UN highlights wheat vs coarse grains rivalry, as it hikes world grain stocks estimate

02.02.2018

Food prices made a soft start to 2018, the United Nations said, even as it hiked its estimate of world grains production – and inventories - to record highs, talking of “ample” and “comfortable” supplies.

A food price index compiled by the UN food agency, the Food and Agriculture Organization, eased by 0.2% in January to its lowest in nine months, and down nearly 3% year on year.

The announcement came as the FAO revealed that it had hiked “significantly”, by 13.6m tonnes to an all-time high of 2.640bn tonnes, its estimate for world production of cereals (including rice) in 2017-18.

The figure for global carryout stocks was lifted by 12.8m tonnes to 738.6m tonnes, also a record high, and a fifth year of growth over which inventories have expanded by some 40%.

“Record output leads to ample supplies,” the agency said.

‘Abundant milk supplies’

However, the easing in food prices last month was in fact down largely to a 2.4% dip in dairy values, with the FAO flagging drops in butter and cheese values.

“Abundant milk supplies in the northern hemisphere and Australia represented a factor that heavily influenced global dairy prices,” the agency said, while noting support to milk powder values from concerns over New Zealand milk production.

Sugar prices also dropped, by 1.5% month on month, to take above 30% their year on year decline.

“International sugar quotations remained under downward pressure mostly because of strong production outcomes in major producing countries and, hence, ample export availabilities.”

Grain prices

Cereals prices in fact rose by 2.3% month on month, to a five-month high, with the FAO noting the role of dollar weakness, which tends to support values (in dollar terms) of exports denominated in the currency.

“Despite large supplies, wheat and corn prices received some support from a weaker US dollar as well as concerns over weather,” the FAO said.

International rice values continued to firm up in January, sustained mainly by renewed Asian demand.”

The agency highlighted nonetheless that, under its revised estimates, the world grains stocks-to-use ratio – a key pricing metric – came in at a “comfortable” 27.7%, the highest in 16 years.

“Global markets of all major cereals remain well balanced, supported by record inventory levels and evidenced by above-average stocks-to-use ratios,” the agency said.

Corn crop upgrades

The FAO’s hike to its world grains production estimate reflected in the main an upgrade of 9.7m tonnes to 1.380bn tonnes in the figure for coarse grains output.

The revision reflected “larger corn production levels in China, thanks to higher yields than earlier anticipated, and in the EU, where the corn harvest in Romania proved better than previously expected.

“Additionally, corn production has been revised upwards in Mexico, following increases in yield and acreage.”

Feed competition

However, in a twist, the rise in the inventory figure was down in the main to wheat, for which stocks were now seen closing 2017-18 at a record 269.8m tonnes – 12.8m tonnes higher than the previous estimate, made in December, and up nearly 22m tonnes year on year.

The revision reflected ideas of the strong coarse grain supplies had supplanted wheat from feed use by more than had been thought.

The agency reported “lower demand for feed wheat in view of ample supplies of cheaper coarse grains in global markets”, and noted a “significant downward revision to the non-food use of wheat, mainly in the European Union and the Russian Federation”.

Indeed, the FAO, referring to its ideas of a sharp rise in world wheat stocks over 2017-18, said that “the bulk of the increase is foreseen to result from stock build-ups in the EU and the Russian Federation”.
 

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