January 13, 1997
This report draws on information from USDA's global network of agricultural attaches and counselors, official statistics of foreign governments, other foreign source materials, and results of office analysis. Estimates of U.S. acreage, yield and production are from the USDA Agricultural Statistics Board, except where noted. This report is based on unrounded data; numbers may not add to totals because of rounding. The report reflects official USDA estimates released in the World Agricultural Supply Estimates -->WASDE 322-10 January 10.
This report was prepared by the Grain and Feed Division, FAS. Agbox 1048, 14th and Independence Ave. Washington DC 20250. Further information may be obtained by writing to the division, by calling (202) 720-6219, or by FAX (202) 720-0340
The next issue of the Grains circular will be available electronically after 3:30 pm local time on February 13, 1997
FOREIGN COUNTRIES' POLICIES AND PROGRAMS
WORLD AND U.S. GRAIN OVERVIEW WHEAT The forecast for 1996/97 world wheat trade stands at 88.7 million tons, the next-to-lowest level of international wheat trade in over fifteen years. Annual global production is projected to increase by eight percent to 579.1 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 has 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, prompting aggressive efforts to place larger supplies in a time of soft demand. Prices have reacted to the abundant harvests 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 8.2 million tons, resulting in a 1996/97 global stocks-to-use ratio of 19.7%, a small increase from last year's record low ratio of 18.9 percent. RICE The estimate of 1996 calendar year rice trade was increased slightly this month to 19 million tons, up from 18.8 million tons last month. Meanwhile, the forecast of 1997 world rice trade was also raised, from 18 to 18.2 million tons. Key to the increase in estimated 1996 trade was a 51,000 ton increase in the export forecast for Thailand, which finished 1996 with 5.251 million tons in exports. The increase in forecast 1997 trade was sparked by and increase of 350,000 tons in the 1997 export forecast for Pakistan, now at 1.75 million tons. This increase in forecast Pakistani exports was partially offset by a 250,000 ton decrease in forecast exports by Vietnam. COARSE GRAINS Global trade of coarse grains during 1996/97 is forecast at about 88.3 million tons, down marginally from the 1995/96 trade level of 88.6 million tons. Global production of coarse grains in 1996/97 is expected to be sharply higher than in 1995/96, due largely to increased corn production 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. U.S. 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 18 million tons to nearly 109 million tons. The global stocks-to-use ratio is forecast to rise slightly to 12.5 percent, the third lowest on record. FOREIGN COUNTRIES' POLICIES AND PROGRAMS India Swings Back From Wheat Exporter to Importer In an effort to ease domestic wheat prices, the Government of India has resumed importation of wheat, even announcing that some importing would be allowed (for the first time) by the private trade. This will be the first season in which India has imported substantial quantities of wheat since 1992/93, after government stocks plummeted to extremely low levels. Production then rose to consecutive record levels during the next three years, encouraging India to export wheat during 1995 and early in 1996, as a means of reducing its large and mounting government stocks. The timing of the exports proved opportune for India, which was able to export wheat when world prices were high, and now is importing at substantially lower price levels. While India was reducing its government-held wheat stocks to manageable levels, the state procurement program for the 1996/97 season was running into difficulties. Farmers found it more profitable to sell their wheat on the open market than to the government at its lower purchase prices. Procurement for 1996/97 is estimated at only around 8.2 million tons, well below the 12.3 million tons procured in 1995/96, and the lowest mark since 1992/93. The government's estimate for this season's wheat crop also has been lowered, to 62 million tons, or 4.5 million tons below earlier estimates and below last year's record output. This year's decline in wheat production is attributed to a slight shift in planted area to oilseeds and a yield decrease resulting from higher than normal temperatures during February and March in northern India. Declining government wheat stocks, the sharp drop in this year's state procurement, and the declining prospects for the current year's production caused India's internal wheat prices to soar by mid-1996. In June, wholesale wheat prices rose sharply to the equivalent of around $145 per ton, which was 30 percent over the government procurement price and 25 percent above the wholesale price a year earlier. In response to the price increase, the government suspended further allocation of wheat exports under the export quota of 3.0 million tons for the 1996/97 season. Only 1.0 million tons has been allocated to exporters (wheat flour exports also have since been restricted, with only 150,000 tons permitted through March, 1997). In addition, the government also began to sell wheat from its stocks into the open market at below market prices. But as the weeks and months passed, market prices continued to soar, and government stocks plummeted. By late November, the indicative Delhi ordinary wheat price reached a high of $210 per ton, or 50 percent above a year earlier. Prices of higher quality wheats and those in markets further from growing areas were considerably higher. In an effort to contain the price rise, the government decided to increase the monthly open market sale of wheat from its stocks from 300,000 tons to 600,000 tons. This is in addition to the allocation to the Public Distribution System (PDS), which is around 800,000 tons per month. However, the government's ability to dampen prices through sales from its stocks will be limited in the coming months by the low level to which those stocks have declined. On December 1, 1996, government stocks were put at only 8.0 million tons compared to 14.6 million tons a year ago and 14.4 million tons two years ago. It is feared that continued large releases of government stocks will reduce them to the point of jeopardizing the GOI's ability to supply wheat to the PDS. About 30 percent of India's wheat crop is marketed with the balance being consumed on-farm or at the village level. An estimated 10 to 11 million tons of wheat are milled in the organized flour milling industry. These mills, numbering around 800 with a total milling capacity of over 15 million tons, are located throughout the country. The balance of milling is done in small, local shops called "chakkies," where consumers take the wheat they buy through the PDS or in the open market for processing. Here the wheat can be milled into fresh, custom made "atta," which is high extraction flour, at relatively economical prices. India's wheat consumption fluctuates somewhat with the size of its crop, but there is a clear indication of increased use at the rate of about 5.0 percent per year. The steady rise in consumption has been aided by the GOI's policy of not raising the sales price to the subsidized PDS since 1994, as well as the country's 2.0 percent annual population growth rate. India is also experiencing substantial growth in consumer purchasing power, and the demand for branded flour marketed by the larger mills is gaining popularity as a convenience item in urban areas. Bread consumption, which is estimated at almost 2.0 million tons, is also rising yearly at around 5.0 percent, and the variety of breads available is increasing. Wheat is not far behind rice as India's main food staple. All these developments have led to the shift in India's wheat trade stance. In a decision taken in mid-December, the GOI authorized imports of up to 2.0 million tons of wheat by the government-run State Trading Corporation (STC) and permitted, for the first time, the importation of wheat directly by private flour millers. The STC quickly purchased 1.0 million tons of Australian wheat, 250,000 tons of Canadian wheat, and may be seeking further purchases from foreign suppliers. Wheat imported by the STC will be distributed by the government either directly to consumers through the PDS, or to millers and other users through the open market sale system. Although private flour millers will temporarily be allowed to import wheat directly, certain restrictions will apply. Imports will be duty free, but will be subject to an end-user condition ( ie. these imports must be milled by the importing mill) and must be registered with the GOI. The window for these imports closes on March 31, 1997. Flour millers are not expected to be big importers of wheat, not only because of the short window of opportunity, but also due to their inexperience in international trading and the lack of economies in scale. Furthermore, the GOI does not permit millers to hold wheat quantities in excess of 60 days of milling capacity. So, in the end, no more than 100,000 tons of wheat are expected to be imported by the millers. India's recent brief role as a wheat exporter was marked by significant problems in the marketing of a relatively poor quality product, plus logistical difficulties in shipping the wheat. In reality, the exports were possible only because of the extremely high wheat prices on the world market at the time, which were caused by the tight world supply situation. India's internal wheat prices normally are well above those in the international market, and the GOI has not shown any inclination toward subsidizing wheat exports. Based on reports from the Office of the Agricultural Counselor, American Embassy, New Delhi. For further information, please contact David Wolf at (202) 720-2897.
Argentina's Grain Export Future Appears Promising With its diverse climate and abundant natural resources, Argentina produces, exports and imports many of the same agricultural products as the United States. In the northern sub-tropical regions, sugarcane, cotton, teas and tobacco are grown. Grains, oilseed and livestock production predominate in the vast, temperate central plains known as the pampas. In the west, fruit production is most important, while the desolate reaches of Patagonia to the south are limited to sheep production. Agriculture, livestock, forestry and fishing contributed 5.9 percent of GDP in 1995 (down from 6.9 percent during 1994). However, as many processed raw materials are not included in the calculation, this figure underestimates the economic importance of the sector. For example, at least 50 percent of total exports last year were agricultural or agro-industrial goods. In aggregate however, the primary sector has performed poorly in recent years: between 1990 and 1994, total output increased by only 4.4 percent compared with a 34.4 percent expansion of total GDP. With the exception of beef and wool, international prices for principal Argentine export commodities (oilseeds and products, wheat, corn, beef, tobacco, sugar, apples and pears, cotton and wool) have been very strong the past couple of years (corn and wheat reached 15 year highs) This development has brought considerable investment into the farm sector and introduced improved technologies to boost productivity. Argentina at a Glance Population (1995): 34.1 million Population growth rate: 1.12% Urban population: 86% Per capita income: $8,200 Land area: 2,737,000 sq. km., slightly less than one-third the size of the United States. Land use: crops 13%, meadows and pastures 60%, forest and woodland 20%, other 7%. Major crops: wheat, corn, soybeans, sunflowerseed, grain sorghum, sugarcane Livestock sector: beef and dairy cattle, poultry, sheep, horses, swine Leading agricultural exports: oilseeds and products, grains, beef, animal products, fruits and fruit products, dairy products, wool, vegetables, cotton Agricultural exports as a share of total exports: 52%. U.S. share of total agricultural exports: 5% Leading agricultural imports: coffee, fruits, cocoa, seeds, cork, resins, essential oils. Agricultural imports as a share of total imports: 5% U.S. share of total agricultural imports: 11% Percent of labor force in agriculture: 12% Argentine Field Crop Production (Thousand Metric Tons) Commodity 1994/95 1995/96 1996/97(F) Wheat 11,300 9,200 15,500 Corn 11,100 10,700 13,500 Rice 931 877 954 Sorghum 1,650 2,100 2,000 Barley 350 450 450 Soybeans 12,650 12,640 13,000 Sunflower 5,900 5,600 5,000 Total 43,881 41,567 50,404 Argentina's Agricultural Policy is Relatively Unstructured Beyond the effect of its macro-economic policies which have encouraged investment, greater economic planning and more efficient use of capital resources, the Argentine government does not have many specific policies affecting the agricultural sector. In recent years, the general direction of agricultural policy in Argentina has been towards less government involvement in production and marketing decisions. The government's most important role at this point is to provide a stable economic environment. It has however used such international fora as the GATT and now the WTO to advocate the elimination of production incentives and export subsidies in other countries, principally the United States and the EU, which it believes unfairly discriminate against the non-subsidizing countries of the world. Export taxes have practically been eliminated and much of the existing infrastructure, such as transportation, ports and marketing (through the elimination of the National Grain and Meat Boards for example) has successfully been privatized. This has resulted in major improvements in rail, trucking and grain handling services, thereby increasing Argentina's export capacity. Less government intervention at the macro-level has resulted in decreasing costs and more efficient transportation, communications, marketing and port services. Deregulation of train services has lowered costs, improved overall quality and forced a decline in trucking rates. In the case of port services, the privatization of grain elevators has lowered handling rates. Vertical integration (most of the elevators are now owned by grain trading companies) have also lowered related transaction costs. Other port costs, such as pilotage and daily stays, have also declined. As a result, port handling costs have dropped an average $1.70/MT, equivalent to 11 percent of pre-reform costs. Between 1991 and 1994, the ratio between domestic and FOB prices increased from 85.2 to 96.5 percent for wheat and from 83.5 to 92.6 percent for soybeans. The Argentine agricultural sector is productive and world competitive. With the exception of tobacco, there are currently no major government policies, programs or subsidies to encourage production. Most agricultural exports do benefit however from a system of export rebates which are said to return part of the taxes incurred in the different production and marketing stages. The current range of rebates is 1.35 to a maximum of 10 percent. Rebates on trade to Mercosur countries have been eliminated completely. Export taxes were generally reduced to zero in 1991, with the exception of a 3.5 percent tax on oilseed exports to encourage domestic processing operations and a 15 percent tax on raw hides. In the past, Argentina protected its domestic agricultural sector through a system of high import tariffs, inspection fees and other charges. Since the economy has opened up however, these import duties have been reduced to relatively low levels and the red tape required of importers eliminated or vastly simplified. Argentina committed in the Uruguay Round to establish a 35 percent import ceiling for agricultural products plus a 3 percent statistical tax. It now applies the Mercosur common external tariff, which for most agricultural goods varies between 0-20 percent. The 3 percent statistical tax is added to the import tariff. Duties on intra-Mercosur trade however are generally zero. There are still a number of difficulties facing the Argentine agricultural sector. Production costs, including labor costs, inputs and taxes, remain high. Credit availability is very limited and carries an extremely high cost. Interest rates on production loans, even for farmers with excellent credit, run at least 16-20 percent on an annual basis in dollar terms, which is very high on a real basis considering that the inflation rate has been around 2-3 percent each of the last two years. The government also needs to do more to address the problem of tax evasion on the national level, which is estimated to have an annual cost of at least several billion dollars. A few operators of meat packing plants for instance have been accused of avoiding or under reporting their tax liabilities on a massive scale. It has also been reported that between 30 and 40 percent of all the transactions involving grains and oilseeds have been handled in an illegal manner, costing the government from 400 to 500 million dollars in lost tax revenue. In general though, there is a great deal of optimism in Argentina regarding the future of its agricultural sector. Government and private sector officials cite the growing world demand for food going into the 21st century, particularly from Asian countries, and see themselves as very favorably positioned to meet some of that demand, especially for grains, oilseed derivatives and red meat. Recent large investment (primarily foreign) in the local food industry has brought renewed strength to the agribusiness sector which is one of the most important pillars of the country's exports expansion. Furthermore, the preferential duty access under Mercosur (Argentina, Brazil, Uruguay and Paraguay), with a total population of over 200 million, is providing a strong economic stimulus to the sector. Some in fact refer to Mercosur as Argentina's "insurance policy," a guarantee that much of the country's surplus agricultural production (especially of grains and dairy products) can be absorbed by its neighboring trade partners. Mercosur has also recently concluded negotiations making Chile an associate member this year, but with a phase-in period of up to 18 years for agricultural products. It is certainly conceivable that within a few years, some Argentine grain and other agricultural commodities could be exported to Pacific Rim markets through Chilean ports. Free trade negotiations have also been concluded between Mercosur and Bolivia and will soon begin with the remainder of the Andean pact. Further adding to optimism in Argentina is the perception that subsidized foreign competition will be declining in future years. The production and export subsidies of other countries, namely the United States and the EU, have always been viewed in Argentina as having a major negative impact on the volume and value of many of its agricultural exports. With the limits on those subsidies now established in the Uruguay Round, Argentine producers anticipate less competition from subsidized exports, thus greater demand for many of their own agricultural exports. Factors Affecting Grain Production One of the main areas of change has been in the use of fertilizers and agricultural chemicals on a much broader scale. Ten years ago, annual fertilizer use was less than 100,000 tons. Industry sources now estimate fertilizer use may reach 1.6 MMT during the current crop year (1996/97), up 40 percent from a year ago and double the level in 1994. Fertilizers may be applied on an estimated 70 percent of the wheat and more than 50 percent of the corn area this year. Agricultural chemical use (herbicides, fungicides, etc.) more than doubled between 1991 and 1996. The use of no-till cropping, particularly for second-crop soybeans following wheat, has helped spur this growth. Sales of farm machinery have soared; tractor sales for the first eight months of 1996 were up 334 percent and for harvesters they were up 248 percent compared with the same period a year ago. Irrigation equipment, once seen on only the largest and most progressive farms, has now become much more commonplace. Despite this growth, however, irrigation still covers a relatively small percentage of total crop area. Today there are more than 300 center-pivot systems in the humid pampas region irrigating more than 20,000 hectares, mainly in the Argentine "corn belt" of northern Buenos Aires and southern Santa Fe and Cordoba provinces. Reduced import duties on capital goods and easier credit terms and long-term leasing arrangements have also helped further spread its application there. With the higher grain and oilseed prices have come higher land values, which are up an average of 30 percent in the past year. Rental rates, which normally are set at 10 percent of the value of the land, were also up by a similar amount, but recent sharp declines in output prices have reduced this. Prime corn/soybean land in 1995 sold for $1,800-$2,500 per hectare; a year later those prices were in the $2,800-$3,500 range; land in the prime areas of the wheat belt went up during this period from $800-$1,300 per hectare to $1,200-$1,600. Although these are significant increases, agricultural land prices in Argentina are still relatively low compared with many other important agricultural areas of the world and this has attracted great interest and investment, both domestic and foreign, into the region. Although these latest increases in value may have narrowed its advantage somewhat, the lower cost of land has traditionally been an important factor in helping Argentina maintain its competitiveness in world agricultural trade. Another trend which has recently gathered momentum in Argentina is the use of so-called "sowing pools." Although they have been around for more than 15 years, these investment strategies have recently grown in importance. Basically, these are investments which pool investor funds (mainly domestic but some foreign capital is involved as well) to rent land, provide the inputs and hire the technical expertise to grow primarily field crops and divide the profits (or losses) among the shareholders. The land owner usually receives about 10 percent of the value of the rented land in advance. In the absence of affordable credits for the small and medium size farmer, these investment groups offer many of them an opportunity to keep their farms and eliminate much of their financial risk and since the pools often bring together adjacent rented lands, it also creates a more efficient production unit. It is estimated that as many as a half million hectares were contracted under these investment funds during 1996. Argentine crop yields in general (except sunflower) are lower than comparable ones in the U.S., although the trend is decidedly towards higher yields. Soybean yields are lower in Argentina than the U.S. mainly because some 30-40 percent are second-crop soybeans which are sown later in the season and generally have a lower-yielding potential. There are several important reasons why Argentine crop yields should increase in the future: 1. Increased fertilizer/agrochemical use: in both wheat and corn, fertilizer use is steadily trending upwards; wheat area receiving some fertilizer has grown from less than 25 percent four years ago, to almost 70 percent in 1996; in corn, that percentage has grown from just 10 percent a few years ago to at least 50 percent this year. This trend is expected to continue in spite of higher fertilizer costs, the bulk of which is still imported (mainly phosphorus and urea). Corn yields could potentially show the most productivity improvement, as lower-yielding flint-type corn is increasingly being replaced by dent and semi-dent varieties. Fertilizer use per hectare is still a relatively small proportion as compared to the United States and the European Community. Herbicide use has also grown as more farmers are switching to no-till or minimum tillage practices where good weed control is essential. New varieties such as "Round-Up Ready" soybeans and Bt corn should in fact help farmers reduce their reliance on herbicides and pesticides. 2. Improved cultivation practices: no-till cropping has become relatively common for some crops in certain areas, for example planting second-crop soybeans or corn in wheat stubble following harvest; this practice not only helps prevent soil compaction (improving aeration and tilth), but allows preserves soil moisture. Other measures which have become more common: strip or contour plowing to prevent wind and water erosion. 3. Improved seed varieties: much research effort has gone into identifying and producing newer seed varieties better suited to local growing conditions. In corn for example, many international seed companies have established local research centers to develop dent and semi-dent hybrids which can be sown in higher densities of 60-70,000 plants/ha. and which have greater yield potential, particularly when some fertilizer is used. The use of certified seed is also expected to grow in the future. Also, Argentine farmers are planting new seed varieties that incorporate recent advances in biotechnology for soybeans and soon other crops as well. 4. Newer farm machinery: there has been a tremendous growth in sales of farm equipment (tractors, seeders, harvesters, etc) the past three-four years as the general farm economy has improved; tariffs for imported goods have been reduced and the rules governing capital good imports have been liberalized. As credit becomes more available and affordable (it now can run from 17-22 percent annually for the majority of small-medium-size producers) this trend towards equipment modernization should continue. However, recent declines in commodity prices will mitigate this growth. There has also been tremendous growth in sales of irrigation systems, which together with increased fertilizer use, has the potential to boost grain yields considerably, especially in areas of marginal rainfall. New harvesting machinery should help reduce harvesting losses which can sometimes reach 5-10 percent (e.g., corn, sunflowerseed). The Argentine government has set a rather ambitious production goal for grain/oilseed of 60.0 MMT by the year 2000 (from around 45-50 MMT currently). The accompanying chart illustrates that with some small increases in planted area and modest improvements in overall yields, particularly for corn through the greater application of available technologies, this goal appears achievable. The expanded production will need to come from higher yields through increased fertilizer use and other agrochemical inputs, and reducing the land devoted to cattle fattening on pasture (Argentine beef production is primarily a grazing-based system). Of the approximately 40 million hectares of arable land in Argentina (though all is not well-suited for cropland), around 20-25 million hectares are currently under cultivation. The rate of grain and oilseed area expansion in future years will depend to a large extent on the prices of these and competing enterprises, namely beef and dairy production. The beef cattle stock for 1997 is projected at 51.7 million head, the lowest in the past 25 years, the result of two years of drought which reduced the calf crop, tight returns and growing competition from more profitable alternatives such as dairy and cropping. This has pushed cattle to more marginal areas where production is less efficient. However, the country's livestock production outlook for the next five years indicates that production will increase mainly as a result of better export prospects once foot and mouth disease-free status is granted. This output expansion would be basically due to increased efficiency and higher slaughter weights, in addition to a moderate stock rebuilding, not a return to a larger pasture area. Trends in Domestic Use of Grain Argentines have historically been one of the largest per capita consumers of beef in the world (60 kgs. annually vs. 44 in the U.S.), but is lower than the 80-90 kgs per capita a few years ago. Since 1992 however, poultry consumption has more than doubled (to 21 kgs per capita annually vs. 45 in the U.S.), basically driven by health concerns and a significant decrease in broiler prices; furthermore, as beef production could increase at a slower pace than exports, cattle prices could increase significantly, further depressing local demand. Poultry consumption should therefore expand as a result of lower beef demand. Consumption of bread and pasta products should remain stable, growing at an annual rate of 2-3 percent. Practically all livestock production in Argentina is based on grazing natural or artificial pastures (mainly alfalfa mixed with grasses), making it highly weather-dependent. Strong grain and oilseed prices can push cattle to more marginal areas where production is less efficient, although most farmers are reluctant to sell all their cattle. Crops bring liquidity and cattle are used as savings. The following is a comparison of gross margins (no overhead costs), for different agricultural and livestock producers with average yields (August 1996): Activity: Gross Margin ($/hectare) Cow-calf 42 Finishing 98 Dairy 268 Wheat 150 Soybeans 305 Corn 288 Estimates of yearly on-farm grain feeding (mostly corn), usually vary from 200-300 TMT. Feedlot production has contracted this year and its future is not altogether certain. Although Argentina has excellent natural resources for such a system, grain prices and beef FOB values will be the key factors which determine its expansion. It is likely that the local beef sector will continue with a low-cost grazing scheme, but feedlot production could increase to attend niche markets: domestic high income consumption (mainly light steers and heifers) and exports to southeast Asian markets (mainly heavier steers). The output for both could represent 5-15 percent of the country's total beef production. Fresh Argentine beef exports to the U.S. have been banned for more than 60 years due to the prevalence of foot-and-mouth disease (FMD). The U.S. government allocated Argentina a 20,000 MT quota in the Uruguay Round negotiations, but made market access conditional upon certain sanitary requirements, including eradication of FMD. Argentina has now gone more than two years without an outbreak of the disease and international regulators are expected to grant the country FMD-free status soon. Access to the U.S. will open up many other markets to Argentine beef, particularly in Asia, whose sanitary regulations are similar. Poultry production and consumption have increased rapidly over the last five years. The main factors behind such growth were the importation of cheap Brazilian broilers which forced local producers to increase production scale and reduce costs, the fact that chicken became significantly cheaper than beef and, to a lesser extent, dietary concerns which shifted some demand toward leaner, lower cholesterol meats. Almost all large poultry processors in Argentina are vertically integrated. Most of them have feed mills and as a result of higher feed costs, some have started their own grain production either on privately-owned farms or rented land. This is something which should continue to expand in order to protect poultry producers from higher grain costs. Estimates of total grain use (again, mostly corn) by the poultry industry range from 1.5-1.8 MMT annually. Over the past five years, the Argentine milling industry has undergone a consolidation process in which a number of smaller, less efficient plants have either gone out of business or been bought by larger, more efficient, usually multinational ones. In 1995 for instance, Cargill bought one of the largest local wheat millers, thus positioning itself as one of the major wheat flour producer/exporters in the Latin American region. That year there were approximately 82 milling firms operating in Argentina and a total of around 100 individual plants. Their combined milling capacity was estimated at around 350,000 MT/month, which would permit a maximum production potential of about 4.2 MMT/year. Nearly all of Argentina's wheat flour exports go to Brazil and other Latin American countries. The primary industrial use of corn is in the wet milling industry for the manufacture of starch; dry millers use smaller quantities to produce corn meal for human consumption. Total estimated corn milling use is around 800-850 TMT/year. Of the roughly 3.0 MMT of wheat flour consumed domestically each year, about 70 percent is used in bread making, 25 percent goes to the manufacture of pastas and crackers and the remainder to miscellaneous uses. Export Outlook for Grains Because of the size of its annual grain and oilseed production in relation to a relatively small population, Argentina's agricultural sector is highly dependent upon exports for marketing nearly all of its commodity output. Over the past two decades, oilseeds and products exports have increased sharply, displacing wheat, corn and other grains as the dominant export crops (in value), although the country still remains a dominant player in world grain trade. For instance, Argentina traditionally exports from 5.0-7.5 MMT of wheat annually (usually ranked fourth or fifth in the world), from 5.0-6.5 MMT of corn (second worldwide after the U.S.), around 500 TMT of grain sorghum (second or third worldwide) and from 6.5-7.5 MMT of total coarse grains (second after the U.S.). Latin America receives the largest share of Argentine wheat exports, usually accounting for more than 80 percent of total exports and of that total, Brazil buys roughly 80-85 percent. This trade is of course favored by geographical proximity, lower ocean freight charges and years of close contact between exporters and millers, but it also benefits of course through the waiver of the 10 percent import duty on wheat imports from non-Mercosur countries. This year Argentine exporters have been undercutting Brazilian domestic wheat prices and doing it with very attractive three-six month credit plans which have proven to be an irresistible incentive, since many Brazilian millers lack the money to make direct cash payments. Other Latin American countries receiving significant exports of Argentine wheat include Bolivia, Chile, Colombia, Paraguay, Peru and Venezuela. As Chilean agricultural interests become fully integrated into the Mercosur trade pact and its own import tariffs are reduced, more significant quantities of Argentine wheat may be sold to Chile in the future. The remainder of Argentine wheat exports usually go to Asia (Indonesia, sometimes China), Africa (Kenya, Mozambique) and the Middle East (Jordan, Iran). This year, with some of the cheapest wheat available worldwide, Argentina may displace some traditional U.S. export markets, namely to Egypt, Turkey and Algeria. Although Argentina ranks second in world corn exports, the relatively much greater size of the U.S. crop largely determines international prices. Argentine export prices are generally less than U.S. prices only during the harvest months of March to June, but when freight costs are factored in, Argentine corn becomes somewhat more competitive, especially to Latin American and other Southern Hemisphere destinations. Brazil is usually the number one export destination, followed by Iran, Malaysia and Indonesia, with smaller quantities going to Peru, Venezuela, Egypt and China. Japan is also reportedly interested in diversifying its corn import origins and has recently contacted Argentine exporters regarding its future import requirements. Grain sorghum is the second most important coarse grain crop in Argentina. It is often grown as a second crop following wheat or barley, but had been in a general decline as low prices and weak export demand reduced farmers' interest. In addition, sorghum competes directly with corn as a grain and forage crop, although corn has consistently benefitted from higher prices and better gross margins. Production, which reached a high of nearly 3.0 MMT earlier in the decade, slumped to as low as 1.65 MMT two years ago, but has now begun to recover, and this year is expected to be 2.0 MMT. Export demand has also picked up in spite of recent higher prices and this year, Argentina should capture the number two position in worldwide exports of grain sorghum, after the United States. Japan continues to be the leading export destination (nearly 50 percent of all exports), followed by Chile, Peru and South Africa. Note: A discussion of Argentina's grain industry infrastructure and its ability to handle increasing grain flows can be found on page twelve in the December, 1996 issue of this circular series. For further information, please contact David Kiefner at (202) 720-6223.
SITUATION AND OUTLOOK: COMMENTARY AND CURRENT DATA WORLD WHEAT SITUATION AND OUTLOOK The 1996/97 forecast for world wheat trade of 88.7 million tons represents a drop of nearly 4.5 million tons from the previous year and the second lowest level of international wheat trade since the 1979/80 season. Generally favorable weather has combined with a greatly expanded planted area to provide a world wheat production increase of 42.2 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 With half the market year completed, Argentina and Australia continue to set world prices at extremely competitive levels, placing Canada, the European Union and the United States under increasing pressure to move their supplies into export. Forecasted exports from Australia have been increased by 500,000 tons based on a healthy initial pace while the export forecast for Canada experienced a two million ton reduction following slower than expected business done to South Korea and China (see below). Importers Approximately 1.25 million tons bought during a four day period over a weekend instantly catapaulted India back to the status of a major buyer of imported wheat for the first time in four years. Five consecutive record harvests and a liberalization of the domestic grain trade had allowed India to emerge as a major exporter of wheat last year. However, a reduced crop for 1996/97 and rapidly diminishing stocks pushed the government to initiate significant imports ahead of the harvest in an (already successful) attempt to stem soaring domestic wheat prices. India's increased import demand has been more than offset by reductions in anticipated imports to other nations. An expected increase in purchases of wheat for feed by South Korea has failed to materialize, prompting a cut of one million tons in the import forecast there, while continued absence from the international market has resulted in an additional two million ton cut in the import forecast for China as well. WORLD RICE SITUATION AND OUTLOOK International rice prices were generally stable during the month of December. Among the major exporters only Pakistan and Thailand experienced significant price fluctuations, albeit in opposite directions. Nominal price quotes in Thailand rose $25-30 per ton during the month of December before jumping another $15 per ton during the first week of January. The primary cause of these price increases appears to be a temporary scarcity of exportable supplies as arrival of main crop rice into the market has been delayed by poor weather. In Pakistan, nominal price quotes eased steadily over the course of December and into January, falling a total of $7-10 per ton. Lack of large scale import demand have combined with record exportable supplies to provoke the decline. Meanwhile, export quotes in the U.S., Vietnam, and India have remained fairly static throughout December and into January. Exporters The calendar year 1996 estimate of exports by Thailand was raised 51,000 tons this month to 5.251 million tons. While trailing 1995 exports by almost 700,000 tons, 1996 exports were still the third highest ever for Thailand. With forecast production at a record high, Pakistan is expected to export a record 1.75 million tons of rice during calendar year 1997. Pakistan's production was boosted not only by record area for rice, but beneficial growing conditions allowed for record yields as well. Forecast 1997 rice exports by Vietnam were reduced this month to 2.75 million tons. Adverse weather conditions have led to a production decline of 750,000 tons (rough basis) compared to a year earlier. This will be the first year since 1993 that Vietnam fails to set a new record for calendar year rice exports. Importers Other Asia The calendar year 1997 import forecast for North Korea was increased this month from 200,000 to 400,000 tons. A recent increase in commercial purchases and rumored sales as well as a more favorable political climate appear to improve the likelihood of large scale aid and/or imports. Other Africa The CY 1996 import estimate for Senegal was increased 200,000 tons to 750,000 this month as the U.S. Agricultural Attache in Abidjan reports record arrivals in Dakar last year. Imports for 1997 are forecast to fall to only 400,000 as 1996's heavy imports have bolstered stock levels, limiting import demand. 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 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 1.2 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. Due to their aggressive pricing of corn for delivery later in the year, Argentina, in 1996/97, expects to export 8.25 million tons of corn, the highest export level since 1980. 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 Other Asia The 1996/97 forecast for South Korean corn imports was raised 1.5 million tons, to 8.25 million tons, as price and supply considerations are expected to result in South Korean feed millers using more corn and less feed wheat. The forecast import level is second only to the 1995/96 level of 8.96 million tons, which was the highest on record. Middle East The 1996/97 forecast for Saudi Arabian barley imports was raised one million tons, to 5.0 million tons, as approximately 3.8 million tons is believed to have been sold for arrival in the first six months of the Oct/Sept year. The forecast import level indicates a return to levels of the mid 1980s and early 1990s; it represents the fourth highest level on record. 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 12-96 December 1996. For further details on the world grain production, see World Agricultural Production, Foreign Agricultural Service Circular WAP 1-97 January 1997.