Despite unfavourable weather conditions at times, total global grains production (wheat, maize, barley, sorghum, oats, rye, millet, triticale and mixed grains) has reached unprecedented levels in recent years. Demand has soared to all-time peaks, with production exceeding 2 billion t in each of the past five seasons. This rise is largely driven by increasing food and animal feed consumption in Asia and Africa.
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Despite strong demand, a more than ample supply has seen grains stocks accumulate sharply, passing 0.6 billion t for the first time at the end of 2016/2017 (aggregate of respective local marketing years). Amid a comfortable supply and demand position, global export prices have come under sustained pressure, sometimes touching 10 year lows.
For the current 2017/2018 season, the International Grains Council (IGC) forecasts total grains production to be the second greatest in history, with a predicted 2% fall from the previous season’s record to 2.1 billion t. This is largely linked to a downturn in maize. With further peaks anticipated for food, feed and industrial uses, grains consumption is expected to surpass 2.1 billion t for the first time. Food demand is anticipated to continue to drive increases for wheat, while feed and industrial uses are expected to propel maize utilisation to a new high. Reflecting smaller availabilities and record consumption, the first global stocks drawdown in five years is foreseen, as a fall for maize is seen to outweigh the growth for wheat.
While a retreat in grains inventories is predicted, the world stocks-to-use ratio (a measure of the adequacy of supply relative to demand) is set to remain relatively comfortable at around 29% (30% previous year).
For wheat, the world harvest in 2017/2018 set a fresh record for the fifth year in a row, and with record stocks at the start of the season, total supply approached 1 billion t for the first time. Particularly noteworthy this season was a huge harvest in Russia, while crops in the US and Australia shrunk. Annual growth in food use of wheat has quickened in recent years as wheat-based foods become more popular in parts of Asia and Africa, partly replacing traditional staples, such as rice and maize. Amid ample availabilities, animal feeding of wheat has stayed strong and is set to be only a little below the prior season’s five year peak.
While falling short of the peak of last year, the world maize crop in 2017/2018 is expected to be the second biggest on record, with decent results from all of the major growers and exporters. However, a La Niña weather event represents a potential risk to the outlook, as this could result in drier than normal conditions for crops in Brazil and Argentina, where harvesting will begin in the first part of 2018. The ninth consecutive annual increase in world maize trade is projected in 2017/2018, to a new peak, including continued growth in shipments for use in feed sectors in Pacific Asia, as well as escalating purchases by Mexico.
As these have almost tripled over the past five years, Mexico could overtake Japan as the world’s single largest maize importer in 2017/2018.World consumption of maize is predicted to climb to an all-time high, fuelled by expanding animal feed and industrial processing (mainly for starch and ethanol). Although the US is set to remain by far the largest industrial user of grains, only a marginal year-on-year increase in uptake is expected as the US ethanol industry is already fulfilling local requirements for blending in fuel. This season’s projected growth in world industrial use is mostly driven by China, where government efforts to curb large stocks are helping to propel processing for starch and ethanol to new highs. After rising to unprecedented levels, the stimulation of consumption is expected to see China’s maize inventories at the end of 2017/2018 contract for the first time in more than a decade.
Chinese supply and demand
Assessing the supply and demand situation in China has long been a difficult task. While there has been some improvement in transparency in recent years, information on stocks remains a government secret. The exact size, quality and location of China’s grains inventories is therefore uncertain. While China’s internal market dynamics sometimes make purchases of grains from third countries attractive, imports have remained relatively small. Indeed, local support measures for farmers have sustained domestic output well above requirements and pushed grains stocks to burdensome levels. Such measures include guaranteed minimum prices and the abandonment of the temporary stockpiling programme for maize. Concurrently, new measures were introduced to stimulate maize demand, including the auctioning of existing stocks at low prices and subsidies for industrial processing. More recently, the Chinese government scaled back the minimum purchase price for wheat, the first price cut for that grain since the inception of the policy in 2004.
While the current global supply and demand situation for grains appears comfortable, how long can this situation continue? As grains stocks are expected to come down for the first time in five years in 2017/2018, are we now seeing signs of a turning point, with a tighter global grains supply and demand outlook in prospect?
Initial projections for the upcoming 2018/2019 season assume both a drop in world grains planted area and a retreat in average yields. While a relatively small fall in global production is predicted, remaining above 2 billion t for a sixth year, the outturn could again fall short of demand and lead to a further depletion of stocks. Once again, this is likely to be mainly linked to a fall in maize inventories in China, but reductions are anticipated elsewhere as well, including in the main exporters.
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