Grain Prices Stabilize

World grain prices have been under extreme pressure from financial markets this fall as droughts diminished wheat yields and flooding hampered rice harvests. The downward adjustments to global production sent fright through global food markets, inciting riots in Mozambique and panic in much of the financial and futures markets.

While the world’s food supply might not be as dire as depicted by the reactionaries, it is lower than expected. In September, the FAO revised its estimates on global food production and food security. The FAO says global cereal production for 2010 will be 2.24 million tonnes, down from the 2.28 million tonnes predicted in June. Even at this lower level, cereal production would be the third-highest on record and above the trailing five-year average.

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This year, global consumption is expected to outpace production, but analysts say that global food stocks are adequate to meet demand for 2011. Luckily, global food stocks entered 2010 at an eight-year high as many countries stockpiles supplies to prevent a 2008-like run on food. In 2008, stocks-to-use ratio fell to 19.5%. This year, even with the expected 2% drop in ending food stocks, the stocks-to-use ratio will be 23%, according to FAO.

The biggest concern has been wheat, which experience significant price increases in 2010 due to a confluence of rising demand and poor production. In particular, export bans in Russia and low productivity among other producers in the Black Sea region contributed to an estimated 5% drop in global wheat production this year compared to 2009. End-of-year stocks are expected to decline 9% as a result of lower production combined with higher demand for wheat, which was already underplanted in 2010.

Coarse grains and rice markets have been more balanced this year, although weather phenomenon and lower plantings have lowered forecasts a bit. World production of coarse grains is forecast to reach 1.125 million tonnes, down 6 million tonnes from the June forecast, but it will still be the second-largest harvest on record if estimates are realized.

Corn production is expected to be near an all-time high with robust harvests in the US and China. Conversely, barley is expected to be at a 30-year low of 129 million tonnes in 2010, down 22% from last year as a result of lower production in the EU and the Russian federation.

The forecast for global rice has been revised downward for 2010 as well, largely as a result of flooding in Pakistan and revisions in China, India, Egypt, Laos and Philippines. The global forecast for rice production has been revised down 5 million tonnes to 467 million tonnes, which is a 3% increase compared to 2009.

Food Security

The September production estimates quelled much of the hyperbole surrounding food markets amid price run-ups in grains and opportunistic gouging on the futures markets. It prompted FAO to revise its production estimates and also call an emergency meeting to discuss the turmoil in the global cereal markets in late September. In October, the organization convened the 36th Session of the Committee on World Food Security.

Food security often reflects a region’s potential for farm incomes, which contributes directly to the level of usage of crop protection products.

Major contributors to food security for 2010 and early 2011 have been mostly weather related, in addition to regions where food shortages are endemic, predominantly in central Africa, Afghanistan, Pakistan, Mongolia, North Korea and Iraq.

This year, North Africa’s output has been mixed. In Egypt, where much of the planted wheat is irrigated, the country expects to harvest 8.6 million tonnes of wheat, which is comparable to last year’s good crop. However, Egypt imports 10 million tonnes of wheat annually, the largest importer of wheat in world. Algeria, Tunisia and Morocco import a significant amount as well (8 million tonnes collectively) and harvests in those countries were deeply affected from drought this year. The region typically imports its wheat from Russia, which has set an export ban this year because of its reduced yields.

Subsequently, wheat in North Africa will be expensive despite bumper crops in 2009. Rice has experienced a steady rise on the trend of wheat as well. The price of rice has climbed by a third since spring, making food security even more precarious for net food importers.

In western Africa, substantial localized flooding has inflicted significant crop and livestock damage, most notably in Niger, Burkina Faso and Chad. The weather has also affected harvests in Ghana, Ivory Coast, Nigeria, Liberia and Guinea-Bissau. Food security and nutrition remain critical in these countries, according to FAO.

In eastern Africa, early reports indicate a record cereal harvest of 36 million tonnes for the subregion in 2010, a 9% increase compared to the five-year average. Corn prices have stabilized after some fluctuations earlier in the year.

In southern Africa, harvests appear to be mixed. Corn production rose 9% in the region despite a dry spell during mid-season in Madagascar, Malawi, Mozambique and Zimbabwe. South Africa estimates a near-record harvest, which constitutes 55% of the total maize output for the subregion. Wheat production for the region is expected to decline for the second-consecutive season, largely due to South Africa’s 15% decline in production. South Africa produces about 90% of the region’s wheat.

Production Trends

Despite flooding in many rice-growing regions in the Far East, the 2010 cereal harvest is expected to rise 2.2%, reaching 1.11 billion tonnes. Significant improvement in India, Sri Lanka, Bangladesh, Philippines and Malaysia has mitigated the loss of crops in Pakistan. Rice harvests in the region are expected to exceed 628 million tonnes, a 3.2% rise compared to the harvest last year.

Wheat prices in Asia have risen in line with international export markets in many Asian countries, but wheat prices have remained in line with rice prices in other markets (Thailand, Philippines) to keep price parity with rice.

In Central Asia, wheat output is expected to fall 15% to 30 million tonnes, largely because of severe drought in Kazakhstan. However, Uzbekistan, Azerbaijan and Turkmenistan experienced favorable weather and good harvests on par with last year’s levels. Cereal production in Kyrgyzstan and Tajikistan has been revised sharply downward compared to the bumper crop in 2009. Georgia experienced the largest production decline in cereal production in Central Asia, falling almost one-third, attributed to a lack of farmers’ access to crop inputs combined with heavy rains during the planting season. Additionally, Armenia’s cereal harvest struggled this year because of a lack of supply of agricultural inputs.

In Latin America, Brazil and Argentina have recovered from their significant droughts last year, especially with its elevated corn production. But the region is not completely back to regular growing conditions. Argentina planted 20% more wheat than it did in last year’s drought-affected levels, but warm weather and low humidity again threaten the country’s 11.5 million tonne projection. In Peru, low rainfall and widespread unseasonably cold temperatures since May is creating a crisis: Up to half of cattle have been lost and 25% of all livestock perished. Potatoes, a major crop for the country, cannot be planted or harvested in affected areas.

In North America wheat estimates are higher than last year’s level despite lower plantings as favorable weather produced bumper crops. Plantings for winter wheat in 2011 are expected to rise from the 40-year low planted last season. Farmers have opted for soybeans and especially corn in recent years to capitalize on favorable crop prices. Much of that is expected to continue, but rising wheat prices in export markets will give US farmers some alternatives to corn and soya.

Europe’s cereal output expectations have been reduced compared to earlier this year, however recent rises in cereal prices have many upsides for the global market as farmer reconsider their intentions in light of higher profits.

Australia’s wheat harvest is expected to come in at 25 million tonnes, a 16% rise compared to 2009, which was the largest crop on record.

Globally, uncertainty from the Black Sea region and Pakistan helped cereal prices spike and put many food-insecure countries on alert, but bolstered yields in North America, Europe and Australia (despite lower plantings) has helped stabilize the market. Additionally, experts expect farmers to plant more wheat this year to capitalize on prices and help replenish global food stocks of wheat and rice that are necessary to meet global demand until next year’s plantings.