Last modified: Thursday, November 13, 2003
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December 13, 1996
EXECUTIVE SUMMARY
SITUATION/OUTLOOK
A forecasted increase of one million tons in Argentina's wheat
production is expected to go entirely into export, pushing
Argentina's wheat exports over 10 million tons for the first time.
Reported 1995/96 corn exports by the United States was 52.7
million tons, 200,000 tons greater than last month's forecast. The
1996/97 forecast was lowered one million tons, to 48.5 million
tons, due to a slower pace in sales.
The Japanese corn import forecast for 1996/97 was lowered
250,000 tons, to 15.75 million tons, while the sorghum import
forecast was raised 250,000 tons, reflecting expected switching in
Japanese feed rations.
Continuing absence from the world wheat market prompts another
one million ton reduction in the import estimate for China, with the
lost business this month taken entirely from Canada.
Calendar year 1996 rice trade is now forecast at 18.8 million tons,
down from the previous forecast of 19.1 million tons, while 1997
trade was revised downward from 18.4 to 18 million tons.
The calendar year 1997 rice import forecast for Brazil was
increased this month to a record 1.5 million tons as Brazil's
1996/97 production forecast was lowered more than one million
tons.
The forecast for 1996/97 Mexican corn imports were lowered one-half
million tons, to 3.5 million tons; sorghum imports were also
lowered to 2.1 million tons.
FOREIGN COUNTRIES' POLICIES AND PROGRAMS
Importers have had varied responses to sharply higher wheat prices
during the past year.
Recent improvements in Argentina's grain
handling facilities will help move record crop.
Peru's privatization of its rice trade has opened
the door to a highly competitive market.
High cost and water scarcity cause Saudi Arabia to lower support
for barley production.
Brazilian flour millers are snubbing local production for higher
quality Argentine wheat.
WORLD AND U.S. GRAIN OVERVIEW
WHEAT
The forecast for 1996/97 world wheat trade stands at 90.1 million tons,
the lowest level of international wheat trade in over a decade. Annual
global production is projected to increase by eight percent to 579.6
million tons -- the second-highest level on record -- and for the first
time since 1992/93 is anticipated to exceed consumption. The global
bumper crop is resulting in reduced foreign trade and weakened
international prices as production increases in all the major exporters
and most of the traditional importers put a tight squeeze on the market,
resulting in aggressive efforts to place larger supplies in a time of
reduced demand. However, as the harvest season continues it becomes
apparent that, in response to the low availabilities and record-high
prices of the past year, quality was occasionally sacrificed for increased
yield in producing the current crop. As a result, it is expected that
large amounts of low-priced wheat will go to feed while demand for
high quality food wheat remains strong. Prices have reacted to the
abundant global crop by falling off dramatically from the record highs
reached last spring. The additional production will provide an
opportunity to increase the world's severely depleted reserves by a
projected 8.3 million tons, resulting in a 1996/97 global stocks-to-use
ratio of 19.5%, a slight increase from last year's record low of 18.7
percent.
RICE
The calendar year 1996 forecast of international rice trade was lowered
slightly this month from 19.1 to 18.8 million tons. This reduction
notwithstanding, 1996 trade will reach the second highest level ever.
Reductions were made in export forecasts for Australia (down 140,000
tons to 475,000) Thailand (down 50,000 tons to 5.2 million) and
Burma (reduced 50,000 tons to 300,000). Partially offsetting these
decreases, export forecasts for Vietnam and Taiwan were raised by
100,000 and 25,000 tons respectively. Several import forecasts for
1996 were adjusted as the year comes to a close. Most significant
among these were reductions in forecast 1996 imports by Bangladesh
and Brazil, down 200,000 tons each to 800,000. Increases were made
in 1996 import forecasts for Iran (up 200,00 to 1.4 million tons) South
Africa (up 100,000 tons to 600,000) and Malaysia (increased from 450
to 550,000 tons).
COARSE GRAINS
Global trade of coarse grains during 1996/97 is forecast at about 86
million tons, down moderately from the 1995/96 trade level. Global
production of coarse grains in 1996/97 is expected to be sharply higher
than in 1995/96, due largely to increased corn prospects in the United
States, China, and the EU, and expected increases in barley production
in Canada, North Africa, and the EU. Foreign coarse grain stock levels
are forecast to rebound in 1996/97, mostly due to increases in Canadian
and EU stocks. US stocks, drawn down sharply in 1995/96, are
projected to rebuild somewhat in 1996/97, but remain at relatively low
levels. World stock levels at the end of the 1996/97 season are forecast
to increase roughly 25 million tons to 115 million tons. The global
stocks-to-use ratio is forecast to rise slightly to 13.4 percent.
FOREIGN COUNTRIES' POLICIES AND PROGRAMS
Importers Coped in Different Ways With High
World Wheat Prices
When world grain markets experienced an unprecedented price run-up
during 1995/96, all-time highs for wheat export prices became the
focus for importer's concerns. Each importer country addressed the
challenge of higher prices based on its own unique set of circumstances.
While prices reached a point nearly double previous years, import bills
did not necessarily experience a similar increase because of varying
situations in importer countries. Some importers had good domestic
crops and reduced import volumes; other countries drew down stocks;
others had purchased significant portions of their import needs before
the price spike; and still others imported lower quality and cheaper
wheat from non-traditional exporters. In addition, nearly half of the
lowest-income food-deficit importing countries used the various types
of IMF loan facilities available to them, possibly for financing grain
imports. The majority of these countries, mostly in Africa, had existing
or new Enhanced Structural Adjustment Facility (ESAF) lines of credit
available to them by 1996.
Each importer country faced the marketing year in its own unique
manner, but many still taxed food imports. Sweeping statements
regarding the price spike impact on importers are misleading. Only
careful evaluation of individual country situations will tell an accurate
story.
Market Mechanisms Worked
Nearly all the elements of a market driven global trade system came
into play during 1995/96 to help assure world food security. The
increasingly open world trading system and higher prices also sent
market signals to producers in importer and exporter countries. In
response to the high prices, producers are expected to harvest a
near-record world wheat crop, and a record coarse grain crop in 1996/97.
Importers benefited from the following mitigating factors in coping
with high prices:
Most exporters kept their markets open and did not give domestic
grain users preference over foreign buyers
Food Aid commitments were met
Improved domestic crop harvests reduced some importers needs
Many importers had purchased a substantial portion of their needs
prior to highest prices
Barter arrangements were used to secure grain
Lower quality grain was purchased from non-traditional exporters
at reduced prices
Reductions were made in feed use of grain, imported or domestic
Stock drawdowns helped meet needs
Reductions were made on duties levied on grain imports
There was increased use of short-term IMF lending facilities
The Situation for the More Vulnerable Importers
Prices prevailing throughout much of 1995/96 for the 30 million tons of
wheat and products imported by countries in Africa, the FSU, Yemen,
Bangladesh, Sri Lanka and Bolivia had the potential to double import
bills. But the increased cost for much of this 30 million tons were
reduced by a variety of options, actions and situations faced by each
country.
The situation faced by each importer was different, yet common themes
come out of an examination of selected importers. The following
specific examples illustrate the weakness of arguments which attempt
to describe the impacts of increased world grain prices across any range
of countries. During 1995/96, some countries exported wheat and rice
even while those countries are home to ten-of-millions of vulnerable
consumers, other countries with improved domestic harvests actually
reduced the volume of imports during the year, still others continued to
tax food imports as a revenue source.
Nearly 45 percent of the total trade volume for this grouping of
importer countries was imported through barter, food aid, or
commercial purchases made prior to the steepest price increase.
Only limited quantities of the 9 MMT of wheat imports by countries
of the FSU were undertaken on commercial terms. Barter between
countries of the FSU, barter with east European countries, and
limited food aid met the bulk of wheat imports.
Food Aid for the larger grouping of importing countries reduced
wheat imports by at least another 2 MMT.
Higher prices for the remaining 19 MMT of wheat imports was
further mitigated by forward purchasing completed by several
countries prior to the sharpest price rise. By July 1995, the US
already had sold nearly 2 MMT of wheat and wheat flour to Egypt,
Yemen, and Nigeria.
- Egypt had covered 20 percent of annual imports
- Yemen had covered 16 percent of annual imports
- Nigeria had covered 16 percent of annual imports
For the remaining imports of about 17 million tons, each country's
particular situation drove its response to higher import prices. It
should be noted that 2.5 MMT of world wheat import purchases
benefitted from the below market pricing of wheat exported by India
and Romania. (Not all of these exports went to the countries
considered here, but quantities were considerable.) Without
internationally recognized grain standards for wheat, both countries
export sales were made at substantial discounts from world price levels.
India's emergence as an exporter during this high price period is of
particular interest. In India, per capita food availabilities for the
wealthy and growing middle class still vary greatly from that of the
most vulnerable population. A substantial share of the world's
population facing serious food shortages on a daily basis lives in India.
Paradoxically, the Government of India's stocks of rice and wheat held
during 1995 and early 1996 were deemed "burdensome and in excess
of domestic needs." India chose to capitalize on high world prices for
both wheat and rice by exporting an estimated total of 7.4 million tons
of rice during 1995 and 1996 and 1.5 million tons of wheat during
1995/96. The rice sales made India the world's number two rice
exporter.
In Egypt, wheat prices to consumers were maintained at their highly
subsidized price, the Government's import bill grew sharply, but wheat
imports were still taxed. A record domestic wheat crop (up 25 percent
to 5.1 MMT) did not result in any offset in total wheat and flour
imports which reached and estimated 6 MMT during 1995/96 vs 5.8
MMT the previous year. New flour milling capacity did, however, shift
imports away from flour and toward wheat during the year. Egypt's
domestic wheat support price of $177/MT ($4.80/bu) was largely
ineffective in allowing the Government to purchase significant
quantities of the record domestic 1995/96 wheat crop given the higher
open market price of over $200/mt prevailing in Egypt.
Consumption of highly subsidized bread continued to grow in 1995/96.
During the year, the cost of bread subsidies doubled to the equivalent
of $885 million (equivalent to $147 for each ton of wheat imported.)
The subsidy meant that imported wheat was subsidized down to a value
of only about $75/MT ($ 2/bu CIF)! Even when imported wheat prices
moved sharply higher during 1995/96, the Government still continued
to levy a 1% tariff duty, 5 % customs duty, 10% sales tax, 1% profit
tax, and a 1% service charge (a total 18 % added cost) on the CIF
value of each ton of imported wheat.
In Bangladesh, prices to consumers in the highly managed market
remained essentially unchanged. An improved grain crop (including
rice) actually allowed a reduction in wheat imports to 1.2 MMT during
1995/96 vs 1.7 MMT the previous year. Domestic wheat production
met about 50 percent of total use. More than half the wheat import
total was received as food-aid. Commercial purchases focused on
imports from India whose freight advantage and lower quality wheat
provided a significant cost advantage over wheat from traditional
exporters. Official imports carried a 7.5 % import tariff. The mix of
donated and imported wheat allowed market prices by late 1995 to
remain as just over $200/MT, essentially unchanged for the entire year.
Rising prices for tea exports during 1995 and 1996 helped mitigate
grain price increases.
Algeria had an improved crop in 1995/96 and by early 1996 was
expecting an exceptionally large crop. Imports were cut to 3 MMT
during the 1995/96 year from the previous year's 4.5 MMT, stocks
were drawn down and use was cut. The import reduction offset much
of the price rise impact. Still the total cost of imports may have edged
up about $ 50 million (about 10% over the previous year. However,
imports from east Europe and (reportedly) India and reduced imports
of processed grain products (semolina) are likely to have further
reduced the total impact of the 1995/96 wheat price rise. Ironically,
Algeria is one of the few countries which is known to have used special
loan institution facilities to help meet increased short-term import costs.
The worst drought in 30 years sharply reduced the grain crop in
Morocco and doubled wheat imports to 2.4 MMT in 1995/96. A
policy of "taxing" imports to protect domestic prices at above world
levels resulted in reduced revenues for the Government during the price
spike period. Consumers were not affected by the price, but a
drawdown of stocks (built-up from the previous harvest) to "pipeline"
levels could not avert a reduction in wheat use. The Government
presets the price at which local and imported wheat enters all flour mills
at artificially high levels. This price is computed on the local support
price plus handling charges and runs about $297/MT. The difference
between the price at which wheat enters the mills and the world price
(imported price) is collected by the Government from grain importers.
Given the high price at which wheat enters flour mills, 1995/96 world
wheat prices increases only resulted in decreased income for the
Government. Prices for consumers did not rise, they were already
artificially high, and subsidies were maintained on about 1.0 MMT of
flour used internally. It should be noted that Morocco liberalized
wheat imports in May, 1996. For details, see the July issue of this
circular series.
Prior to 1995, the Government of Sri Lanka, which controls imports
and flour prices, was able to accumulate profits from the sale of
imported wheat and flour purchased with the benefit of exporter
subsidies. In early 1995, a newly elected Government implemented an
election promise to lower flour prices by cutting the price 50 percent to
$133/MT. The Government's intention was to use previously
accumulated profits to subsidize flour sales if necessary. As
international wheat prices rose, the remaining accumulated profits were
quickly exhausted and the Government began a series of flour price
increases. They are continuing with the intention of completely
eliminating flour subsidies. This has been calculated to require the
price of flour to reach $380/MT. Thus far, the increases in flour prices
have had limited impact on demand since flour is still cheaper than rice.
Imports during 1995/96 reached 950,000 tons, slightly higher than the
previous year, and are forecast at 1.0 million tons in 1996/97.
Tunisia's grain harvests in 1994/95 and 1995/96 were less than a third
of normal. High world grain prices and the loss of exporter subsidies in
1995/96 resulted in a reduction in wheat imports and a reduction in use.
Wheat imports totaled about 1 MMT, down from the previous year's
1.5 MMT level. Less expensive wheat imports from Romania and
India moderated the total cost of imports, but also resulted in lower
quality wheat being available for use. Yet even as world prices soared,
Tunisia still applied a 17% duty on imported wheat. The prospect of a
bumper 1996/97 grain crop, and the apparent objective of encouraging
consumption of domestically produced grain, and generating revenue
from food imports, led to the July 1 announcement of staggering
increases in import duties. The duty for durum wheat increased from
17% to 92%, for soft wheat, the duty rose to 115% from the previous
17%. World price declines will be effectively offset. Imports during
1996/97 are currently estimated at about 500,000 tons.
Both Senegal and Cote D'Ivoire imported reduced quantities of wheat
during 1995/96, lowered wheat import duties and "squeezed" the
margins of flour millers. However, both countries already had systems
in place prior to the international price increases which kept flour prices
artificially high to discourage wheat foods consumption. Prices are still
about $500/mt which is $ 100/mt lower than prices prevailing prior to
the January 1994 currency devaluation.
For further information, please contact Lee Schatz at (202) 720-5429.
Argentina Prepares to Market Record Grain Crop
Through price incentives and rapid adoption of improved technology,
current indications are that Argentina will expand grain production this
year to historic levels. In fact, total grain and oilseed production is
expected to surpass 50 million tons, an increase of some 10 percent
over the previous high. This huge outurn has brought to the forefront
concerns about the country's ability to store and transport such a
volume of grains, especially in light of past logistical difficulties.
Although some problems may arise, it appears that improvements made
in the grain industry's infrastructure will enable Argentina to market its
grain into export without major hitches.
Changes in Infrastructure
Over the past few years, Argentina's transportation and storage
systems have undergone changes. Important among these is the
increased investment in storage capacity and loading equipment country
wide, but especially at four of Argentina's principal port complexes.
As indicated by the data below, Argentina has increased its port
capacity significantly, and improvements have been made in loading
rates as well. To highlight, Argentine terminal facilities can load a total
of 40,000 tons of grain per hour, and have increased storage capacity
from 1.1 million tons in 1980 to a current 3.9 million tons. Ports were
privatized starting in 1991, with investments from private and public
firms in sea ports and the Parana river facilities. Storage capability at
the major ports is as follows:
Port Elevators Storage
Capacity
(metric tons)
Bahia Blanca 4 400,000
Necochea 2 160,000
Buenos Aires 2 200,000
Rosario-Rio Parana 12 1,216,000
San Martin-San Lorenzo 8 1,860,000
Further improvements are being undertaken to deepen river channels,
allowing larger vessels to fully load, thus circumventing the need to use
smaller ships at deep-water births in other locations. Although the
transportation system will be challenged, industry analysts believe that
it will mainly meet the demands placed upon it.
Farm Level Situation
At the farm level, the situation is somewhat less certain. Although
farmers have also made investments in marketing infrastructure such as
storage, still only a relatively small portion of total output can be kept
on-farm to allow growers some control over marketing patterns. For
example, only about 30 percent of this season's record harvest could be
stored on-farm. As a result of the limited on-farm storage capacity, a
large portion of the crop must move into the marketing system directly
after harvest, limiting the farmers' flexibility to vie for the most
attractive prices.
Often, the most favorable way in Argentina to move grain from the
farm to central collection points is by truck, as the railroads, while
improving, are not yet the main transport mechanism. In the past, there
were not enough trucks to move grain in a timely manner. However,
both quality and capacity of the trucking fleet have improved, as well as
roads, which should ease delays in grain movement.
Harvest Pace and Grain Flow
In Argentina, the wheat harvest comes first, beginning in December,
and is followed in several months by corn, sorghum, soybeans and
sunflower. Given that the rate of wheat export sales has been rapid as
Argentina aggressively markets its large crop with the promise of early
delivery, wheat should move out of the country quickly. This will
somewhat reduce pressure on storage space and facilities before the big
coarse grain and oilseed harvests and shipping programs begin.
It is reported that the total grain marketing system can now move 5
million tons a month without undue stress. This monthly capacity is
greater than the quantity that many analysts believe will need to be
shipped to meet export commitments. Additionally, with the expected
harvest and shipment pace, the total amount of storage required in the
critical months of March through May is about 33 million tons, less
than the total capacity in the country. Argentina's total grain storage
capacity is estimated by the government to have risen from about 30
million tons in 1984 to a current total of 43 million tons.
Prepared by Randall J. Hager, Agricultural Attache at the American
Embassy in Buenos Aires,
who can be reached at (011-54-1) 777-8054.
Peru's Large Rice Market Remains Highly Competitive
Rice, along with potatoes, is a principal staple in the Peruvian diet. Per
capita consumption of rice is estimated at 46kg, having more than
doubled during the past two decades. Peru has recently been one of
Latin America's principal rice importers, with regular import levels
between 250,000 and 350,000 metric tons since 1989. Unlike most
Latin American rice importers, however, Peru has sourced its rice
imports from a variety of exporters, making it the most competitive rice
market in the western hemisphere. While imports from the U.S. play a
significant role in the Peruvian market, imports from Uruguay,
Vietnam and Thailand are equally important.
Recently, the Peruvian rice market has begun to undergo substantial
change. The end of almost a decade of civil strife, along with a
fundamental change in government direction, has created a positive
economic environment. A broad deregulation in the economic sector
has been followed by rapid economic growth and increased consumer
awareness. The rice industry has benefited with the elimination of the
state trading agency (ECASA) and the privatization of the rice trade.
Market Structure
Rice retailing in Peru has until recently been restricted to sales in small
markets with purchases being individually weighed out and bagged
from 50kg sacks. During the past few years Peru- in particular in Lima
and Arequippa- has seen rapid growth in supermarket chains.
Consequently, sales of pre-packaged 1kg bags of rice are growing
rapidly and now total approximately 10% of all rice sales.
Imported rice arrives in Lima by the boatload and is sold through
market vendors in small lots (of 50kg sacks) to individual retailers.
One result of this system is that, at any given time, many of a market's
vendors will be carrying the same types of rice- probably from the same
boat- and that prices will be very well defined. Due to the fact that
Peru imports from a wide range of suppliers and that rice from all
origins tends to have a regular presence in the Peruvian market, there is
a clear gradation of rice by quality and origin.
Rice from Pakistan and India are regarded as poor quality and compete
only with one another (approximately 55 Soles/50kg sack).
Vietnamese 5%, Thai 10% and domestic brands occupy the middle
level of the spectrum (approximately 66 Soles/50kg) while rice from
the U.S., Argentina and Uruguay are regarded as being high quality'
varieties (at 90-95 Soles/50kg bag). Sales of Pakistani and Indian rice
are low despite very large discounts. Sales of U.S. rice have remained
strong despite price spreads between U.S. and Thai rice of almost
$100/ton for comparable grades. While sales of U.S. rice are
unaffected by falling prices for medium grade Thai and Viet rice, they
are very sensitive to any fluctuation in prices for high quality rice from
Uruguay and Argentina.
Rice is also imported by three major companies which package rice and
have far different needs. This sector, which has been growing rapidly,
comprises both medium and high quality brand names for packaged rice
products. The medium quality packaged rice products tend to be
comprised of domestically produced rice mixed with imported rice
(from Argentina or Uruguay). High quality packaged rice, though, is
comprised exclusively of imported rice from the U.S., Argentina or
Uruguay. These firms import rice, polish it and package it. Imports of
brown or rough rice are preferred as the packer exercises more control
over milling quality in these cases.
Currently, the price per pound of this packaged rice is 40-50% higher
than the price of similar grades of rice when sold from 50 kg sacks.
Processors were confident that it was possible to reduce this differential
to 25% or less by taking advantage of such possible savings as the
reduced freight costs which accrue when buying by the boatload, and
increased extraction of by-products (i.e. rice bran for feed or extraction
of bran oil). It is this price per pound differential which currently holds
back further expansion of the packaged rice sector.
Possibilities for Increases in U.S. Exports
It appears that the most significant opportunity for U.S. rice exporters
to increase sales to Peru is in the packaged rice sector of the Peruvian
market. Exports of U.S. rice in 50Kg sacks may well increase, but
growth in this sector of the market appears directly dependent on the
price competitiveness and availability of U.S. versus Argentine &
Uruguayan rice and overall growth in demand for high quality rice.
Several factors contribute to the possibility for growth of U.S. exports
to the high quality spectrum of the Peruvian market. First and
foremost, the United States is a reliable year-round supplier of high
quality rice. The companies engaged in the packaging and sale of this
high quality rice repeatedly stress their need for regular supplies and
regular quality. Both Uruguay and Argentina are subject to seasonal
shortages of rice for exportation.
In addition, U.S. exporters are able to provide guarantees vis-a-vis the
quality of exported rice. The U.S. offers solid grading criteria and an
inspection service which is second-to-none. Several of the major
Peruvian importers have expressed a high level of interest upon learning
that it is possible to provide test samples to FGIS in order to have
imported lots graded against these samples instead of having them
graded against written standards. Lack of reliable quality is a major
concern of Peruvian importers when considering rice imports from the
major competitors.
It is important to note that marketing efforts for high quality rice in
Peru are quite sophisticated. Brand names are promoted on TV, radio,
and in the press. As such, the consumer audience for this high quality
rice would be easily accessible for exporters interested in promoting
U.S. rice. Another advantage for the U.S. rice industry is the large
amount of suppliers available for the Peruvian importer. This diversity
in potential suppliers is in marked contrast to the situation in Uruguay
(with only two, linked exporters) and Argentina (reportedly with only
one exporter capable of guaranteeing exports of sufficient quality).
Recent increases in Brazilian import demand have also led to a
fundamental shift in planting behavior in Argentina and Uruguay.
Farmers there have begun to plant Brazilian rice varieties at the expense
of the traditional Blue Belle variety. While more popular in Brazil,
these new varieties are seen as being markedly inferior in Peru.
For further information, please contact Morgan Perkins at (202) 720-2231.
Saudi Barley Output Plummets as Producer Incentives are
Lowered
Saudi Arabia is by far the world's largest importer of barley. During
the past three years, it has provided a market for about one-quarter of
total world exports. Its share of global trade is even expected to
increase in 1996/97 as a result of sharply lowered production stemming
from reduced domestic grower incentives.
In the recent past, the Saudi Government has provided generous
support for local barley producers. Through the use of production
quotas which guaranteed producer prices far above world market
levels, local barley output shot up to 2.2 million tons in 1994/95,
almost five times the level of the previous five years. But by 1996/97,
the government lowered the target for barley production by setting the
quota at only 1.0 million tons. The high budgetary cost of subsidizing
barley and the drain which it caused on the country's scarce water
supplies (it is all irrigated) were the main reasons for scaling down the
production target.
Barley marketing in Saudi Arabia is tightly controlled by the a
government agency known as the Grain Silos and Flour Milling
Organization (GSFMO), which also monopolizes wheat. The GSFMO
purchases local barley and is the only authorized barley importer. It
owns and operates silos in ten locations across the country, including
the major ports of Dammam and Jedda. Barley is sold by GSFMO to
feed mills and directly to end users in the case of large livestock (mainly
sheep and camel) producers. For the 1996/97 season, the reduced
production quota of 1.0 million tons was awarded mainly to small
farmers with relatively high production costs. The net support price
paid by the GSFMO to barley delivered under the quota is the
equivalent of around $240 per ton. Although this would appear to be a
very favorable price, the smaller farmers claim that it barely covers their
cost of production. In addition, the GSFMO has a record of being
delinquent in paying farmers for grain delivered to the collection
centers, which certainly has been a disincentive to production. Some of
the small farmers reportedly sold their quotas to large-scale growers,
but the net effect of the GSFMO actions has been that barley
production for 1996/97 is forecast at only 450,000 tons, or less than
half of the target under the quota.
Since 1991, the GSFMO has been reselling barley, both from domestic
production and imported, to users at a highly subsidized price of about
$96 per ton. Barley has been readily available at this low price during
most of the period, providing low and stable prices to the livestock
sector. If subsidies are cut back as anticipated by some analysts, use is
likely to decline. There also have been indications that the Government
may turn barley imports over to the private trade in the next year or
two. These moves would be consistent with Saudi Arabia's wish to
accede to the WTO.
Based on reports from the Office of Agricultural Affairs, American
Embassy, Riyadh. For further information, please call Sara Gilbreth at
(202) 720-3049.
Brazilian Wheat Prices Drop in Response to Regional and Global
Pressures
In response to favorable planting conditions and high MY95/96 world
prices, Brazilian farmers are expected to double their wheat production
for MY96/97 ( to 3.0 million tons). Aside from this dramatic increase in
production, there have been quality problems resulting from late rains
that swept through the wheat growing areas causing sprouting,
especially in the states of Rio Grande do Sul, Parana, and Santa
Catarina. Most of the low quality sprouted wheat will likely go to
animal feed. So in spite of the relatively abundant domestic wheat
supply, Brazilian millers are turning to a greater extent than would
otherwise have been expected (given improved domestic production) to
Argentina (which also is harvesting a bumper wheat crop) in order to
secure quality wheat. In addition to world-wide weakening of prices,
these regional/local events have exerted additional downward pressure
on prices received by Brazilian wheat growers.
Under the MERCOSUR Agreement, Brazil's zero duty on imports of
wheat from member countries allows for an easily accessible market,
especially for their neighbor, Argentina. Sales from Argentina's
1996/97 bumper wheat crop to Brazil had already reached 1.0 million
tons by mid-November.
Argentine wheat exporters are reportedly offering Brazilian millers
prices lower than the Brazilian domestic price. However, the major
reason for the high demand of Argentine wheat over domestic wheat is
the generous financing incentives Argentine exporters are providing to
Brazilian millers. The exporters reportedly are allowing Brazilian
millers credit plans ranging from 3 to 6 months and charging only
LIBOR plus 1.5 - 2 percent. The millers can take advantage of this
arrangement by reinvesting the revenues after they have milled,
processed and sold the final product before repaying the exporters.
Brazilian millers are unable to get this type of financing domestically.
As demand for Argentine wheat by Brazilian mills increases, the millers
interest in Brazilian producers wheat has plummeted. Prices in Brazil
have fallen from a range of R170-175/ton, during the March through
July planting periods to the current range of R143-150/ton or an
average of 8.7 % below the minimum support price (the exchange rate
is currently around one Real to 0.97 US$).
To help the sales of domestic wheat at the guaranteed minimum price
and to relieve pressure on the government purchases of wheat and
storage costs, the Brazilian government has introduced "Subsidy
Auctions." Under this new program, the Brazilian Government
auctions wheat to millers on behalf of the growers. The millers bid on
the wheat, and the government pays the growers the price of accepted
bids plus the difference between that price and the minimum support
price of R157 per ton. The first auction under this new system was held
in mid-November with sales of less than 5 percent of 100,000 tons
offered. The low level of participation is probably explained by the
millers inexperience with the new auction program.
Brazil typically imports wheat mainly from Argentina and Canada,
while over the years, exports of U.S. wheat have been irregular. As of
mid-November, U.S. wheat sales to Brazil for the 1996/97 marketing
year have been reported at 833,000 tons. Prospects for further sales
this season have been dimmed by the relatively high prices prevailing in
the U.S. wheat market, compared to those in competitor countries.
For further information, please contact David Wolf at (202) 720-2897.
GRAIN: WORLD MARKETS AND TRADE
FOREIGN COUNTRIES' POLICIES AND PROGRAMS
INDEX OF ARTICLES FOR 1996
ARGENTINA
--Argentina Prepares to Market Record Grain Crop (Dec)
AUSTRALIA
--Australia to Test Imported Grain Transport System (Feb)
--Australia and Canada Target Wheat Quality for Asian Market (Apr)
--Australia to Abandon Feed Grain Import Trials (Jun)
--Japan Agrees to Barley Purchases Under LTA With Australia (Jun)
AZERBAIJAN
--Azerbaijan Moving Toward Market-Orientated Grain Economy (Jun)
BRAZIL
--U.S. Exports of Wheat to Brazil Continue as Phytosanitary Waiver is
Extended (Mar)
--Brazil Increases Tariffs on Imported Rice (Jul)
--Brazilian Wheat Prices Drop in Response to Regional and Global
Pressures (Dec)
BULGARIA
--Bulgaria Headed Back Towards State Grain Monopoly? (Sept)
CANADA
--Value of U.S.-Canadian Grain Trade Rises in 1995 (Mar)
--Australia and Canada Target Wheat Quality for Asian Market (Apr)
--Canadian Wheat Board Announces 1996/97 Initial Payments (Sept)
CHINA
--Economic Expansion in China Yields Grain Policy Dilemma (Mar)
--China's Imports of High Quality Rice Tighten Global Market (Jul)
--China Takes Japanese Rice Tender (Aug)
COTE D'IVOIRE
--Cote D'Ivoire Plans to Place Variable Levies on Rice Imports (Sept)
CZECH REPUBLIC
--Czech Government Seeks Solutions to Grain Marketing Problems
(Nov)
EASTERN EUROPE
--Eastern Europe Launches Additional Measures to Protect Domestic
Wheat Supply (Aug)
EGYPT
--Egyptian Subsidies Allow Wheat Imports to Continue Despite High
World Prices (Apr)
EUROPEAN UNION
--The Basic Mechanics of the EU's Duty Regime for Grains (Feb)
--EU Agrimonitary System Benefits Grain Farmers' Incomes ( Apr)
--EU Continues to Restrict Grain Exports to Dampen Domestic Prices
(Jun)
--EU Brings Wheat Export Subsidies Back to World Market (Oct)
INDIA
--India Seeks to Alleviate Surplus Wheat Stocks Through Exports
(Mar)
--Beset With Problems, India's Wheat Exports Falter (Aug)
IRAQ
--Relaxing of UN Sanctions Could Finance Large Iraqi Grain Purchases
(Apr)
ISRAEL
--Israel's Flour Millers Take Own Government to Court on Wheat
Import Policy (Oct)
ITALY
--Anti-dumping and Countervailing Duties Imposed on Italian and
Turkish Pasta (Aug)
JAPAN
--Japan Completes GATT Minimum Access Rice Purchases (Jan)
--Japan Agrees to Barley Purchases Under LTA With Australia (Jun)
--Japanese Food Agency Marketing Margin Weathers Soaring Wheat
Prices (Jul)
JORDAN
--Jordan Removes Bread Subsidies, Introduces Payments to Consumers
(Sept)
KAZAKSTAN
--Kazakstan's Grain Economy Encounters Difficulties in Transition to
Free Market (Aug)
KRYGYZSTAN
--Krygyzstan's Grain Economy Moving Toward Market Orientation
(Feb)
MEXICO
--Mexico's Expanding TRQ for U.S. Corn Reflects Lively Demand
(Aug)
--Mexican Feed Grain Imports Rebound from Peso Devaluation (Oct)
MOROCCO
--Moroccan Grain Imports Liberalized (Jul)
PERU
--Peru's Large Rice Market Remains Highly Competitive (Dec)
PHILIPPINES
--Philippine Commitments in Uruguay Round Could Encourage
Sorghum Imports (Mar)
POLAND
--US-Polish Weed Seed Protocol Allows Resumption of U.S. Grain
Exports (Jun)
RUSSIA
--Russia's Wheat Flour Imports Soar (Mar)
--Grain Import Opportunities in the Russian Far East (Apr)
SAUDI ARABIA
--Saudi Wheat Production Falls, Exports Virtually Cease (Apr)
--Saudi Barley Output Plummets as Producer Incentives are Lowered
(Dec)
SOUTH AFRICA
--South Africa Continues With Deregulation of Corn Market (Sept)
--South Africa Prepares to Deregulate Wheat Market (Nov)
SOUTH KOREA
--South Korea Turns to China for 1996 Rice Purchases (Jul)
TAIWAN
--Increased Wheat Prices Lead to Changes in Taiwan's Wheat Flour
Market (Jan)
TAJIKISTAN
--Tajikistan Hopes to Increase Wheat Supplies by Easing Market
Controls (Jul)
THAILAND
--Thailand Increases Corn Import Quota (Feb)
--Thailand Modifies Its Corn Import Policy (Nov)
TURKEY
--Turkey Increases Rice Import Surcharge (Jan)
--Changes in Turkey's Wheat Market Structure Contribute to
Significant Imports (Jan)
--Turkish Grain Support Prices to Increase Sharply for 1996/97 (Jul)
--Anti-dumping and Countervailing Duties Imposed on Italian and
Turkish Pasta (Aug)
UKRAINE
--Ukraine Encounters Difficulties in Efforts to Regain "Breadbasket"
Status (Oct)
VIETNAM
--Rice Exports from Vietnam to Undergo Restructuring (Feb)
YEMEN
--Yemen's Highly Subsidized Wheat Sector Would Change Under IMF
Agreement (Mar)
REGIONAL
--US Wheat Regaining Position in South America (Jan)
--Latin American Markets Show Continued Growth, Good Prospects
(May)
--Asian Corn Business Remains Strong (Jun)
--MERCOSUR Fosters Integration of Regional Rice Market (Oct)
--The Evolving Market for U.S. Rice in Asia (Nov)
--Importers Cope in Different Ways With High World Wheat Prices
(Dec)
SITUATION AND OUTLOOK: COMMENTARY
AND CURRENT DATA
WORLD WHEAT SITUATION AND OUTLOOK
The 1996/97 forecast for world wheat trade of 90.1
million tons represents a drop of nearly 3.1 million tons from the
previous year and the lowest level of international wheat trade since a
mid-1980's dip. Generally favorable weather among importers has
combined with a greatly expanded planted area in the major exporting
countries to provide a world wheat production increase of 42.7 million
tons over last year's crop. Global production will exceed consumption
for the first time in four years, allowing for some rebuilding of severely
depleted reserves. Nevertheless, stocks are not expected to return to
levels carried in the 1980's when government inventories were
extremely large.
Exporters
As the near-record wheat crops in the southern hemisphere begin to
come to market, export competition is intensifying and the world's
traditional suppliers initially appear to be stratifying into three loose
groups based on price level. United States and Canada are facing
fierce challenges from Argentina and Australia, currently the lowest
priced sources of wheat on the planet, while the European Union
maintains a position closer to that of the U.S. and Canada. Among the
world's major suppliers, only the United States is forecast to export
less wheat in 1996/97 than in 1995/96, when the U.S. reliably satisfied
high global demand.
Changes this month include a one million ton increase in the export
forecast for Argentina, the result of a comparable rise in their
production estimate. With this most recent boost Argentina is now
projected to export over 10 million tons of wheat for the first time in its
history. Production increases in Australia and Canada were
accommodated by similar increases in stocks and feed consumption,
while Canada's export forecast was reduced by one million tons to
reflect lost business to China.
Importers
Most traditional wheat importing nations are enjoying their own
unusually plentiful harvests, resulting in a lower global demand for
imported wheat and a consequently reduced level of international wheat
trade this year. Absence from the international wheat market has
prompted a one million ton reduction in projected exports to China
while imports to Iraq have been increased by 500,000 tons. In Turkey
high internal prices are expected to double the previously forecast
import amount to one million tons.
WORLD RICE SITUATION AND OUTLOOK
International prices for rice were generally stable during the month of
November and into December, although trends differed according to
origin. Prices in Thailand generally softened by $3-5 per ton,
depending on grade, as import demand was slack. Downward price
pressures were limited, however, as 1996/97 main crop rice has yet to
reach export channels in significant quantities. In Vietnam, on the
other hand, export quotes jumped $10-15/ton as prolonged flooding
delayed collection, processing and transport of new crop rice. Export
quotes for U.S. rice spent the month in a holding pattern. While U.S.
prices are $100/ton higher than quotes for comparable foreign grades,
sales have been brisk.
Exporters
Global rice trade during calendar year 1996 is now forecast at 18.8
million tons, down from 19.1 million tons last month, but still the
second highest level of trade ever. Forecast 1997 world trade was also
reduced; from 18.4 to 18.0 million tons.
The calendar year 1997 export forecast for India was lowered this
month from 3.0 to 2.25 million tons. While rice production in India is
estimated to be essentially equal to 1994/95 production-when India was
able to export record amounts of rice- lower world market prices are
expected to limit India's exports to high quality and parboiled rice for
at least the first six months of the year. It is expected, however, that
robust demand in the second half of the year may allow India to reenter
the export market for medium and lower quality grades.
The forecast of 1996 exports by Vietnam was increased 100,000 tons
this month, to a record 3.1 million tons, as Jan-Nov. exports surged
above 2.8 million tons. In addition, the 1997 export forecast was
raised from 2.8 to 3.0 million tons. Trade sources indicate that the
Government of Vietnam will issue preliminary export quotas of 3
million tons while leaving open the possibility of additional quota
allocations later in the year.
Both the 1996 and 1997 export forecasts for Australia were changed
this month. The forecast of 1996 exports was reduced from 615,000 to
475,000 tons following the downward revision of 1995/96 production
estimates. Australia's 1995/96 production is now estimated at 951,000
tons (rough basis), down from the previous estimate of 1.1 million tons.
Meanwhile, projected 1996/97 production was increased 75,000 tons
to 1.3 million. As a result, Australia's 1997 exports are projected at
700,000 tons, up from 625,000 previously.
The CY 1996 export forecast for Thailand was reduced from 5.25 to
5.2 million tons as export shipments have slowed during recent months
and new sales have been relatively light. Exports during CY 1996 by
Burma are now forecast at 300,000 tons, down from the previous
forecast of 350,000 tons.
Importers
Other Asia
Forecast 1997 imports by China were reduced this month by 250,000
tons to one million tons. A nearly 3 million ton (rough basis) increase in
the 1996/97 crop forecast to a record 189 million tons is expected to
limit import demand to only high quality and fragrant varieties not
produced domestically. The crop increase is expected to primarily
impact stock levels, now forecast at 22 million tons, but still more than
30 percent lower than the record high stock level achieved in 1984/85.
Other Africa
Calendar year 1996 import forecast for Kenya was increased 50,000
tons this month to 300,000 tons, based on heavy shipments to date.
Following a revision in consumption expectations in 1996/97, 1997
imports were increased from 75,000 tons to 250,000 tons. Despite
these increases, forecast consumption in Kenya is projected to decline
in each year, down from the record set in 1994/95.
WORLD COARSE GRAINS SITUATION AND OUTLOOK
World trade in corn in 1996/97 is expected to fall somewhat from
1995/96 levels, primarily due to increased competition from feed
quality wheat and other feed grains. Forecast 1996/97 U.S. corn
exports of 48.5 million tons are four million tons lower than 1995/96
exports and 10 million tons less than 1994/95 exports. China, once the
world's second-largest exporter, and a net importer of nearly 1.4
million tons in 1995/96, is expected to have no net trade effect in
1996/97. U.S. export opportunities in Asia in 1996/97 are expected to
remain good, as near-record import levels in the region are projected.
World trade in barley is expected to increase significantly in 1996/97.
World stocks of barley, while projected to increase from 1995/96
levels, will still be below levels observed two years ago. Projected
imports by the Middle East, particularly by the largest feed barley
importer, Saudi Arabia, are expected to rebound sharply, due to
increased feed demand. Asia continues to be a significant growth
market, primarily for malting barley, as their barley imports are
projected to increase to record levels in 1996/97.
Importers
Argentina
Estimates for Argentine corn and sorghum exports were raised for
1995/96. The corn export estimate was raised 310,000 tons, to 7.01
million tons, the largest export level in five years. Likewise, the
Argentine sorghum estimate was raised 311,000 tons, to 811,000 tons,
the largest exports since 1992/93. These increases can largely be
attributed to more competitive export prices, especially to Southern
Hemisphere and Latin America destinations. Despite strong export
performance in 1995/96, exports for 1996/97 are projected to remain
unchanged for both commodities, with corn at 6.75 million tons and
sorghum at 500,000 tons.
ENDNOTES TO GRAIN: WORLD MARKETS AND
TRADE
REGIONAL TABLES
1) Includes Canada, Mexico, and the United States.
2) Includes Central America, the Caribbean, and South
America.
3) Includes Azores, Cyprus, Iceland, Malta & Gozo, Norway, and
Switzerland
4) Includes Albania, Bulgaria, Czechia, Hungary, Poland,
Romania, Slovakia, and former Yugoslavia.
5) Includes Bahrain, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon,
Oman, Qatar, Saudi Arabia, Syria, Turkey, United Arab
Emirates, and Yemen.
6) Includes Algeria, Egypt, Libya, Morocco, and Tunisia.
7) Includes all other African countries except North Africa.
8) Includes Afghanistan, Bangladesh, Bhutan, India, Nepal,
Pakistan, and Sri Lanka.
9) Includes all other Asian countries except South Asia.
10) Includes Australia, Fiji, New Zealand, and Papua New Guinea.
OTHER NOTES
Unless otherwise stated, stock data are based on an aggregate of
differing local marketing years and should not be construed as
representing world stock levels at a fixed point in time.
Current and historical data on the European Union in this issue
refers to the EU-15.
Consumption statistics reflect total utilization, including food, feed,
seed, and differences in marketing year imports and marketing year
exports.
This circular was prepared by the Grain and Feed Division,
Commodity and Marketing Programs, Foreign Agricultural Service,
USDA, Washington DC 20250. Information is gathered from
official statistics of foreign governments and other foreign source
materials, reports of U.S. agricultural attaches and Foreign Service
officers, results of office research, and related information. Further
information may be obtained by writing the division or telephoning
(202) 720-6219.
Note: The previous report in this series was the Grain: World
Markets and Trade Foreign Agricultural Service Circular FG 11-96
November 1996. For further details on the world grain production,
see World Agricultural Production, Foreign Agricultural Service
Circular WAP 12-96 December 1996.
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