The United Nations said that cereal markets will remain “adequately supplied”, even as it cut its forecast for world stocks, and reported the strongest increase in grain prices in eight years.
The UN food agency, the Food and Agriculture Organization, said that its forecast for world grain stocks at the close of 2020-21, while downgraded by 5.9m tonnes to 889.6m tonnes, was “still 16.7m tonnes above the opening level, and representing a record high”.
As compared with consumption to form the stocks-to-use ratio, seen as giving an indication of pricing prospects, the agency said that the figure of 31.6% was “only slightly lower” than last season’s 31.8% figure “and still relatively high from a historical perspective.
“Global cereal markets are expected to remain adequately supplied in 2020-21 despite this month’s downward revisions to production and inventories.”
The FAO trimmed by 2.5m tonnes its forecast for world output of cereals, including rice, in 2020-21 – albeit to a figure of 2.762bn tonnes which still represents a record high.
“The bulk of the cutback reflects smaller projected maize crops in the European Union, the Russian Federation and Ukraine, due to recent dry weather conditions that adversely impacted crops,” the agency said.
Chinese and US harvests had been downgraded too after “damage caused by extreme weather events”, including August’s derecho storm in the US Corn Belt, and typhoon storms in China.
The revisions fed through into a cut of 10.0m tonnes to the forecast for world corn inventories at the close of the season, “cancelling the previously-anticipated increase”.
‘Concentrated in China’
For wheat, by contrast, the forecast for global carryout stocks was nudged higher by 2.6m tonnes to 284.8m tonnes, thanks to an upgrade of 4.9m tonnes to 764.9m tonnes in the estimate for world production.
“The bulk of the upward revision concerns Australia, where continued conducive weather has led to better yield prospects and reaffirmed earlier expectations of a substantial rebound in production following two consecutive drought-affected harvests.”
Nonetheless, the FAO flagged that wheat inventories were largely focused on China where, being unavailable to the world market, they are viewed as less important in determining international prices.
“Much of the projected wheat inventory growth is likely to be concentrated in China, with global wheat stocks excluding China expected to register a small decline.”
‘Prices rose sharply’
Wheat stocks held by major exporters, which are particularly important for setting world prices, were in fact seen as a representing 15.5% of disappearance, up 0.2 points year on year, but a historically weak figure.
The trailing five-year-average ratio is 18.4%.
The FAO reported that a separate monthly food price monitor showed that “wheat prices rose sharply in September”.
It attributed the gains to “brisk trade activity amidst increased concerns over production prospects in the southern hemisphere and dry conditions adversely affecting winter wheat sowings in many parts of Europe”.
Worries over dryness in Russia have been a particular concern for investors.
‘Notable price surge’
The gains in wheat values helped drive the FAO’s cereal price index up 5.1% month on month – their fastest pace of increase since July 2012 – to their highest level in five years.
“International maize prices exhibited a notable surge as well, responding to cuts in production prospects, especially in the EU, and the expectation of a significant drop in supplies in the US, following the downward revision of the country’s maize carryovers from the previous season,” the agency said.
“Strong import demand from China kept sorghum prices on the rise for a third consecutive month.”
The FAO’s overall price index gained 2.1%, rising for a fourth successive month, with values of vegetable oils also strong, adding 6.0%.
“International palm oil prices rose markedly for the fourth consecutive month, tied to fresh global import demand as well as lower-than-expected inventory levels in Malaysia and uncertainties regarding the pace of production in South East Asia in the coming months.”
The newly-started La Nina is linked to wetness in South East Asia which, while potentially a boost to output longer term, can cause short-term logistical setbacks to an industry already, in Malaysia, suffering a labour squeeze thanks to restrictions imposed to counter Covid-19.
“At the same time, international sunflower oil prices increased sharply in September, primarily fuelled by deteriorating crop prospects in the Black Sea region,” the FAO said.
Kernel Holding and SovEcon have this week flagged weakened Ukraine and Russian harvests respectively.
‘Significant production recovery’
However, sugar prices fell last month, by 2.6%, the FAO said, citing “expectations of a global sugar production surplus for the new 2020-21 season.
“The latest indications point to significant production recovery in India, the world’s second largest sugar producer, as well as a strong output in Brazil, the world’s largest exporter.
“Furthermore, the persisting weakness of the Brazilian real against the US dollar contributed to lowering world sugar prices,” the agency said.