GRAINS: WORLD MARKETS AND TRADE, PART ONE JUNE 13, 1997

This report provides the data and tables from the current GRAINS: WORLD MARKETS AND

TRADE, PART ONE.

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 327-June 12.

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 July 14

EXECUTIVE SUMMARY

SITUATION/OUTLOOK

• Egypt is now expected to be the world's largest wheat importer in 1997/98 and 1996/97, as projected imports are revised up for both years.
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• The 1996/97 sorghum import forecast for Israel is up 150,000 tons, to 450,000 tons, and the 1997/98 sorghum import projection for Israel was raised 100,000 tons, to 400,000 tons, due to sorghum's expected favorable pricing.
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• Wheat imports by Morocco in 1997/98 are projected 400,000 tons higher this month, to 2.4 million tons, due to prospects for a drought-reduced crop.
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• The calendar year 1997 rice import forecast for Brazil was decreased this month from 1.2 to 1.0 million tons.
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• EU sorghum imports are forecast 200,000 tons lower for 1996/97, to 300,000 tons, largely due to expected lower import needs for feeding in Spain.
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• Mexico's 1996/97 wheat imports are forecast up 150,000 tons to a record 1.9 million tons, on the basis of a strong pace to date.
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• Turkish imports of corn in 1996/97 are forecast up 200,000 tons, at 600,000 tons, due to projected increases in feed and industrial demand.
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• Calendar year 1997 rice exports by Vietnam are now forecast at 3.0 million tons, up from the May forecast of 2.75 million tons.
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FOREIGN COUNTRIES' POLICIES AND PROGRAMS

• A brief sketch of Taiwan's grain market, a crucial one for U.S. farmers.
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• Argentina strives to better define wheat standard to meet client's needs.
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• Venezuela seeks to placate sorghum farmers while modifying corn import restrictions.
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• Internal and external pressures dictate changes in Canada's grain marketing policy.
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WORLD AND U.S. GRAIN OVERVIEW

WHEAT

Despite expectations of marginal decreases in both global production and consumption, world wheat trade is forecast to rise over four percent in 1997/98, the second largest increase in a decade. For many nations, both traditional importers and exporters, the nominal decline in production follows record harvests in the 1996/97 season; although down year-to-year, the 1997/98 estimated world production of 579 million tons still ranks as the third-largest global wheat crop on record. However, unlike the widely distributed bumper crop of 1996/97, the new global crop will be characterized by more usual regional disparities in production. Production likely will exceed consumption for the second year in a row, allowing for a moderate rebuilding of severely depleted global stocks. But while global stocks will rise from the prior year they remain historically low, keeping prices strong. The global stocks-to-use ratio will increase to just 20.1 percent from the record-low 19.1 percent reached during the 1996/97 season.

RICE

The forecast of 1997 world rice trade was adjusted from 17.2 to 17.3 million tons this month. Revisions include a 250,000 ton increase in forecast exports by Vietnam (to 3.0 million) as well as 50,000 ton increases for both Argentina (to 600,000) and Uruguay (to 650,000). These increases were partially offset by reductions in export forecasts for Thailand (down 200,000 to 4.8 million) and Australia (from 800,000 to 700,000 tons). Among buyers, 1997 import forecasts for Brazil and China were reduced 200,000 tons each (to 1.0 million and 600,000 tons respectively).

COARSE GRAINS

Global trade of coarse grains during 1996/97 is forecast at 87.8 million tons, the third lowest level of the last 10 years. Meanwhile, the 1997/98 preliminary forecast for world trade of coarse grains is revised up 100,000 tons, to 90.9 million tons, a marginal increase over the 1996/97 level and the third highest level of the last 5 years. 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. For 1997/98, the projection was revised slightly upward, mainly due to a projected larger corn crop in Indonesia.

Foreign coarse grain stock levels are forecast to rebound moderately in 1996/97, mostly due to increases in Canadian, Chinese and EU stocks. It is projected that foreign coarse grain stocks for 1997/98 will diminish significantly because Chinese corn stocks are expected to be drawn down from 1996/97 levels. U.S. stocks are projected to rebuild somewhat in both 1996/97 and 1997/98, but remain at relatively low levels. World stock levels at the end of the 1996/97 season are forecast to increase 24 million tons to 119 million tons. Levels for 1997/98 are forecast to rise about 4 million tons, to 124 million tons. The global stocks-to-use ratio for both 1996/97 and 1997/98 is expected to rise slightly to 13.6 and 13.8 percent, respectively--the fourth and fifth lowest levels on record.

FOREIGN COUNTRIES' POLICIES AND PROGRAMS

U.S. Grain Producers Have Big Steak in Taiwan's Market

Taiwan is one of the world's largest corn importers, with purchases averaging well over 5 million tons in recent years. It consistently ranks among the top three markets for U.S. corn. Taiwan is also a market where U.S. corn faces only marginal competition. The U.S. is Taiwan's principal wheat supplier, accounting for over 80 percent of the near 1 million tons imported annually.

In late March, a foot-and-mouth (FMD) outbreak was confirmed in Taiwan's swine sector. The Government of Taiwan has temporarily banned pork exports, which accounted for over one-third of the island's pork production. The loss of FMD-free status will curtail Taiwan's pork exports to all countries requiring disease free certification, notably Japan, its principal market, for some time to come. However, rising poultry production should compensate, to a limited extent, for the reduction in the use of corn for pork production.

Before the FMD outbreak, the Government of Taiwan had in place a hog reduction program designed to alleviate pollution problems on the small, densely populated island. Taiwan officials had estimated that two-thirds of the island's water pollution problems had been caused by discharge from hog farms. The hog reduction program, which was enacted in 1991, had the goal of lowering hog numbers by one-third by 1997. The program was not able to achieve this goal because of strong price incentives in hog farming. It now appears that the FMD outbreak may have accomplished, at least temporarily, what the hog reduction program could not.

General Economic Conditions:

Over the past four decades, Taiwan's economy has been one of the star performers in Asia, and prospects for its future are bright. Now a fully developed country, Taiwan's economy continues to expand at almost 7 percent per year with full employment and low inflation. Its 21 million people enjoy a per capita GDP of $13,000, the 25th highest in the world. An expanding democratic government, strong economic performance, and economic liberalization shape the Taiwan market.

In contrast to healthy growth in the overall economy, the agricultural's sector contribution to GDP continued to decline to 3.3 percent in 1996 and is expected to decline further in 1997. In the "Paddy and Upland Utilization Adjustment Program", Taiwan plans to reduce guaranteed purchases of corn, sorghum and soybeans in order to cut the Aggregate Measurements of Support (AMS) by 20 percent by July 2001.

Taiwan is an island economy with limited land resources for production agriculture, consequently it relies on imports in order to feed its 21.5 million people. In 1995, Taiwan's total agricultural imports grew by 9.5 percent and imports from the U.S. jumped by 21 percent to $3.4 billion thanks to healthy growth in both traditional bulk grains, intermediate products and the newly-emerging consumer-oriented food sector. The U.S. remains Taiwan's number one agricultural supplier with a nearly 35 percent market share of total agricultural imports. Overall, Taiwan is the fifth largest market for U.S. agricultural products.

Taiwan has been actively engaged in bilateral consultations with contracting parties of the World Trade Organization (WTO). With an accession goal in mind in the near future, Taiwan is expected to make additional concessions on agricultural imports.

As the 21st century approaches, Taiwan is targeted to expand its trade and investment ties in the Asia-Pacific region. Under its "Southbound Policy" to diversify export markets for example, its bilateral trade with ASEAN nations has grown to nearly 15 percent of total exports.

Selected Economic Data (1996):

Area: 35,980 sq. km. (slightly larger than Maryland and Delaware combined)

Land use: arable land (24%), permanent crops (1%), meadows and pastures (5%), forest and woodland (55%), other (15%).

Major agricultural products: vegetables, rice, fruit, tea, livestock

Value of agricultural output: (million US$): 9,486

Total agricultural imports (million US$): 9,704

Major agricultural imports: cereal grains, soybeans, cotton, hides and skins, fish meal

U.S. share of total agricultural imports (percent): 35

Major agricultural exports: pork, seafood, processed vegetables

U.S. share of total agricultural exports (percent): 6

Agricultural trade balance with the U.S. (million US$): -3,033

Population (million): 21.1

Population growth rate (percent): 0.87

Real GDP (billion US$): 279.2

GDP growth rate (percent): 6.2

GDP per capita (US$): 13,046

Inflation (CPI, percent): 3.3

Agriculture, as

% of imports: 8.1

% of exports: 4.5

% of GDP: 3.3

% of workforce: 16.0

Agricultural Policy

The "Paddy and Upland Utilization Adjustment Program", to be implemented July 1, 1997, will serve as a guideline for Taiwan's rice and grain production for the next four years (1997-2001). The program is targeted to reduce Taiwan's Aggregate Measures of Support (AMS) by 20 percent by the time it ends in 2001, whether Taiwan accedes to the WTO or not. Total agricultural subsidies will be cut over four years from the current US$16 billion, which includes guaranteed purchases of rice, corn, and sorghum, to US$13 billion.

Some of the major changes proposed under this program are as follows:

Rice: The land which has been diverted from rice production to alternative crops will remain diverted and current guaranteed purchase prices for both the first and second crops will continue. The rice production target will be based on domestic demand and the export market, while rice imports will be permitted only under quota.

Sorghum: The guaranteed purchase price will only apply to the first crop through the year 2001. Sorghum growers will also receive a cash compensation for fallowing their land.

Corn: Beginning in 1999, the guaranteed purchase program for corn will be limited to two crops and to one crop in 2000 instead of the current three crops. There will be no guarantee purchase provision for corn when the program ends in the year 2001.

Commodity Highlights:

Wheat

Production:

There is no significant local wheat production in Taiwan.

Imports:

Wheat imports have risen steadily, approaching 1 million tons during the current and last marketing years. The U.S. dominates the market with its 90 percent share, facing only limited competition from Australia and Canada. The tariff rate on wheat imports remains at 6.5 percent. Wheat imports are administered by the flour millers under government supervision, as described below.

Consumption:

There has been a slow but steady growth in wheat flour consumption, which was estimated to have reached 32 kgs. per capita in 1995. Taiwan consumers continue to enjoy wheat noodles and bread products, while trendy Italian-style restaurants and sandwich shops are helping to increase consumption. About 8 percent of wheat imports go for feed and industrial uses.

Marketing:

All wheat import purchases are currently handled through the Wheat Stabilization Fund (WSF), which is administered by the Taiwan Wheat Millers' Association (TWFMA) under the supervision of the Council of Agriculture. The TWFMA is the sole representative of Taiwan's wheat importers and millers and is the major contact for all wheat suppliers.

The WSF is due to be phased out soon. The approximate US$12.4 million remaining in the WSF will be used as a wheat import subsidy to help stabilize the domestic market. The WSF will pay importers the difference between C&F import costs and a base price of $245 per ton until the fund is depleted.

Some local flour millers, trying to push down costs, are replacing old milling equipment or expanding production lines, and some smaller millers are interested in combining forces to compete with the bigger millers. The 1997 wheat import demand will increase by those millers who expand their production line. Three millers who have expanded their supply operations have formed a buying group to ensure their wheat import supply. Therefore, Taiwan millers have broken up into two buying groups from the previous single unit buying group; an action previously anticipated to happen after the WSF was depleted. However, all wheat purchases still go through TWFMA owing to the continuation of the WSF.

Corn

Production:

Domestic corn production covers only a very small proportion of Taiwan's requirements. The corn production target set by the government for both 1996 and 1997 is 250,000 MT, to be grown on around 60,000 hectares. Beginning in 1998, domestic corn production is expected to fall dramatically, following the demise of the current Rice Diversion Program at the end of June 1997. When its successor, the Rice Paddy Utilization Adjustment Program, is in place, the current guaranteed purchase of corn, sorghum and soybeans diverted from rice production will be limited to two crops in 1999 and one type of grain per year in 2000 instead of the current three crops. There will be no guaranteed purchase of feed corn when the program ends.

Imports:

Taiwan has been importing over 5 million tons of corn annually, with the U.S. the dominant (90-95 percent) supplier; the bulk of the remainder has come from Argentina and South Africa. Due to the FMD epidemic this year, corn imports in 1997 and 1998 are expected to decline.

There are no restrictions on Taiwan's corn imports. The tariff rate for corn is set at one percent.

Consumption:

Annual corn consumption for animal feed is forecast at the reduced level of 4.6 million tons in the 1997/98 marketing year. There are two local high fructose corn syrup manufacturers that consume an additional 300,000 MT.

Mixed feed production in Taiwan was estimated at 9.1 million tons in 1996, with about 60 percent of the total composed of corn. A decline in feed production is expected during the next two years as a result of the FMD outbreak. However, Taiwan's poultry industry is expected to continue growing, especially with local consumers switching to poultry meat from pork, at least temporarily, owing to reduced pork production.

Taiwan's top feed mills plan to continue expansion to increase price competitiveness. Further industry consolidation is also foreseen in the years ahead. Some have also made capital investments to integrate up and down stream industries from feed milling to broiler breeding to poultry meat marketing.

Barley

Production:

Barley production in Taiwan is negligible.

Imports:

Barley imports totaled 198,000 MT in CY 96, with the U.S. supplying 35 percent. This was the first time that U.S. barley has reappeared in the Taiwanese market, after a long absence.

The current tariff rate for barley is 2 percent, but there is a 15 percent duty on barley malt.

Consumption:

Total annual barley consumption for CY 96 is estimated at around 230,000 MT divided among the following uses: 74,000 MT for brewing, 20,000 MT for food uses with the remaining 136,000 MT for feed utilization. The brewing industry is claiming a growing percentage of barley use in Taiwan, with new breweries expected to open soon. Australian and French two-row barley are the more commonly used varieties, although the U.S. six-row variety has gained some acceptance there.

Marketing:

Since barley imports are relatively small, members of the Taiwan Barley Industry Association (TBIA) purchase barley collectively by group tender. Interested U.S. barley suppliers should contact TBIA directly regarding product sample, specifications and pricing information. The Taiwan Tobacco & Wine Monopoly Bureau (TTWMB) however, is the specific contact for malting barley and malt.

Based on information from the Agricultural Section, American Institute in Taiwan. For further information, please contact David Wolf at (202) 720-2897.

Argentina Announces New Wheat Standard

The Government of Argentina recently announced a new high-quality wheat standard and a separate specification for soft white wheat. The new standards, which will take effect with the upcoming 1997/98 crop, are intended to improve the quality and marketability of Argentine wheat.

The specifications for the new high quality wheat, which will be known as "trigo plata", are as follows:

The new standards will be in addition to the current specification system which classifies wheat into Grades 1-3, or for feed. The trigo plata standard uses Grade 1 as a base, and then sets more strict tolerances for moisture and weight, and adds specifications for falling number, gluten, and ash. Reportedly, over 70 percent of Argentine wheat exports are Grade 1, with most of the remainder at Grade 2. The new soft white wheat category will be limited to wheat with less than ten percent protein (13.5 % moisture basis), and white color.

The introduction of the trigo plata and white wheat standards marks a significant step by Argentine government and industry to improve the quality and image of Argentine wheat in world markets. Differentiation of wheat by class and grade is seen as necessary to increase the value of the crop and allow Argentina to become more competitive in world markets.

For further information, please contact Randall Hager, Agricultural Attache at the American Embassy in Buenos Aires, at 011-54-1-777-8054; or Linda Kotschwar at 202-690-4134.

Corn Import Restrictions Threaten U.S. Exports To Venezuela

Responding to disgruntled sorghum producers unable to sell their crops, Venezuela's Ministry of Agriculture has made corn imports conditional, based on purchases of domestic sorghum. The Ministry of Agriculture announced in February 1997 that corn imports require an import license and that licenses will only be granted to importers with proof of prior domestic sorghum purchases.

The import restrictions stem from and are inextricably tied to Venezuela's domestic sorghum program which sets a guaranteed price for sorghum. The problem with the guaranteed price is that it overvalues sorghum and has effectively priced sorghum out of the feed market. Rather than acting as a disincentive to production, though, the domestic program has encouraged production because farmers are guaranteed profitable returns to their production. Thus, the market for sorghum was far from its equilibrium and didn't show any signs of reaching it: farmers wouldn't accept less than the guaranteed price and buyers refused to pay it. Instead, feed industry buyers substituted relatively cheaper imported corn for domestic sorghum. Sorghum producers brought their plight to the GOV's attention and demanded action. In response, the GOV announced that corn imports required licenses and that the licenses would be granted based upon proof from the importer that they had already purchased domestic sorghum in amounts equivalent to that bought on average over the past two years.

The domestic struggle between sorghum producers, feed buyers and the Government of Venezuela (GOV) developed an international element when it became clear that import licensing requirements would impact roughly 1.4 million tons of corn imported by Venezuela, where the U.S. has held over 50 percent of the import market.

Meanwhile, corn traders and government officials in affected countries question whether the corn import licensing policy is compatible with Venezuela's GATT commitments. Both the international and domestic tension may ease significantly if the GOV reduces this year, as it has indicated it will, the domestic sorghum price from $274/mt to $248/mt, making sorghum more price competitive domestically. Additionally, in 1998 the GOV has indicated that it will consider moving away from declaring a set price and instead opting for a price band mechanism to peg domestic sorghum and corn prices. This move should alleviate domestic tension and allow corn to be imported free from any quantitative restrictions.

This article was based on reports received from Larry Senger, Agricultural Counselor at the U.S. Embassy in Caracas. For further information please contact Deanna Johnson at (202) 720-4204.

Canadian Grain Marketing Undergoing Changes

Canada is a leading world exporter of wheat and barley, and a strong competitor of the United States in exporting these commodities. Canadian wheat and barley is exported by the Canadian Wheat Board (CWB), one of only a handful of export state trading enterprises in the world. The CWB enjoys monopoly and monopsony power over western Canadian wheat and barley for export or domestic human consumption.

Canada and the CWB have taken a number of proactive steps to ensure a continued place in the world grain market. Canada heavily promotes the quality of its wheat and malting barley, and has made particularly strong efforts to target the fast-growing Asian market. The Canadians have also negotiated a number of long-term trade agreements with importing nations to help ensure markets for their grain. Participation in regional trade agreements such as NAFTA and a recently negotiated free trade pact with Chile will also help assure Canadian access to these markets.

Despite these efforts, changes in Canadian domestic agricultural policy could alter Canada's medium- and long-term competitiveness in grain exports. As a result of both WTO commitments and domestic budgetary pressures, Canadian support programs have shifted from explicit freight subsidies and expensive revenue insurance, to voluntary, income safety net programs. The elimination of freight subsidies in particular has strong potential to alter the economic attractiveness of exporting bulk grains from interior locations.

Canada at a Glance

• Population: 28,820,671 (est. July 1996) Population growth rate: 1.06 percent Percent of labor force in agriculture: 4 percent.
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• Canada is slightly larger in area than the United States, covering 9,976,140 sq km. Land use: Arable land, 9 percent; Meadows and pastures, 3 percent; Forest and woodland, 45 percent; Other, 43 percent.
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• Major crops: Wheat, barley, canola.
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• Livestock sector: poultry, beef and dairy cattle, hogs
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• Leading agricultural exports: wheat, canola, meat and meat products, live animals, and wood products. More than 50 percent of Canada's agri-food exports go to the United States. Other important destinations include Japan, European Union, China and Mexico. In 1996, agri-food exports made up 6.9 percent of total exports and 3.3 percent of Canada's GDP.
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• Leading agricultural imports: fruits and nuts, vegetables, beef, wine, corn, poultry meat, processed food products; Agricultural imports as a share of total imports: 5.5 percent.
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Grain Production

The Prairies where most of Canada's grains and oilseeds are grown have a frost-free period of about 110 days. This climate limits grain production to spring sown wheats, barley, and oilseeds such as canola. Eastern Canada is more temperate in climate, which allows for production of corn, soybeans, and winter wheats.

Wheat is by far the dominant field crop produced in Canada. However, area devoted to oilseeds has expanded in recent years, and changes in agricultural support policies are likely to bring about some further production shifts. (See Government Involvement section below.)

Canadian Grain Production

(Local Marketing Years, in 1,000 MT)

Government Involvement in Agriculture

The CWB is the dominant factor in Canadian grain exports. As a state trading enterprise (STE), the CWB enjoys support from the Government of Canada in the form of its single desk status, as well as financial support in the form of government-backed borrowing.

The CWB has been under intense scrutiny in recent years as the international grain trading community and Canadian producers themselves have begun to question the role of STEs. State Trading was left relatively undisciplined under the Uruguay Round Agreement, leaving nations such as the United States concerned that the lack of transparency of STEs provides cover for unfair trade practices. On the home front, some Canadian producers have also questioned the monopoly power of the CWB, calling for voluntary participation.

In an attempt to settle the issue , the Western Grain Marketing Panel (WGMP) was established in July 1995 by Minister of Agriculture and Agri-Food Ralph Goodale to conduct a comprehensive examination of western grain marketing issues. Not surprisingly, the Panel found that the major issue of concern among Prairie farmers was the fundamental question of whether wheat and barley should continue to be marketed through the CWB's single-desk system.

The WGMP made a number of recommendations regarding operations of the CWB, some of which were incorporated into legislation introduced last fall by Minister Goodale. The legislative package included provisions for a number of changes that were intended to grant the CWB more flexibility and provide more accountability to producers. However, the legislation generated intense debate, and did not pass before the recent Canadian elections were called and Parliament disbanded. Reportedly, the legislation will be re-introduced this fall.

Unlike the CWB, Canada's other agricultural support programs have evolved in recent years, shifting from explicit freight subsidies and expensive revenue insurance programs to voluntary, income safety net programs. In 1995, two freight subsidy programs, the Western Grain Transportation Act and the Feed Freight Assistance Program, were terminated; and in 1996, the Gross Revenue Insurance Program was ended. The dramatic shift in policy has come about as a result of both WTO commitments and domestic budgetary pressures, and is likely to have a ripple effect on Canadian agricultural production and marketing. "Value-adding" has become the buzzword across the prairies as producers in interior locations must re-evaluate the economic attractiveness of moving bulk grains to export position without the benefit of subsidized transportation. In some cases, the end of the subsidy (and subsequent transition payments) is likely to provide incentive for the development of infrastructure to facilitate local utilization and processing.

The Western Grain Transportation Act (WGTA, or also known as the Crow's Nest Subsidy) had been identified as an export subsidy subject to reduction commitments under the Uruguay Round Agreement. The reduction commitment, combined with the pressure of a large domestic budget deficit, led the Canadian government to eliminate the program. The Government of Canada provided direct payments totaling nearly US$1.2 billion to farmers to compensate them for the loss of the subsidy, with the final payment made in September 1996.

The second freight subsidy terminated in 1995 was the Feed Freight Assistance (FFA) program. The FFA had provided freight subsidies to livestock producers in feed-deficit regions, primarily in British Columbia and the Eastern provinces. As with the WGTA, federal transition payments were provided to ease the adjustment period.

Another significant freight-related change in 1995 occurred when the CWB changed its eastern pooling point for wheat and barley from Thunder Bay to the lower Saint Lawrence. The returns that a Canadian wheat or barley producer receives from the CWB are net of costs such as elevation, dockage and freight, with freight being calculated basis Vancouver in the west or lower St. Lawrence in the east. Movement of the pooling point has resulted in an increased freight deduction for eastern Prairie farmers, thus lowering the returns they receive for delivering grain to the CWB. As a result, livestock production has been on the increase in Manitoba, and shipment to the United States has become a more attractive alternative.

Canada is also in the midst of restructuring ownership and allocation procedures for rail cars, adding further upheaval and uncertainty to the Canadian transportation system. The Canadian transportation system as it currently operates is highly regulated, with most hopper cars owned by the federal or provincial governments or the CWB. Rail cars are currently allocated by the Canadian Allocation Policy Group (CAPG), which is an interim structure in place while the entire rail car ownership and allocation system is being reviewed.

With the elimination of freight subsidies and possible deregulation of the transportation system, Canada's federal agricultural support is currently focused on income stabilization, with crop insurance and the Net Income Stabilization Account (NISA) being the primary programs. In contrast to U.S. farm programs which have traditionally taken a commodity-specific approach, Canadian domestic programs generally use a whole farm income approach.

NISA is a voluntary program intended to help producers stabilize their income by providing incentive to save during "good" years to provide a source of funds for lower income years. Producers may deposit money into interest-earning NISA accounts and receive matching contributions from the federal and provincial governments. Funds may be accessed when income falls below established trigger levels.

The Canadian crop insurance program is a provincially delivered program to which the federal government contributes. Coverage is based on a producer's historic average yield, with premiums shared by the producer, federal and provincial governments.

It should be noted that the current crop insurance program is different than the Gross Revenue Insurance Program, or "GRIP", which was a voluntary revenue insurance plan that was terminated last year due to high government costs and low farmer participation. GRIP shielded producers from both price and yield variability by guaranteeing participating producers a certain level of gross revenue through a combination of market returns, insurance payments, and a form of income deficiency payments.

Grain Utilization

Canada typically exports 70 to 80 percent of its wheat production, with Asia being one of the most important destination. Over the past ten years, nearly half of Canadian wheat exports have gone to Asian destinations. Primary customers include China, Japan, Indonesia, and Korea. As such, Canada has taken steps to target Asian customers and capture premium prices for their wheat by developing varieties suited to end products typical of Asian diets and providing special pools of those wheats to ensure the quality and characteristics.

In stark contrast to wheat, the vast majority of Canadian barley production is used domestically as feed. Over the past five years, domestic feed use has averaged around 70 percent of total Canadian barley production. Feed barley is often used in the growing areas of central Alberta, and also regularly flows into the feedlot cattle production areas of southern Alberta. Hog operations across the south central tier of Manitoba are also large domestic consumers of feed barley.

Typically 15 to 20 percent of the Canadian barley crop is selected for malting. All malting barley marketing is handled by the CWB, and most malting barley is ultimately exported, whether as barley or as malt. Most of the Canadian barley selected for malting is two-row, which is preferred by most maltsters in Canada and throughout the world. In Manitoba, however, over half of malting barley delivered is six-row, which is favored by some U.S. maltsters. The United States is the top export destination for Canadian malting barley, and rising world beer consumption bodes well for Canadian malting barley and barley malt export potential to other destinations.

Grain Trade with the United States

The volume and value of trade between the United States and Canada has increased in nearly all grain and grain product categories since the two countries entered into the U.S. - Canada Free Trade Agreement in 1989. However, since 1993 the U.S. has run a grain trade deficit with Canada. Canadian grain and grain products shipped to the U.S. grew to over $1.5 billion in 1996, a nearly three-fold increase from 1990. While growth has occurred in nearly all grain and grain product categories, the most visible and controversial source of the growth has been in the increases in bulk Canadian wheat, flour, oats, and barley shipments to the United States. This issue continues to be a trade irritant between the two countries.

Shipments of Canadian wheat to the U.S. surged from just under 560,000 tons in calendar year 1991 to nearly 1.5 million tons in 1992, in part due to unusual production and market conditions. Barley shipments experienced a similar increase in 1994, rocketing from 575,000 tons in 1993 to 1.9 million tons in 1994. While the initial surges appear to have been driven in part by market conditions at the time, the export volume has not dropped off to pre-1994 levels. During calendar year 1996, Canada shipped 1.285 million tons of wheat and 788,934 tons of barley to the United States.

On the other side of the ledger, the value of U.S. grain and grain products exported to Canada rose to over $1 billion in calendar year 1996, an 85 percent increase since 1990. U.S. grain and grain-related exports to Canada have been led by bulk corn and value-added products such as feed and miscellaneous consumer products. The U.S. shipped nearly 860,000 tons of corn to Canada in 1996 valued at over $136 million. Nearly 80 percent of the total value of U.S. grain and grain products exports to Canada is comprised of value-added products such as flour, feed ingredients, pet food, and grain-based consumer goods such as bread and breakfast cereals.

For further information, please contact Linda Kotschwar at (202) 690-4134.

SITUATION AND OUTLOOK: COMMENTARY AND CURRENT DATA

WORLD WHEAT SITUATION AND OUTLOOK

World trade is forecast to reach its highest volume in four years despite the fact that two of the world's largest traditional importers, China and the former Soviet Union, are expected to remain all but absent from the global market for the second year in a row. Overall production is estimated to decline 4.2 million tons to 579 million tons, still the third-largest global wheat crop on record. However, the small aggregate change masks significant production swings in a few pivotal regions. The pick-up in trade can be partially attributed to an extended period of hand-to-mouth buying by importers seeking price advantages during the unusually competitive 1996/97 season. This may indicate that pipeline stocks are running low and in need of replenishing at the same time that overall global stocks (as a percentage of consumption) must stage a recovery from all-time lows. Prices therefore are expected to stay historically high, reflecting the fact that world stocks remain uncommonly low while import demand continues to be strong.

Importers

North Africa

Imports by Egypt in 1997/98 are expected to reach 6.7 million tons, a slight increase over the 1996/97 import forecast and the highest level of the 90's. While not a record import level for Egypt, this increase in projected Egyptian imports, coupled with drought in Algeria, Morocco, and Tunisia has propelled the North African region to a new record for imports at 15.6 million tons. Expectations for continued consumption growth in 1997/98, coupled with prospects for a 6-million ton year-to-year crop reduction have resulted in the record import projection for the region.

Other Africa

Forecast 1996/97 imports by South Africa are up to near-record levels, while 1996/97 imports by Nigeria are now expected to reach the highest level in a decade. In Nigeria, the increased imports are expected to result in the highest consumption levels since the Nigerian Government imposed a wheat import ban. South African wheat consumption has set consecutive records for each of the past five years, fueled largely by a growing import program.

WORLD RICE SITUATION AND OUTLOOK

The international rice market exhibited substantial price fluctuation during the month of May. However, by the second week of June quoted price levels in Thailand, Vietnam and the United States were essentially unchanged from those of early May. Only in Pakistan was there a significant difference in price levels. Quotes for Pakistani rice increased about $10 per ton during the month, as supplies of rice for export are becoming scarce. In Thailand, prices rose by $10 per ton by mid-May, following substantial sales to Iran and Nigeria. A lack of buying interest at these higher price levels provoked a subsequent fall in prices. In Vietnam, harvest of a huge winter-spring crop led to strong pressure on prices, but by the end of May combined monthly sales and exports in excess of 1 million tons had led to a rebound in price quotes.

Exporters

Forecast 1997 rice exports by Vietnam have been raised this month to 3.0 million tons, up from 2.75 million tons a month ago. Recent sales and exports, combined with a 1.2 million ton increase in estimated 1996/97 production, have drastically changed the outlook for Vietnam's 1997 export campaign. The Government of Vietnam has officially increased the 1997 export target to 3.5 million tons. In the absence of unexpected, new demand this target appears unlikely to be reached.

The forecast of 1997 rice exports by Thailand was lowered this month to 4.8 million tons, the lowest level since 1994. January-May exports of about 1.9 million tons lag significantly behind the export pace seen in both 1995 and 1996. With prices still generally uncompetitive for most grades, any sudden increases in nearby exports looks unlikely.

An increase in forecast production has led to 50,000 ton increases in the export forecasts for both Uruguay and Argentina, now expected to reach record levels of 650,00 and 600,000 tons, respectively. With record production of 1.2 million tons (rough basis) Argentina has this year increased both harvested area and production at least 25%. Uruguay has also harvested a record 1996/97 crop, but for the first time ever Argentina's production substantially exceeds that of Uruguay.

The 1997 export forecast for Australia was lowered this month as Australian exporters have failed to record substantial sales in traditional medium-grain markets despite the pressure of a record harvest.

Importers

North America

The calendar year 1997 rice import forecast for the United States was raised this month to a record 350,000 tons. First quarter imports, anchored by record monthly imports of 40,000 tons in March, totaled 99,000 tons.

Latin America

The 1997 import forecast for Brazil was lowered this month from 1.2 to 1.0 million tons following a revision to estimated 1996/97 production (up from 9.1 to 9.6 million tons). This lower import level, combined with the increase in forecast exports by both Uruguay and Argentina make substantial imports from Asia appear unlikely. Depending on the size of Argentine and Uruguayan sales to extra-regional markets, imports from outside the MercoSur may be limited to 100,000 tons or less.

The 1997 import forecast for Peru was lowered this month from 400,000 to 300,000 tons. A recent tariff increase, a phytosanitary ban on rice imports from several Asian suppliers and heavy carry-over of imported rice from 1996 have combined to dampen import demand.

Other Asia

The forecast of 1997 rice imports by China was lowered this month to 600,000 tons. The small size of the 1996/97 fragrant rice crop in Thailand and attendant high prices appear to have played a major role in reversing the recent trend of increasing Chinese imports of high quality rice.

WORLD COARSE GRAINS SITUATION AND OUTLOOK

World trade in corn in 1996/97 is expected to fall slightly from 1995/96 levels, primarily due to increased competition from other feed grains. The 1996/97 forecast for U.S. corn exports of 46.5 million tons are six million tons lower than 1995/96 exports and 12 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 be a net exporter in 1996/97--for the first time since 1994/95 (the onset of its export ban) -- of 2.5 million tons. U.S. export opportunities for 1996/97 in Asia are expected to diminish moderately.

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 three 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

Middle East

The 1996/97 sorghum import forecast for Israel is expected to be up 150,000 tons, to 450,000 tons, and the 1997/98 sorghum import projection for Israel was also raised 100,000 tons, to 400,000 tons, likely due to its more favorable price. For 1996/97, this is the largest import level in eleven years. The United States is expected to benefit from these increases in imports, where, historically, an overwhelming majority of sorghum imports has come from.

The 1996/97 corn import forecast for Turkey was revised up 200,000 tons, at 600,000 tons, due to projected increases in demand from the beef and dairy cattle and poultry industries, and the corn starch and high fructose corn syrup industries. This is the third largest import level on record. Since most corn imports have come from the U.S., it is likely the U.S. will benefit from the expected upsurge in importing.

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 5-97 May 1997. For further details on the world grain production, see World Agricultural Production, Foreign Agricultural Service Circular WAP 6-97 June 1997.

Last modified: Thursday, November 13, 2003