The Hindu Business Line : ‘Wheat prices vulnerable to tight market situation’

Outlook
Global cereal trade would be 253 million tonnes, lower by five million tonnes compared with last year.
Trade in wheat in 2007/08 is forecast at 109 million tonnes, down 4.6 million tonnes from 2006/07.

Our Bureau

Chennai, Oct. 12 Wheat prices remain highly vulnerable to the prevailing tight situation in the market and are likely to stay volatile, the Food and Agricultural Organisation (FAO) has said.

“Tight supply from low levels of stocks and insufficient increases in production to meet sustained demand is the underlying factor for the continuing strength in prices. This is particularly the case for wheat, the price of which soared to all-time highs in September,” it said in its latest report on “Crop Prospects and Food Situation”.

Global supply

The global cereal supply and demand situation had continued to tighten in recent months, reflecting the deterioration of prospects for the 2007 world cereal production. But production will touch a record high, which would only be enough to meet the expected level of utilisation in 2007/08. In turn, stocks would not be replenished and low inventories will continue to dog the market, FAO, an arm of the United Nations, said.

Stating that the situation was in particular true of wheat, it said low stocks, compounded by repeated pruning of this year’s production forecast for major exporting countries, most notably in Australia and Europe, had pushed its prices up since June. In addition, stronger trade activity in the early months of the season (2007/08 July/June) and developments in currency markets, which continues to favour the US origin wheat because of the weaker dollar, also provides support to the situation.

Any unfavourable developments regarding production prospects in the southern hemisphere or policy changes that may result in restricting export supplies, such as the recent exports restrictions in Ukraine, could send wheat prices even further above the recent highs, it warned.

In its projection of the global situation, FAO estimates cereal production at 2.11 billion tonnes (bt) during 2007-08 against 2 bt during 2006-07, a 5.3 per cent rise. Of this, wheat output is seen up 1.7 per cent at 604.8 million tonnes, while that of rice 0.2 per cent up at 428.9 million tonnes. Coarse grains production is seen at 1.08 bt, up 9.7 per cent year-on-year.

Rice under pressure?

Dwelling on rice, FAO said global prices could come under pressure in the coming months as large crops would be harvested in a number of important producing countries. However, the decline in the prices might by moderated by weakening of the dollar and also due to a possible shift of import demand from wheat to rice.

This year, paddy production in India is forecast at 140 million tonnes, close to last year’s harvest. Although there has been flooding in September in some eastern States, overall this year’s above-average rains have been favourable for the crops.

Based on current indications, India could have exported 4.6 million tonnes, it said.(This week’s ban on non-basmati rice exports, however, puts paid to such hopes. The report was prepared before the ban was clamped.)

Production of maize is tentatively forecast at 15.5 million tonnes in 2007, 2 million tonnes above last year’s output reflecting increased planting in response to high maize prices earlier this year.

Regarding the 2007 wheat crop, harvested in May, latest information indicates that production was larger than earlier anticipated. As a result, the country’s wheat imports in 2007/08 (April/March) forecast in July at 3 million tonnes could be cut further, FAO said.

On global cereal trade, the organisation said it would be 253 million tonnes, lower by five million tonnes compared with last year.

World trade in wheat in 2007/08 (July/June) is forecast at 109 million tonnes, down 4.6 million tonnes from 2006/07.

World trade in coarse grains in 2007/08 (July/June) is forecast at 113 million tonnes, nearly unchanged from the previous season’s record. Trade in rice is set to rise by 4 per cent to 30.4 million tonnes in the calendar year, supported by growing imports by Asian countries, in particular Bangladesh and Indonesia.