July 1, 2005

 

FAO crop production forecast
 

Tighter supplies will lift prices for corn, while the costs of wheat, milk and oilseed crops will remain stable or fall, according to the latest forecasts from the UN's Food and Agriculture Organization (FAO).

 

In the cereals market, prices remain below their levels of a year earlier. Nevertheless, increasing demand and supply could turn the trend around.

 

In the wheat market, low prices are expected to continue into the new season. International wheat prices remained below the previous year's levels for the seventh consecutive month in March, due to large worldwide supplies. The upcoming harvests in the northern hemisphere will begin to influence prices in the coming weeks.

 

Tampering that, however, is a generally weaker world demand outlook and a remaining large carryover stocks, so that wheat prices are likely to remain down during the new marketing season.

 

Weather factors and higher import purchases in the US and Argentina have pushed up corn prices, which have increased since mid-May. In South Africa, white and yellow corn prices also rose on strong demand from nearby countries.

 

World corn production is expected to decline from last year's record level, while feed wheat supplies are seen lower compared with the current season. Steeper prices are therefore expected. 

 

For oilseeds, a record 2004/05 harvest will limit any price increase for oilseeds and meals, while prices for oils and fats are expected to remain firm due to strong demand and below average stock levels.

 

The 2005 global cereal crop is expected to reach 1,996 million tonnes, about 2.8 percent below the record 2004 crop. Much of this decline has been attributed to lower output from major producing and exporting countries, particularly lower coarse grains production in the US and EU. Yields are expected to return closer to average after last year's record levels.

 

Even with the above-average crop production, output is not expected to meet rising demand for cereals. The FAO believes that rising demand will be have to be met by depleting current stocks of cereals.

 

However, aggregate inventories of the major exporting, developed countries, which provide the main buffer against unexpected shocks in cereal supply or demand, are expected to increase for the second year running.

 

Aggregate world coarse grain crop, mostly corn, is expected at 969 million tonnes, down 5.2 percent from last year. Wheat output is also expected to drop by 2.5 percent to 612 million tonnes, mainly due to lower wheat import demand. Again, lower output in Europe, after last year's record crops, will account for a large proportion of the reduction.

 

Earlier, the Organisation for Economic Cooperation and Development (OECD) reported that it expects stiffer competition among exporters of wheat, oilseeds and livestock. This competition, the OECD said, would only intensify over the next ten years, bringing down prices and benefiting buyers.

 

Global milk output is expected to rise by 2.8 percent this year, due mainly to exports from Asia and South America. The strength in international milk prices for the past two years has been moderated so far in 2005, with the FAO international dairy product price index dropping slightly in the past few months after reaching a 15-year peak in January.

 

Higher incomes continue to boost global demand for dairy products in Asia, North Africa, Central America and the Russian Federation. The bulk of total dairy trade is in whole and skimmed milk powders, imported almost exclusively by developing countries, with South-east Asia seeing the highest growth in milk powder imports.