The Hindu Business Line : Record output pressures global foodgrain prices

WITH coarse grains output set to reach newer heights by piercing the psychological one billion tonnes mark, and both wheat and rice production soaring higher, global grains output in 2004-05 is expected to hit a record 2.04 billion tonnes (2,041.7 million tonnes (mt) , to be precise).

Despite expectation of a notable increase in consumption, cereal stocks would, for the first time, reverse the declining trend of last five years and actually increase.

In short, the world is awash with lot more grains than it needs and this will be reflected in market prices. Commenting on the situation, the Food and Agriculture Organisation (FAO) in its latest Food Outlook has interpreted the large increase in cereal output as a positive development for world food security.

Global wheat production in 2004-05 would register a record 620.4 mt, up from last year's 560 mt.

As of late-November, most of the main 2004 wheat harvests were complete, and planting of the 2005 winter crops was well underway or already completed in most major producing countries in the northern hemisphere. Early prospects are generally favourable for the newly-sown crops and tentative estimates point to a larger area sown in some countries, the report pointed out.

In India, the 2004 wheat output is officially estimated at about 73 mt, 12 per cent up from 2003, reflecting a significant increase in area and a recovery of yields. Planting of the winter wheat crop for harvest next year is underway under generally favourable weather conditions.

Pakistan also harvested a good wheat crop in 2004 reflecting favourable weather. However, conditions for the current winter wheat planting operations are reported to be unfavourable because of insufficient soil moisture.

Total wheat utilisation in 2004/05 is currently forecast at 614 mt, 5 mt more than was reported in September and 2 per cent up from the previous season, FAO said.

Most of total wheat utilisation is destined for human food consumption, which is seen to reach 434 mt, about one percent up from the previous year.

However, feed use which is forecast to reach 111 mt would be up 7 per cent from the previous season and higher than anticipated earlier. The main reason for the expected strong expansion in feed usage is the availability of large supplies of low quality wheat this season.

Supply and demand fundamentals this season do not provide much ground for wheat prices to strengthen. However, the continuing weakening of the US dollar against most currencies has raised demand for US-origin wheat, while exports from Europe have been slow because of a strong euro.

Coarse grains: Driven by a huge increase in US corn (maize) output as a result of higher yields, global coarse grains production is set to reach a record 1,013.1 mt in 2004-05, up from 933.6 mt in the previous year.

Higher production is expected to boost feed usage. Total utilisation is forecast to rise to 976.8 mt in 2004-05 from last year's 948.3 mt. With consumption trailing production, stocks are set to rise sharply to 180 mt (147.3 mt).

Export prices, especially for corn, are under pressure. Rates have declined by at least 15 per cent and US # 2 yellow corn was offered at much less than $100 per tonne. Soaring freight rates due to high crude oil prices have dampened demand and hence affected export prices.