Cereal stocks fall for fifth year running

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As the buffer zone for global cereal stocks continues to fall and
raw material prices rise, the UN-backed Food and Agriculture
Organisation (FAO) warned this week that cereal stocks will
continue to fall, predicting that although production prospects are
good, levels will not be enough to meet demand.

For the fifth year running global cereal stocks are forecast to fall in the new 2004/2005 marketing season, despite an expected increase in cereal production for 2004 to 1,956 million metric tons, a substantial increase from the previous year, said the FAO.

"Production prospects are good, but not up to expected total levels of utilisation,"​ commented Henri Josserand, chief of FAO's global Information and Early Warning System.

Food makers and ingredients firms across the world are currently affected by rising prices for basic food commodities. In each of the last four years world grain production has fallen short of consumption, forcing a drawdown of stocks for wheat, rice, corn and soybeans. Soybeans have recently hit 15-year highs and wheat and corn 7-year highs.

When this year's grain harvest began in May, world grain stocks were down to 59 days of consumption - the lowest level in 30 years, Lester R. Brown from the US-based Earth Policy Institute said in May.

According to Brown, the last time stocks were this low, in 1972-74, wheat and rice prices doubled. Now, a generation later, a similar scenario is unfolding. After nearly tripling from 1950 to 1996, growth in the world grain harvest came to a halt. In each of the last four years world grain production has fallen short of consumption, forcing a drawdown of stocks.

Rises in the price of wheat and rice (the world's two basic food staples) and corn and soybeans (the principal feedstuffs) are contributing to higher food prices worldwide, including in China and the United States, the largest food producers.

All countries are affected by the rising world price of basic food commodities. The American Farm Bureau marketbasket survey, which monitors US retail prices of 16 basic food products in 32 states, shows a 10.5 per cent rise in food prices during the first quarter of 2004 over the same period in 2003.

Price rises range from a 2 per cent rise in the price of milk to a 29 per cent rise for eggs. The price of vegetable oil, up 23 per cent, is beginning to reflect the doubling of soybean prices. Meat prices are up across the board. Bread and potatoes were up 4 and 3 per cent respectively. By contrast, bread prices do not usually rise much because wheat typically accounts for less than one-tenth the cost of a loaf of bread. Even a doubling of wheat prices would not greatly increase bread prices.

"The downward trend in global cereal stocks continues, narrowing the buffer available to absorb large unexpected shocks. In view of already tight stocks, the possibility of higher and more volatile prices in 2004/05 should not be ruled out,"​ said the FAO.

The authors of the first forecast for global cereal trade in 2004/05 stands at 229.7 million metric tonnes, down a slight 3.4 per cent from the previous year. The decline mostly reflects good crop prospects in traditional importing countries, as well as a strong production recovery in Europe, said the FAO. Tighter rice supplies in major exporting countries will also reduce tradable volumes in rice.

The UN-backed body stressed that the grass roots global cassava trade as forecast to expand in 2004, due to a sharp increase in production. 'A tightening of feed grain supplies in China could also stimulate cassava imports by that country, further strengthening international prices,'​ the report commented.

A recent article​ on FoodNavigator.com highlighted the potential of adding value to the quintessential tropical starch commodity cassava, claiming it could be an economic alternative for a food industry currently undergoing squeezed margins through high raw material prices.

The staple food for over 500 million people, cassava is a good commercial cash crop and a major source of food security, but it needs a competitive edge to thrive in the global starch market.

""For many indigenous tropical starch crops, the lack of competitive market access has become the major obstacle to their contribution to agricultural development,"​ said Morton Satin in a recent report for the FAO.

, Efforts to design appropriate starch sources from cassava to meet industry demand would be welcomed by companies working in the food chain. A valuable development, the arrival of such starch sources onto the market would boost the economic position of developing countries currently key producers of cassava, as well as easing margins for the food firms.

"Modern value-added products are generally very application-specific and are thus far less susceptible to the sort of market fluctuations that cause chaos to developing countries whose economies are built upon basic commodities,"​ said Satin.

Found in a wide range of food applications - from soup to pie fillings - functionality is the key to the marketing of starches in a competitive market.

After rising for several months, international prices of most cereals eased back in recent weeks, according to this week's FAO report on the cereal trade. This reflects 'generally favourable prospects for 2004 crops.' Prices also eased for rice as China and Thailand released rice stocks onto tight domestic markets.

International prices in the oil crops have risen sharply in the past few months, strongly influenced by tight soybean supplies and by slower growth in palm oil production. World pulse production will hit a record 60 million metric tons in 2004, which the FAO - that brings out the report four times a year - claims could lead to increased consumption and trade during the year.

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