declined 22 percent in the first half of 2013 compared with 2012, mainly as a result of lower production in Latin America that saw Peruvian exports decline substantially compared with 2013. Chilean exports rose, while US exports of fish oil remained stable.

Source: IFFO

*These figures refer only to IFFO member countries

Bivalves

Demand increased for scallops, oysters and mussels in the first half of 2013 and is expected to continue, along with higher prices, for the rest of the year. Mussel trade within the EU during the first six months of 2013 was dominated by intra-EU trade, with the majority of imports coming from EU countries, mainly Spain, Netherlands, Denmark, Italy and UK. With Chile’s current mussel supply down slightly from last year, Chilean mussel farmers estimate that the high price of seeds will result in an unused capacity of 35 percent of farming area, which could restrict supply further. However, higher export prices could compensate for the lower volume. Oyster prices have doubled over the past three years as a result of high disease-related mortality, which will keep prices high throughout 2013. In spite of the price increases, demand for oysters is good, which is generating support for oyster farming projects by governments in several South and Central American countries, including Ecuador, Venezuela and Chile. Scallops, however, are not performing as well, with European imports in the first half of 2013 dropping to their lowest level in six years. The scallop harvest is expected to be reduced in Japan and the US, resulting in higher prices. China is an increasingly attractive market for bivalve producers. Its domestic production only covers 30 percent of local seafood demand, while its mussel consumption is growing at 20 percent per year, and high-value oysters and scallops are also in demand.

Shrimp

Lower production of farmed shrimp due to disease problems in Asia and Latin America during the first half of the year and a poor supply forecast for the rest of the year has pushed shrimp prices higher worldwide. The early mortality syndrome (EMS) problems in Thailand mean this year’s harvest production almost certainly will be half of last year’s volume. However, there have been recent signs that EMS is abating, and a supply increase is projected for the second half of 2013. Viet Nam’s production volume has also been negatively affected by disease, but India and Indonesia are expected to make up some of the production shortfall, with sources in the latter predicting total production of above 500 000 tonnes in 2013. In the US, strong interest from buyers competing for limited supply is contributing to the high prices, while the US International Trade Commission (USITC) ruled in favour of abandoning countervailing duties on imported warm-water shrimp from the seven countries that had been accused by US producers of subsidizing their shrimp industries, namely Ecuador, China, India, Viet Nam, Thailand, Indonesia and Malaysia. The Japanese market, totally dependent on imported supplies of shrimp, is also suffering slightly as a result of the rising prices, in addition to a weaker yen and increased landing costs. The current trend is weakening demand for raw shrimp and increasing preference for processed shrimp. Total Japanese imports of shrimp in the first 6 months of 2013 were 122 200 tonnes, a 1 percent decline in volume from last year. European shrimp markets were quiet during the first six months of the year as sluggish domestic demand and high shrimp prices prompted many European buyers to withdraw from the international market. In contrast, China has been actively buying shrimp from major producing countries in Asia, particularly from India, although Canada remains its largest supplier.

Source: NMFS

Source: EUROSTAT

Tuna

With some variations, overall tuna landings have been lower in 2013 than 2012. The price of frozen skipjack for delivery to Thailand dropped to its lowest level since January 2012. For sashimi-quality frozen bigeye tuna, supplies are expected to be lower than last year’s, and firmer price levels are forecast. Japan, the largest sashimi tuna market, has become less active with lower imports during the first half of the year. Generally demand for sashimi tuna improves from the beginning of autumn, but this year sales were still down as a result of the warm weather. In contrast, retail demand for red meat-quality bigeye tuna remains high for Western Pacific-origin fish because the quality is good and the market is showing a preference for better quality products. Demand for fresh chilled sashimi tuna remained stable in the US, which is now the second largest market for non-canned tuna products. The canned tuna market fared better with improved imports into the EU and the US. Canned tuna imports into the US were up 14 percent to 80 700 tonnes in the first half of 2013, while combined Italian, French, German and UK imports rose 7 percent to 193 400 tonnes. Canned tuna demand has also increased in many nonconventional markets. Packers in Asia reported better sales in the second quarter of 2013 as customers used up low-priced inventories and the positive trend is expected to continue in the third quarter. Asian canned tuna producing countries are hopeful that they will get better access to the EU markets next year. Meanwhile, the confidence of US consumers has improved slightly as a result of positive economic indications, and there are signs of willingness to spend more on products that meet changing tastes and provide value for money. Canned tuna prices, however, will remain high.

Seabass and seabream

The increasing volumes of seabass and seabream that are coming to market have led to weaker prices. In Greece, production is down somewhat, with companies suffering from tight credit and rising feed costs, but Turkey’s production continues to grow, setting Turkey on the path to become the largest producer of these species. The high volumes will keep markets well supplied and prices can be expected to weaken even further over the coming months with recovery not expected until 2014. Seabass prices are particularly under strain from production increases. Over time, markets will certainly be able to absorb the larger volumes but a more stable long-term balance will clearly need more product innovation and the development of additional markets. Taking the typical cyclical pattern of prices into account, seabass prices were significantly lower in the first half of this year while seabream prices were quite similar to 2012 levels during the same period. Despite some weakness in the market overall, the UK, US, German, Middle Eastern and Russian markets are all developing nicely, and traditional markets such as Spain and France have rebounded in 2013 from weak demand in 2012. However, volume growth for the most part was due to lower prices, especially for bass. Italy, the largest market, remains sluggish as consumers struggle with the effects of economic recession, and is not expected to turn this year.

Salmon

Since the recovery from the 2011 price crash began in late 2012, the salmon market has witnessed continued growth and a positive price trajectory that has lifted export revenues to record levels, particularly for producers supplying EU markets. Part of the reason for the lucrative price levels was lower harvest volumes in the first half of the year resulting from biomass restrictions and colder water temperatures. This price trend has recently been reversed due to some evidence of weakening demand, as high raw material costs filter down the value chain. However, it appears the market balance is still sufficiently tight to halt the decline well before Norwegian export prices reach anywhere near the previous low of USD 4.5 per kg in April 2011, and seasonal demand will soon reverse the downward trend. The long-term supply outlook is for little or no growth, with reports stating that Chilean farmers will again have to adapt to maximum pen density restrictions which are being implemented in an attempt to control the spread of disease. It is hoped the resulting reduction in supply will boost prices and improve the profitability of Chilean farms that, despite good demand, continue to struggle and are likely to face future increases in feed prices. These suppliers will have to look to newer markets such as Brazil, China and also the Norway-dominated EU to compensate for Japan’s declining interest in seafood. Norwegian producers are faring much better, registering a record total export value of USD 3 billion in the first half of 2013, 28 percent more than the same period in 2012. Despite a decline in the total volume of exports, the export volume to Norway’s top market, the EU, remained largely unchanged while the value increased. Norwegian trout exports are also performing well.

Source: FAO (until 2011)

*Estimate

Cephalopods

Octopus supplies are more abundant, particularly from Morocco. This is reflected in busier trading in the main markets, such as Japan and the EU. Surprisingly, this has not had an impact on prices in spite of the difficult economic situation, although this can be expected to change as more product enters the market. In Mexico, the octopus fishery in Yucatan started in August and is expected to land some 12 000 tonnes during this season. Squid supplies also improved somewhat in the first half of the year. Prices are relatively high and expected to remain so. The interest in jumbo flying squid (Dosidicus gigas) in South America is increasing. Jumbo flying squid from Peru has been exported to over 50 countries. The Japanese squid market grew slightly, there was a marked increase in Italian squid imports during the first six months of this year, although Spanish imports declined. The US, which has become a major importer (and exporter) of squid over the past decade, imported somewhat less during the first half of this year. Cuttlefish supplies have been a little tighter, as reflected in international trade statistics showing declines of 21 percent, 12 percent and 7 percent in imports into Japan, Italy and Spain, respectively. Cuttlefish prices should remain stable because of tight supply.

SPECIAL FEATURES

FAO’S FOOD PRICE INDEX REVISITED

Introduction

The FAO Food Price Index (FFPI) was introduced in 1996 as a public good to help in monitoring developments in the global agricultural commodity markets. The only major modification made to it – until now – was in 2009, when its base period was updated to 2002–2004. During the significant price hikes in 2008, the FFPI gained prominence as an indicator of potential food security concerns for vulnerable developing countries. Since then, with the exception of 2009 and 2010, prices of agricultural commodities have remained at relatively high levels compared with those prior to 2008.

In order to determine whether there was a need to revise the base period again to reflect changes in trading patterns post 2007, the FFPI was recalculated based on different reference years. This provided an opportunity to review commodity coverage and price quotations. It also allowed to make comparisons with other price indices that may have more desirable properties than the Laspeyres form of the FFPI and to assess the relevance of the index as a possible indicator for food security concerns.

Updating the FFPI

The commodity coverage of the new index has not been changed significantly. In the cereals sub–index, the original FFPI wheat index has been replaced by a new index introduced by IGC.[1] In the meat sub-index, two of the existing quotations have been replaced by new series that can be updated every month. The casein prices were dropped from the dairy sub-index because of lack of reliable data, but the geographic coverage of the index has been extended by adding new quotations to butter, whole milk powder and skimmed milk powder.[2] Finally, fish oil and tallow prices were dropped from the oils sub-index, partly due to lack of data and partly to make this group consistent by including only the prices of vegetable oils.

New FFPI: 23 commodities, 73 price series

Under the new approach, the index includes the following 23 commodities: wheat (10 price quotations monitored and reported by the IGC), maize (1 quotation) and rice (16 quotations) for cereals; butter, whole milk powder, skimmed milk powder (2 quotations for each) and cheese (1 quotation) for the dairy group; poultry (13 quotations), pig (6 quotations), bovine (7 quotations) and ovine (1 quotation) for the meat group; sugar (1 quotation); the oils group consists of one oil price quotation for soybean, sunflower, rapeseed, groundnut, cotton seed, copra, palm kernel, palm, linseed and castor. This construction, thus, includes the use of 73 price series.

For the FFPI currently in use, the base period is 2002–2004. The weights correspond to the share of the export value of each agricultural commodity in the total export value of the 23 commodities included in the index, averaged over these three years. Since agricultural commodity prices have significantly increased since 2008 and have remained higher than during the years prior to 2008, an exercise was undertaken to see whether the FFPI is significantly affected when the base period for determining the weights is changed. The selection of the base period is limited by the availability of FAOSTAT trade data, which covers the years up to and including 2011. With agricultural prices in 2009 and 2010 being lower than the other years during the post–2007 period, three different bases were chosen in order to assess their impact on the FFPI: 2008–2010, 2009–2010 and 2009–2011.

These three indices are graphed together in the lower part of Chart 1 and show that there are level differences between them, but their movements through time follow each other very closely. In fact, the correlation coefficients between them are not less than 0.9999. The values of the “old” FFPI are well above the others, because the prices during 2002–2004 are much lower than those after 2007. However, the correlation coefficients between the “old” FFPI and the others are above 0.999, indicating that the global export trade shares have not altered a great deal since 2002–2004. Therefore, since the FFPI is usually used to assess global developments of agricultural commodities through time, the change of the base period was deferred to a future period.

Weights in 2002–2004 were applied to the relative prices of the individual commodities, rather than the prices themselves as the FFPI used in the previous issues. The denominator or the base price was calculated as the average of the prices prevailing during the base period. Therefore, the values of the “old” and “new” FFPI will be different because of the differences not only in the commodity coverage but also in the way prices are treated in the calculations[3]. The two series are graphed in Chart 2 for comparison.

In addition to using different base periods in the construction of the indices, different formulae of price indices with more desirable properties than that of the Laspeyres price index were calculated for comparison. Geometric Laspeyres, Paasche, Fisher and Törnqvist–Theil indices were used for this purpose. The last three indices address some of the shortcomings of the Laspeyres index by taking into account current trading patterns, while the last two are also known as “ideal” or “superlative” indices that make equal use of the prices and quantities in both of the periods compared, and treat them in a symmetric manner.[4]

The three indices are presented along with the FFPI in Chart 3. As can be seen, the differences among the four are not significant. Because the three indices with current weights cannot be calculated for the latest two years, the Laspeyres index remained the preferred one for monitoring and assessing the most recent agricultural market developments at the global level. Moreover, one advantage of the Laspeyres index is that it yields consistent results when aggregating to reach annual values through averaging either the monthly indices or the monthly prices. The same results are obtained whether the index is calculated as an average of the individual prices or as an average of the sub-indices of the five commodity groups.

at least the past half-acentury, the only period where real agricultural prices seem to have declined significantly is between the years 1974 and 1987

Extending the annual FFPI back to 1961

In order to facilitate the assessment of long-term price/ market developments, the annual FFPI was extended back to 1961. For this purpose, the export unit values of the 23 commodities included in the index were treated in exactly the same way as the monitored prices were treated in FFPI: the same base periods and weights were used and then the resulting “unit value” index was spliced to the FFPI for the years 1961 through 1989. Chart 4 contains both series for the period 1990–2011 and shows their closeness to each other. The correlation coefficient between them is 0.99. This is a confirmation that the agricultural commodity prices monitored by FAO to assess global market developments do capture closely the movements of the “actual unit values” of agricultural commodity exports derived from trade data.

The extended series of the FFPI was deflated by the World Bank’s new manufactures unit value (MUV) index, in order to obtain an estimate of real agricultural prices. There are of course other deflators that can be used for this purpose, such as global implicit GDP deflator or global CPI. However, these also include the prices of the agricultural commodities that they are supposed to deflate. The MUV “is a composite index of prices for manufactured exports from the fifteen major developed and emerging economies to low– and middle–income economies,”[5] and, therefore, may be considered a “proxy” representing the rate of exchange between agricultural commodities and manufactured products, especially relevant for developing countries. Regardless, FAO would welcome other suggestions that could result in more “appropriate” real prices.

The two series are displayed in Chart 5. One interesting observation to note in passing is that over at least the past half-century, the only period where real agricultural prices seem to have declined significantly is between the years 1974 and 1987 – a topic that is worthy of further analysis in order to discover the underlying causes.

A global food price index with a focus on vulnerable developing countries

As already noted, FFPI is not an indicator that can be used on its own to assess the food security impact of food prices on food insecure households in vulnerable developing countries. First, the global export shares of the agricultural commodities may not necessarily reflect the structure of the agricultural imports of the developing countries or of household consumption. Second, the international commodity prices used for each agricultural commodity may not represent the unit cost of what the developing countries actually import. And, finally, the actual prices paid by the households may be quite different from the border prices, as their transmission to the local domestic markets could be influenced by many other factors, including changes in exchange rates or trade policies.

In order to determine the extent to which the FFPI is altered when the monitored relative prices are weighted by the value shares of the commodities imported by the food deficit developing countries (FDDCs), another index was calculated. The results, presented in Chart 6, show that prior to 2007, the FFPI is usually above the index where the monitored prices are weighted by the import shares of the FDDCs. This implies that the basket they had consumed during 2002–2004 would have cost them less than was implied by the FFPI. After 2007, however, their basket would have cost more than that of the basket represented by the export value shares.

However, the significant increases in prices in 2008 may well have led these countries to change not only the composition of the commodities imported, depending on the ease of substitution between them, but also within each commodity – by selecting cheaper forms of the same, where available (e.g. cheaper cuts of meat or less processed forms of the some of the others). In order to assess this, weighted[6] arithmetic means of the actual export prices monitored by FAO and of the import unit values (IUVs) of the imports of these commodities by FDDCs were calculated. The results, presented in Chart 7, are surprising in that, not only do the two averages track each other very closely (with the correlation coefficient between them equalling 0.96), but also up to 2004 the mean of the IUVs are above the mean of the export prices, on average by more than 6 percent. From 2004 onwards, however, the position of the two are reversed, with one exception in 2009 when the mean IUV was below that of the export prices. The latter suggests that such large increases in prices may have forced vulnerable countries to change the product composition within the commodities that they imported.

This finding tends to support the discovery above, that had the FDDCs imported the same basket as the one that the export prices monitored, that bundle would have cost more than the basket represented by the export shares at the global level. Thus the FDDCs seem to have altered the pattern of their imports in the face of rapid increases in prices, resulting in their average import unit costs falling below the average of the export prices of agricultural commodities monitored by FAO.

The FDDCs seem to have altered the pattern of their imports in the face of rapid increases in prices, resulting in their average import unit costs falling below the average of the export prices of agricultural commodities monitored by FAO

So what is new with the “new” FFPI?

The analysis presented in this Special Feature was designed to discover whether the changes in the global agricultural commodity markets and the improvements in information technology required any revision to the FFPI. Some changes were made to the commodity coverage and to the manner in which the agricultural commodity prices were used in the calculation of the index, but the base period and the form of the index were maintained. The changes introduced, moreover, did not significantly alter the values of the series. The FFPI was extended back to 1961 to allow long-term evaluation of market developments, and a new price index was created to allow determining the possible impact of global price changes on vulnerable developing countries, keeping in mind that far more is needed than monitoring price changes at the global level to assess the impact of such changes on the food security of food insecure households.

SPECIAL ACKNOWLEDGEMENT

The FAO Food Outlook team wishes to convey special thanks to Ali Arslan Gurkan who agreed to carry out this analysis and to report on the findings. Ali led the Basic Foodstuffs unit of FAO for several years before retiring in 2008. During his tenure at FAO he launched many important initiatives, including the establishment of the FAO Food Price Index, which is recognized as a leading benchmark for assessing trends in world food prices. We are grateful for his continued support and interest in the work of the team.

[1]  A new quotation was added, increasing the number to 10 and the index was rebased to January 2000. (http://www.igc.int/en/grainsupdate/igcgoi.aspx for details). The series was extended back to 1990 in this exercise by splicing the “old” index to the “new” index.

[2]  The three new quotations correspond to export prices from European ports for these commodities.

[3]  There are also slight differences in the export shares of the commodities and, thus, of commodity sub-indices, because the data in FAOSTAT get updated on a continuous basis.

[4]  See ILO, Consumer Price Index Manual. Theory and Practice, Geneva 2004 for the most comprehensive theoretical assessment of different price indices, comparing their advantages. An expanded version of this note explaining how these indices have been calculated and summarizing their advantages can be accessed through the following link (http://www.fao.org/fileadmin/templates/worldfood/Reports_and_docs/FO-Expanded-SF.pdf).

[5]  http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTDECPROSPECTS/
0,contentMDK:20587651~menuPK:5962952~pagePK:64165401~piPK:64165026~
theSitePK:476883~isCURL:Y,00.html for more detailed definition of the index.

[6]  The weights used are the three-year averages of the import shares of each of the 23 agricultural commodities for the food deficit developing countries.

G-33 PROPOSAL: EARLY AGREEMENT ON ELEMENTS OF THE DRAFT DOHA ACCORD TO ADDRESS FOOD SECURITY[1]

In November 2012, a group of developing countries known as the G-33[2] tabled an informal proposal at the World Trade Organization (WTO),[3] seeking additional flexibility in the global trade body’s rules on agriculture. The WTO membership is currently negotiating a draft accord in this area that is to be fast-tracked as the possible centrepiece of a small package of measures for agreement at the Ninth WTO Ministerial Conference in Bali, Indonesia, in December 2013, as a down payment towards a broader deal on the long-running Doha talks on trade. A number of developing countries have argued that progress on agricultural trade issues is needed in order to balance concessions on an eventual deal on trade facilitation – one that will ease restrictions and red tape at customs, and make it easier for goods and services to cross international borders. According to the G-33, focusing on one of the elements of importance to developing countries – namely food security – could help advance negotiations so as to achieve at least some outcomes in agriculture.

The G-33 proposal involved three elements, all of which relate to certain domestic farm support payments. These payments, known as “green box” subsidies by negotiators, are exempt from any cuts or ceiling under WTO rules, on the basis that they cause no more than minimal trade distortion.[4] Two proposed changes would ease current requirements on domestic food aid and food stockholding programmes, by allowing food purchased at administered prices (above prevailing domestic market prices) from low-income or resource-poor producers to be exempt from countries’ maximum permitted ceiling on trade-distorting support at the WTO.[5] The third proposed classifying a range of schemes primarily used by developing countries – such as farmer settlement, land reform and other programmes to promote rural development and poverty alleviation – as green box payments under a new clause.

The proponents argue for the proposed changes to the text primarily on the basis of allowing countries to implement support policies consistent with their objectives of improving the food security status of their citizens. Appropriately designed public food purchasing programmes can indeed help to increase the incomes of poor farmers if they gain access to a guaranteed outlet with a higher and more predictable price than achievable on the open market. Greater revenues that accrue to farmers who benefit from better prices can encourage onfarm investment and improvements in productive practices, which could in turn lead to still greater production. Moreover, if procurement schemes are associated with the distribution of food aid, they are likely to reduce expenditures on food by poor consumers. However, the extent to which they achieve these objectives will be determined by the level of national market development and the degree to which producers actually participate in these markets by increasing production that is surplus to their household consumption requirements, in itself determined by a complex set of household specific characteristics.

As such, while subsidized government procurement schemes can help to lift producers out of poverty, they do not guarantee a boost in small farmers’ production or an increase in their incomes. Not all farmers are commercially oriented and able to respond to the opportunity provided by more stable, guaranteed markets. In reality, low-income resource-poor farmers are highly heterogeneous in their participation in markets. Whether or not farmers will be willing and able to increase their sales in response to a government procurement programme depends on a range of factors, including the complex production and consumption patterns of rural households. By definition, most low-income, resource-poor producers are semi subsistence and many in fact are net food buyers.

An important consideration in determining the impact of food procurement schemes is therefore the extent to which they affect prices in the markets from which rural households purchase food to cover their household deficits. While procurement for food aid could be expected to result in reduced or “subsidized” prices in locations into which this food is released, these prices might not transmit fully to all rural consumers. Procurement for stockholding without provision for release as food aid could, by contrast, result in upward pressure on local prices.

For those farmers who predominately sell their output in markets, factors affecting their ability to increase supplies in response to government purchasing programmes (essentially, their ability to increase production) may depend on their resource base, risk factors faced, access to technology and financing, and their location in relation to public procurement points, among others. Given their different characteristics and constraints, farmers differ significantly in how they participate in markets and the type of market in which they are most likely to participate, all of which affect the benefits they can derive from state purchasing schemes.

Food stockpiling programmes can also affect trade flows as well as the producers and consumers in other countries, including the most vulnerable among them. Whether or not there is an impact on trade would depend on the magnitude of the operation and, hence, the price distortion that is created by the public procurement programme. One possible effect could be a reduction in exports of the food staples of which the country is a net exporter, since the price subsidy provided could create an incentive to divert some of the production that would otherwise be destined for export to the government procurement programme. Conversely, the inflow of imported staple foods from other countries could be reduced if an increasingly large share of consumption is covered by products entering markets through the government food distribution programmes. The release of stocks can also have important implications. The scale and timing of release, especially if unpredictable and not factored into traders’ decision making, can significantly influence price levels and volatility, both domestically, and, if the country is a significant trader, internationally.

There are also other effects to consider. When a government becomes active as a buyer in a market, it could crowd out private traders who are providing marketing services and market infrastructure at a lower cost, and could be more effective in conveying market signals. In addition, the government expenditure on public food purchasing and stock-holding should be considered. The costs of holding stocks, particularly during periods of consecutive average or above average harvests can be fiscally unsustainable, and the potential for food waste where storage systems are inadequate can be significant.

In summary, the implications of public procurement and stockholding for trade flows need to be considered in light of multiple determinants which include the different phases of operation, the timing, predictability and transparency of operational decisions, the structure and functionality of markets from which stock is procured and into which it is sold and, not least, the supply responsiveness of low income resource poor producers.

The G-33 proposal has to be seen in the broader context of the difficulties many countries are facing in adjusting to the challenges of the new agricultural trade policy environment, as well as in the context of the failure to achieve more than minimal progress on the reform of the multilateral trading system since the end of the Uruguay Round, now almost two decades ago. It can also be seen as indicative of a renewed commitment on the part of some the larger developing countries to ensure that trade rules and trade policies contribute towards progress on long-standing development goals, such as food security. However, this must also consider the risks that the initiative may create for the achievement of these goals in other developing countries, some of which may be unable to muster the same resources for the pursuit of these same public policy objectives.

Experience from countries around the world demonstrates clearly that policy-makers and negotiators will have to examine carefully the specific implications of new rules and mechanisms for markets if they are to be sure that public procurement policies actually deliver improved food security for market actors – not least for smallholder producers and poor consumers. While enhanced flexibilities at the multilateral level could deliver real benefits to low-income, resource-poor farmers, the design of international disciplines on public procurement and domestic food aid could have far-reaching implications for global agricultural markets that need to be given more careful consideration.

In the run-up to the Bali Ministerial Conference, Member Countries are working to agree upon a “peace clause” that will provide assurance to countries at risk of breaching their domestic support commitments that they will not be challenged by trading partners while a more permanent mechanism is being established. At the same time, negotiators could usefully explore the scope for establishing a post-Bali work programme looking at the full range of trade and food security concerns, with a view to improving the ability of the multilateral trading system to respond effectively in this area.

[1]  For the full version of this note see Christophe Bellman, Jonathan Hepburn, Ekaterina Krivonos and Jamie Morrison (2013) http://www.fao.org/fileadmin/templates/est/PUBLICATIONS/g33-proposal-early-agreement-on-elements-of-the-draft-doha-accord-to-address-food-security_1_.pdf

[2]  G-33 is a coalition of developing countries with large populations of smallholder farmers and includes 46 members: Antigua & Barbuda, Barbados, Belize, Benin, Bolivia, Botswana, Côte d’Ivoire, China, Congo, Cuba, Dominica, Dominican Republic, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, India, Indonesia, Jamaica, Kenya, Republic of Korea, Madagascar, Mauritius, Mongolia, Mozambique, Nicaragua, Nigeria, Pakistan, Panama, Peru, Philippines, Saint Kitts & Nevis, Saint Lucia, Saint Vincent & the Grenadines, Senegal, Sri Lanka, Suriname, Tanzania, Trinidad & Tobago, Turkey, Uganda, Venezuela, Zambia, Zimbabwe.

[3]  JOB/AG/22, 13 November 2012. See also See “Developing Countries Table Food Security Proposal at WTO”, Bridges Weekly Trade News Digest, Vol. 16, No. 39, 14 November 2012. http://ictsd.org/i/news/bridgesweekly/149960/

[4]  The WTO’s rules on ‘green box’ subsidies are set out in Annex 2 of the Agreement on Agriculture: http://www.wto.org/english/docs_e/legal_e/14-ag_02_e.htm#annII

[5]  The aggregate measure of support (AMS) which countries have agreed at the global trade body not to exceed.

MAJOR POLICY DEVELOPMENTS

* A collection of major grain policy developments starting in July 2010 is available at: http://www.fao.org/economic/est/est-commodities/commodity-policy-archive/en/?groupANDcommodity=grains

* A collection of major rice policy developments starting in January 2011 is available at: http://www.fao.org/economic/est/est-commodities/commodity-policy-archive/en/?groupANDcommodity=rice

* A collection of major policy developments starting in January 2011 is available at: http://www.fao.org/economic/est/est-commodities/commodity-policy-archive/en/?groupANDcommodity=Oilseeds,%20oils%20and%20meals

* A collection of major sugar policy developments starting in January 2013 is also available at: http://www.fao.org/economic/est/est-commodities/commodity-policy-archive/en/?groupANDcommodity=Sugar

* A collection of major meat policy developments starting in January 2011 is available at: http://www.fao.org/economic/est/est-commodities/commodity-policy-archive/en/

* A collection of major dairy policy developments starting in January 2012 is available at: http://www.fao.org/economic/est/est-commodities/commodity-policy-archive/en/?groupANDcommodity=Milk,%20Dairy%20products

Statistical appendix tables

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

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

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

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

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

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

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

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

Appendix Table 9 Cereal supply and utilization in main exporting countries

Appendix Table 10 Total oilcrops statistics

Appendix Table 11 Total oils and fats statistics

Appendix Table 12 Total meals and cakes statistics

Appendix Table 13 Sugar statistics

Appendix Table 14 Total meat statistics

Appendix Table 15 Bovine meat statistics

Appendix Table 16 Ovine meat statistics

Appendix Table 17 Pigmeat statistics

Appendix Table 18 Poultry meat statistics

Appendix Table 19 Milk and milk products statistics

Appendix Table 20 Fish and fishery products statistics

Appendix Table 21 Selected international prices for wheat and coarse grains

Appendix Table A22 Wheat and maize futures prices

Appendix Table 23 Selected international prices for rice and price indices

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

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

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

Appendix Table 27 Selected international meat prices

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

Appendix Table 29 Fish price indices

Appendix Table 30 Selected international commodity prices

NOTES

General

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

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

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

•  Tonnes refer to metric tonnes.

•  All totals are computed from unrounded data.

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

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

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

•  ‘-‘ means nil or negligible.

Production

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

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

Utilization

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

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

Trade

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

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

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

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

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

Stocks

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

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 62 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 1 915 in 2010). The LDCs group currently includes 49 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.

1  Trade data include wheat flour in wheat grain equivalent. For the EU semolina is also included.

2  Argentina (December/November) for rye, barley and oats, (March/February) for maize and sorghum; Australia (November/October) for rye, barley and oats, (March/February) for maize and sorghum; Canada (August/July); EU (July/June); United States (June/May) for rye, barley and oats, (September/August) for maize and sorghum.

3  Rice trade data refer to the calendar year of the second year shown.

1  The split years bring together northern hemisphere annual crops harvested in the latter part of the first year shown, with southern hemisphere annual crops harvested in the early part of the second year shown; for tree crops which are produced throughout the year, calendar year production for the second year shown is used.

1  Includes oils and fats of vegetable, marine and animal origin.

1  Expressed in product weight; includes meals and cakes derived from oilcrops as well as fish meal and other meals from animal origin.

1  Including “other meat”.

1  Dairy years starting April of the year stated (production only).

2  Dairy years ending June of the year stated (production only).

3  Dairy years ending May of the year stated (production only).

Note: Trade figures refer to the milk equivalent trade in the following products: butter (6.60), cheese (4.40), milk powder (7.60), skim condensed/evaporated milk (1.90), whole condensed/evaporated milk (2.10), yoghurt (1.0), cream (3.60), casein (7.40), skim milk (0.70). The conversion factors cited refer to the solids content method. Refer to IDF Bulletin No. 390 (March 2004).

1  Production and trade data exclude whales, seals, other aquatic mammals and aquatic plants. Trade data include fish meal and fish oil.

2  Including intra-trade. Cyprus is included in the European Union as well as in Asia. Starting with 2013 data, EU includes Croatia.

3  For capture fisheries production, the aggregate includes also 19 214 tonnes in 2010 and 19 566 in 2011 of not identified countries, data not included in any other aggregates.

1 Delivered United States f.o.b. Gulf; 2 Delivered United States Gulf; 3 Up River f.o.b.

Sources: International Grain Council and USDA

Source: Chicago Board of Trade (CBOT)

1  White rice, 100% second grade, f.o.b. Bangkok, indicative traded prices.

2  A1 super, f.o.b. Bangkok, indicative traded prices.

3  US No.2, 4% brokens f.o.b.

4  Up to May 2011: Basmati ordinary, f.o.b. Karachi; from June 2011 onwards: Super Kernel White Basmati Rice 2%.

Note: The FAO Rice Price Index is based on 16 rice export quotations. ‘Quality’ is defined by the percentage of broken kernels, with high (low) quality referring to rice with less (equal to or more) than 20 percent brokens. The sub-index for Aromatic Rice follows movements in prices of Basmati and Fragrant rice.

Sources: FAO for indices. Rice prices: Livericeindex.com, Thai Department of Foreign Trade (DFT) and other public sources.

1  Soybeans: US, No.2 yellow, c.i.f. Rotterdam.

2  Soybean oil: Dutch, fob ex-mill.

3  Palm oil: Crude, c.i.f. Northwest Europe.

4  Soybean cake: Pellets, 44/45 percent, Argentina, c.i.f. Rotterdam.

5  Rapeseed meal: 34 percent, Hamburg, f.o.b. ex-mill.

Note: The FAO indices are calculated using the Laspeyres formula; the weights used are the average export values of each commodity for the 2002-2004 period. The indices are based on the international prices of five selected seeds, ten selected vegetable oils and five selected cakes/meals.

Please note that in November 2013 some modifications have been introduced to the way the indices are calculated, the most significant one being the following changes in commodity coverage: the new oils index refers only to vegetable oils, i.e. fish oil and tallow have been removed; the new meals index only refers to soybean, sunflowerseed, rapeseed, copra and palmkernel meal, i.e. fishmeal and groundnut meal have been removed. The coverage of the oilseed index has remained unchanged.

Except for the meal index, the changes introduced did not significantly alter the values of the series.

Sources: FAO and Oil World.

1  Butter, 82% butterfat, f.o.b. Oceania and EU; average indicative traded prices

2  Whole Milk Powder, 26% butterfat, f.o.b. Oceania and EU, average indicative traded prices

3  Skim Milk Powder, 1.25% butterfat, f.o.b. Oceania and EU, average indicative traded prices

4  Cheddar Cheese, 39% max. moisture, f.o.b. Oceania, indicative traded prices

Note: The FAO Dairy Price Index is derived from a trade-weighted average of a selection of representative internationally-traded dairy products

Sources: FAO for indices. Product prices: Mid-point of price ranges reported by Dairy Market News (USDA)

Bovine meat prices:

Australia: Cow 90CL export prices to the USA (FAS)

USA: Frozen beef, export unit value

Brazil: Frozen beef, export unit value

Ovine meat prices

New Zealand: Lamb 17.5kg cwt, export price

Pig meat prices:

USA: Frozen pigmeat, export unit value

Brazil: Frozen pigmeat, export unit value

Germany: Monthly market price for pig carcase grade E

Poultry meat prices:

USA: Broiler cuts, export unit value

Brazil: Export unit value for chicken (f.o.b.)

The FAO Meat Price Indices consist of 2 poultry meat product quotations (the average weighted by assumed fixed trade weights), 3 bovine meat product quotations (average weighted by assumed fixed trade weights), 3 pig meat product quotations (average weighted by assumed fixed trade weights), 1 ovine meat product quotation (average weighted by assumed fixed trade weights): the four meat group average prices are weighted by world average export trade shares for 2002/2004.

Prices for the two most recent months may be estimates and subject to revision.

Source= Norwegian Seafood Council.

Note: The FAO Fish Price Index is based on nominal import values expressed in CIF in the three major import markets; Japan, USA and EU. Separate indexes exist for products from aquaculture and from capture fisheries. Additional sub-indexes exist for the major commodity groups based on species.

MARKET INDICATORS

INVESTMENT FLOWS

Article by Ann Berg, Senior Commodity Analyst

Futures prices for wheat, maize and soybeans are exhibiting greater levels of stability than those described in the previous (June) Food Outlook, with each market behaving according to its own specific fundamentals. Maize and wheat declined steadily for the past 12 months, losing 40 percent and 30 percent respectively of their values from peak to trough, although wheat was showing some signs of strengthening in October. Wheat supply and demand balance is tighter than maize, which has caused wheat values to regain a significant premium (USD80/MT) to maize compared with the first half of 2012 when wheat was mostly trading at a discount to maize. Soybeans also declined over the last year but rose sharply and briefly to last year’s levels when hot dry weather threatened pod setting in August. Volatility levels displayed some upward spikes in August when crop prospects seemed jeopardized by persistent dryness following a rainy June, but by October have also fallen to comparatively low levels. Futures trade volumes have declined for maize, soybeans and wheat (YTD -15 percent, -13 percent and -8 percent respectively) . The situation contrasts sharply with 2012, during which maize, wheat and soybeans attained record volumes with maize and soybeans also reaching record prices. As balance sheets have become looser, prices have exhibited a consolidating pattern, leaving fewer opportunities for speculative traders. Anecdotally, several commodity hedge funds and bank proprietary trading desks have announced closure due to negative performance over the last 2-and-a-half years.

The forward curve market has displayed a greatly relaxed structure in maize, and is now reverting to a more normal contango configuration for the 2013/14 crop year as the market will have to induce this crop year’s abundant supplies into long-term storage or encourage buyers to take advantage of cheap nearby prices. The current maize situation presents a marked difference from last year when, beginning with the March 2012 contract, the market displayed large spot inversions over deferred months, underscoring the supply deficits caused by the drought in the heart of the US midwest growing and processing regions. The forward curve market for soybeans remains in backwardation although in a less extreme configuration: the November 2013/November 2014 spread is displaying USD38/MT backwardated level compared to USD61/MT level (November 2012 vs. November 2013) as reported in the November 2012 Food Outlook (15 October 2013 vs. 15 October 2012).

Wheat (SRW) forward curves display greater levels of contango than they did a year ago, when spot prices were 24 percent higher and the prices for three years forward resembled a moderately descending staircase.

Investment flows also reveal changes in market strategies. Managed money maintained net long positions at this time last year betting on rising wheat and maize prices, but now has reversed tactics and established net short positions in the two markets. It might be noted that managed money – except for fleeting periods, has maintained a long position in maize over the last six years. In soybeans, managed money has increased its long vs. short positions to reflect a rising price strategy. Index funds, which normally pursue passive long strategies on behalf of retail customers, have not appeared to be particularly active. Both commodity hedge funds and index funds performed poorly this year, as they did last year, and have seen withdrawal of fund money. Investor activity will likely remain subdued for the near future. However, any appearance of unfavorable crop developments in South America, which has become a dominant global supplier, could reactivate the currently sidelined money flows.

OCEAN FREIGHT RATES

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

OCEAN FREIGHT MARKET (JUNE 2013 - MID-OCTOBER 2013)

Dry bulk ocean freight rates remained weak during June-August in all market sectors due to an oversupply of tonnage and sluggish demand, typical for the summer months. September saw a sharp increase in freight rates for larger tonnage, especially from Brazil and Australia, on China’s renewed mineral demand, with the Baltic Exchange Capesize and Panamax Indices soaring by 87% and 93% month-on-month, respectively. In addition, the Panamax sector was underpinned by solid demand for grains and soyabeans from the US Gulf. Atlantic demand continued to draw tonnage from South East Asia, thus underpinning the Pacific market. The freight market continued to rise in October on the back of healthy demand for commodities, although the pace of increase has recently slowed down. Overall, since May, the average of the three grain-carrying indices registered a net gain of some 65% and 86% year-on-year, while the Baltic Dry Index (BDI) soared by 131%, due to a sharp rise in Capesize values, and was up 96% year-on-year. In the near-term, the market is expected to remain steady, supported by demand for commodities, including grains and soyabeans. Piracy along Africa’s east and west coasts, the Arabian Sea and the Indian Ocean continued to be a problem, keeping insurance premiums at a high level.

During the summer months, Panamax rates were under pressure in both basins due to a slow-down in chartering activity, except for coal shipments from Indonesia, which remained strong. In the Atlantic, the market fell on reduced business on routes from the US Gulf and South America, while ballasters from the Pacific added to the bearish sentiment. However, in September, rates increased sharply, with charterers chasing tonnage to cover mineral orders to China and grains shipments from the US Gulf to FE Asia. Transatlantic roundtrips have also risen dramatically, quoted by the end of September at about $14,750 daily, a double value month-on-month. In contrast, rates from South America saw only modest gains due to a continuing influx of tonnage from the Indian Ocean. October rates were underpinned by tight tonnage supply, particularly in the north Atlantic, although trading volumes started to decrease. Over the June-mid October period, the Baltic Panamax Index (BPI) rocketed by 162%.

After fairly quiet summer months, rates in the Handysize and Supramax sectors also rebounded in September on the back of a healthy demand for commodities, including grains, though the increase was modest compared to the Panamax market, at 12% and 15%, respectively. The main support came from grains shipments from South America, the US and Europe to Far East Asia and to the Mediterranean. Over the June-mid October period, the Baltic Handysize Index (BHSI) advanced by 20%, while the Baltic Supramax Index (BSI) gained 38%.

Capesize rates rose sharply in June and then again in September on the back of increased minerals shipments in both basins, largely attributed to a renewed China’s demand for iron ore and coal. As a result, over the June-mid October period, the Baltic Capesize Index (BCI) jumped by 133% and added 33% year-on-year.

FOOD IMPORT BILLS

Global food import bills expected to fall slightly in 2013

At USD 1.15 trillion, world expenditures on imported foodstuffs in 2013 are forecast to fall 3 percent from last year and to a level 9 percent below the record of 2011. The decline in global import expenditures reflects sizeable falls for most commodity groups that offset higher annual freight costs compared to last year. Freight charges began rising in mid-2013 and have accelerated considerably in the month of September.

Of the commodities foreseen to undergo the largest declines, sugar import costs could fall as much as 20 percent or USD 10 billion on account of substantially lower prices as a result weak global demand. Bills for tropical beverages, a group that includes coffee, tea and cocoa, have also been marked by double digit percentage falls (USD 16 billion), again owing to much lower quotations. The global bill for vegetable oil imports is set to fall by over 9 percent (USD 9 billion), on account of a decline in prices notwithstanding a rise in volumes. Cereal expenditures in 2013 could also fall, by 2 percent to around USD 164 billion, despite an expanding world market for wheat and coarse grains.

Only products in the animal protein category, notably dairy and to some extent meat and fish, could rise together by as much as 9 percent to around USD 300 billion. The expected increase in these bills is based on a combination of larger volumes of imports as well as higher world quotations, especially for dairy products.

The tendency for global import bills to moderate in 2013 extends to many of the most economically vulnerable nations, such as those in the groups of Least Developed Countries (LDCs), Low Income Food Deficit Countries (LIFDCs) and those geographically situated in sub-Saharan Africa. Lower food import bills for them, however, do not imply fewer imports. On the contrary, declines in international quotations for regular imported staples have allowed economically disadvantaged countries to procure significantly more food, thus bolstering their food security. But, with much lower international prices for key export primary commodities, such as sugar and tropical beverages, the terms-of-trade in food and agriculture for commodity-dependent countries is set to deteriorate.

FAO PRICE INDICES

FAO Global Food Consumption Price Index remains stable[1]

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

Since September 2012, the index has been in decline, a tendency that has accelerated in the past 6 months, over which it has lost almost 9 percent of its value. Considerably lower international prices of cereals, especially coarse grains and wheat, which carry a much higher weight in total consumption than in trade (65 percent versus 27 percent), are behind the index’s decline.

Contact

Adam.Prakash@fao.org

FAO Food Price Index rise slightly in October

The FAO Food Price Index averaged 205.8 points in October 2013, 2.7 points (1.3 percent) above September, but still 11 points (5.3 percent) below its October 2012 value. Last month’s small increase is the first recorded since April 2013. It was largely driven by a surge in sugar prices, although prices of the other commodity groups were also up.

The FAO Cereal Price Index averaged nearly 197 points in October, up 2 points (1 percent) from September, but still as much as 57 points (or 22 percent) below its October 2012 level. This year’s anticipated record cereal production and favourable supply outlook weighed on the quotations of most cereals, in particular, maize. However, wheat prices strengthened, supported by firm import demand and deteriorating prospects for production in Argentina and the Back Sea region. Following a marked fall in September, rice prices moved up slightly.

The FAO Vegetable Oil Price Index averaged 188 points in October, 3.7 point (2 percent) up from September. Palm oil prices strengthened by over 5 percent, reaching a 13-month high, mainly on lower than anticipated production in Southeast Asia and firm world import demand. Soy oil values, on the other hand, weakened, stabilizing well below the levels recorded in October 2011 and 2012, in line with significantly improved supply prospects for soybeans in the 2013/14 season.

The FAO Dairy Price Index averaged almost 252 points in October, 1 point (0.4 percent) more than in September. Demand for whole milk powder, especially from China, remains strong and prices for this product have risen, as have those of butter, while quotations for skimmed milk powder have weakened and those of cheese remained unchanged. Overall, the index stands 25 percent above its level in October 2012.

The FAO Meat Price Index averaged 184.2 points in October, nearly unchanged from September. Regarding the different categories of meat, prices for bovine and ovine meat increased, while those of poultry and pig meat moved lower. The last two categories of meat have benefited from reduced feed prices. In the case of bovine and ovine meat, limited export supplies are lending support to prices.

The FAO Sugar Price Index averaged 265 points in October, up 18.4 points (7.4 percent) from September, marking the third consecutive monthly gain. The increase in October was mainly attributable to harvest delays due to unfavourable weather condition in the center-south region of Brazil, the world’s largest sugar producer and exporter. Also a fire that destroyed a major sugar warehouse at the Santos port in Brazil exacerbated the price surge. Overall, sugar prices were particularly volatile during the month of October, amid uncertainties on the extent of the anticipated production surplus for the new 2013/14 season.

1  Food Price Index: Consists of the average of 5 commodity group price indices mentioned above, weighted with the average export shares of each of the groups for 2002-2004: in total 73 price quotations considered by FAO commodity specialists as representing the international prices of the food commodities noted are included in the overall index. Each sub-index is a weighted average of the price relatives of the commodities included in the group, with the base period price consisting of the averages for the years 2002-2004.

2  Meat Price Index: Computed from average prices of four types of meat, weighted by world average export trade shares for 2002-2004. Commodities include two poultry products, three bovine meat products, three pig meat products, and one ovine meat product. There are 27 price quotations in total used in the calculation of the index. Where more than one quotation exists for a given meat type, a simple average is used. Prices for the two most recent months may be estimates and subject to revision.

3  Dairy Price Index: Consists of butter, SMP, WMP, and cheese price quotations; the average is weighted by world average export trade shares for 2002-2004.

4  Cereals Price Index: This index is compiled using the International Grains Council (IGC) wheat price index, itself an average of 10 different wheat price quotations, 1 maize export quotation and 16 rice quotations. The rice quotations are combined into three groups consisting of Indica, Japonica and Aromatic rice varieties. Within each variety, a simple average of the relative prices of appropriate quotations is calculated; then the average relative prices of each of the three varieties are combined by weighting them with their assumed (fixed) trade shares. Subsequently, the IGC wheat price index, after converting it to base 2002-2004, the relative prices of maize and the average relative prices calculated for the rice group as a whole are combined by weighting each commodity with its average export trade share for 2002-2004.

5  Vegetable Oils Price Index: Consists of an average of 10 different vegetable oils weighted with average export trade shares of each oil product for 2002-2004.

6  Sugar Price Index: Index form of the International Sugar Agreement prices with 2002-2004 as base.

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

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

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