(Agrimoney) – World grains production will fall this year – but not by enough to spark a rally in prices from five-year lows, the United Nations said, flagging an “overabundance” of wheat and “high” inventories of coarse grains.
The UN food agency, the Food and Agriculture Organization, in its first full estimate for world grains output in 2015-16, forecast production falling by 39.1m tonnes to 2.51bn tonnes.
At that level, output would fall back behind consumption, pegged at 2.52bn tonnes, up 1.0%, an increase in line with world population growth.
However, while this will result in a 2.9% drop in world inventories, at 626.6m tonnes, “the decline in cereal stocks would only result in a modest drop in the global cereal stocks-to-use ratio”, the FAO said.
The stocks-to-use ratio, in indicating the availability of supplies compared with demand, is seen as a key pricing metric, giving an idea of the extent buyers will need to pay up to secure supplies.
‘Exceptionally high stocks’
Indeed, the impact on grain prices of the drop in cereals production “will be cushioned by exceptionally high levels of existing stocks”, the organisation said.
“The expected drop in cereals output is not expected to impact availability for food consumption.”
The comments came as the FAO pegged world cereals prices last month down 1.3% from March to their lowest since July 2010, undermined in particular by wheat values.
“Wheat prices continued their decline in April, influenced by large supplies and slow trade activity, as many buyers await in expectation of even lower prices in the coming months,” the agency said.
Corn quotations “changed little compared to March, with stronger import demand being offset by prospects for more than ample supplies”.
‘Overabundance of wheat’
The FAO highlighted an “overabundance of wheat supply” that it forecast continuing into 2015-16, allowing for only a small drop in world inventories of the grain, of 1.1m tonnes to 200.0m tonnes.
Although the agency trimmed by 2.9m tonnes its estimate for 2015-16 wheat output, at 719.1m tonnes it would be the second biggest harvest on record.
The European Union wheat crop, the world’s biggest, will shrink by 7.6m tonnes to 156.1m tonnes, thanks to lower sowings, while the Russian harvest will drop by 5.7m tonnes to 54.0m tonnes, assuming a return to average yields from last year’s bumper levels.
The rain-plagued Indian harvest was pegged at 92.0m tonnes, a fall of 3.8m tonnes, although well above the 87.0m-tonne forecast this week from US Department of Agriculture staff in New Delhi.
However, the declines will be largely offset by increases to Australian, Turkish and US production.
US corn forecast
Coarse grains stocks will more significantly in 2015-16, by nearly 10m tonnes to 259.6m tonnes, reflecting in particular a 30m-tonne drop to 995m tonnes in world corn production.
“However… world reserves would still be high, resulting in fairly comfortable world stocks-to-use ratios.”
US corn output will come in at 350m tonnes – down 3% year on year, but will above forecasts from some other commentators such as the International Grains Council, which has pegged the harvest at 331.0m tonnes.
“The contraction would ensue from a 5%, price-induced reduction in plantings, partly offset by an expected recovery in yields,” the FAO said.
The agency’s estimate implies an expectation of significantly smaller plantings than those foreseen by the USDA, which has forecast a 1.5% drop to 89.2m acres in US corn seedings this year.
China stocks contrast
The FAO highlighted prospects for a particularly strong increase in Chinese coarse grain stocks, which “may approach 100m tonnes”, led by corn, “following two years of bumper crops and the government’s attractive procurement programme.
“The latter sustained domestic support prices for corn well above international prices, a development that has made barley and sorghum more attractive as a feed ingredient for the country’s livestock sector.”
By contrast, Chinese wheat inventories are forecast falling 4.9m tonnes to 44m tonnes over 2015-16, “the smallest in over a decade”.
