UN forecasts 'relative tranquility' in grain markets in 2017-18

07.04.2017

The United Nations forecast "relative tranquillity" ahead for grain prices as – unlike some other commentators - it forecast a further rise in world wheat inventories next season, besides a record coarse grains harvest.

The UN food agency, the Food and Agriculture Organization, said that world cereal supplies looked poised to "remain ample" in 2017-18, supported by near-record production at a time of "relatively weak growth" in consumption.

The dynamic "points to another season of relative market tranquillity", the FAO said, with large stocks stemming the need of buyers to pay up for supplies.

Indeed, the FAO said that inventories would end the season at a "comfortable" level of 25.4% of consumption, equivalent to three months of demand, above the 20.5% figure recorded in 2007-08, when supply tightness sent prices soaring.

'Planting cuts'

The forecast came despite a downgrade of 4.6m tonnes, to 739.9m tonnes, by the FAO in its estimate for world wheat output in 2017-18, compared with an initial figure released last month.

While the agency did not outline the details of the revision, it flagged that world wheat output, now seen falling more than 20m tonnes year on year, would be curtailed by weaker harvests in Australia, Canada and the US, "due mainly to planting cuts… induced" by weak prices.

Informa Economics this week pegged the US winter wheat harvest this year at 1.285bn bushels (35.0m tonnes), a drop of 23% year on year.

Even so the FAO, in its first supply and demand forecasts, saw wheat inventories rising next season, by 6.0m tonnes to a fresh record high of 246.5m – an expectation which contrasts with the thinking of some other commentators.

The International Grains Council last week, in its first full forecasts for 2017-18, estimated a 5m-tonne drop to 234m tonnes in world wheat inventories, while AAFC, Canada's farm ministry, foresees a 13m-tonne drop in stocks to 237m tonnes.

'Higher corn output'

However, the FAO clashed with the IGC and AAFC in forecasting a drop in world wheat consumption next season, citing softer demand from livestock producers, "given abundant supplies of cheaper coarse gains in several important markets".

Indeed, world output of coarse grains – a group which includes barley, corn and sorghum – will rise by 6.4m tonnes to a fresh record high of 1.353bn tonnes.

"Most of the anticipated increase would reflect a higher corn output, which, at 1.051bn tonnes, would stand 12.8m tonnes above last year's record," the FAO said.

"The increase would mostly stem from a surge in production in Brazil as well as Argentina, coupled with a significant rebound in South Africa's production from the drought-reduced level of 2016," more than offsetting a "sharp" decline expected in US output from last year's record high.

Food prices fall

The comments came as the FAO reported an easing in 2.8% in world food prices last month, led by a 10.9% slump in sugar values, reflecting "reflected generally weak import demand combined with expectation of higher Brazilian supplies entering world markets".

Brazil this month began its 2017-18 cane crushing season.

Global vegetable oil prices fell by 6.2% to a seven-month low, as prospects of strong South American soybean harvests dented soyoil values, while palm oil prices were undermined by "prospective production increases in South East Asia, Indonesia in particular".

Cereals prices dropped by 2.3%, their first decline in 11 months, as "ample available supplies, combined with good production prospects in the new season, weighed on export quotations".

The FAO highlighted pressure on corn prices "from recently harvested crops in South America, which intensified export competition in March with ample export supplies and no major upturn in import demand".


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