The United Nations trimmed its forecast for world grain stocks even while raising its production estimate, citing growing industrial use of cereals – echoing comments from the International Grains Council.
The UN food agency, the Food and Agriculture Organization, nudged higher by 1.1m tonnes to a record 2.613bn tonnes its forecast for 2017-18 world production of grains, including rice, wheat, and coarse grains such as barley, corn and sorghum.
The revision reflected in the main a 2.7m-tonne upgrade to 752.8m tonnes in the estimate for the wheat harvest “an upward adjustment... driven by a larger-than-earlier anticipated harvest in the Russian Federation”, the FAO said.
‘Industrial utilisation to rise’
Nonetheless, despite the extra supplies, the agency trimmed by 1.8m tonnes, to 718.7m tonnes, its forecast for world grain inventories at the end of the season.
The downgrade reflected an upgrade of more than 4m tonnes to the estimate for consumption of grains, taking the year-on-year increase to some 25m tonnes, or 1.0%.
“Industrial utilisation is projected to rise by 1.2%,” the agency said, a little faster than the average pace of demand growth - in a forecast which follows comments last week from the International Grains Council over growing use of corn for ethanol in China.
The IGC too cut its forecast for stocks at the close of 2017-18, despite raising its production estimate.
However, unlike the IGC, which sees world grain stocks (excluding rice) dropping 30m tonnes over 2017-18, the FAO sees inventories rising by some 15m tonnes on the same basis.
Indeed, the FAO underlined that “global stocks of rice and coarse grains are projected to hit record highs, while those of wheat already have”, meaning strong supplies of crops for trade.
Indeed, given the “ample size of export supplies, competition among major exporters in the year ahead is expected to remain stiff”, the agency said, foreseeing “expanding world trade volumes in corn, sorghum and rice offsetting an expected decline in wheat”.
A high level of competition among exporters would appear a negative factor for crop values, shifting pricing power to buyers.
Food prices drop
The FAO also reported a 1.3% drop in food prices last month, although this defied a small rise in grain values as “rice prices strengthened… amid seasonally tight Japonica and fragrant supplies”.
“Wheat quotations were generally lower, pressured by large exportable supplies from the [Black Sea] region and increased competition among exporters,” the agency said.
The biggest decline in prices last month was in the dairy sector, where values dropped by 4.2%, their first decline in six months, with butter and whole milk powder prices falling “as importers held back on purchases, awaiting arrival of new supplies from Oceania”.
“Low demand and ample intervention stocks in the EU hastened the decline of skim milk powder prices.”
Vegetable oil prices dropped 1.1% as “palm oil values weakened on higher-than-anticipated inventory levels in Malaysia and the expectation of production gains in South East Asia, while soyoil prices eased on good soybean harvest progress in the US”.