Grain Market Reivew: Coarse grains

by Melissa Alexander
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Drought in many of the world’s key growing areas has shaved coarse grains output for 2002-03, and although consumption will slip some from the previous season, it will outpace production, leaving ending stocks at their lowest level since 1983-84, according to the U.S. Department of Agriculture. The situation has contributed to a steady rise in prices over the past few months.

In its October report, USDA estimated 2002-03 world coarse grain production at 863.4 million tonnes, down from 887.5 million in 2001-02. Among major producers, Australia and Canada should see output slashed by 23% and 13%, respectively, as drought will reduce the Australian barley and Canadian barley and oats harvests.

The estimate of world coarse grain trade in 2002-03 is 102.1 million tonnes, practically unchanged from the previous year’s figure of 101.4 million.

World coarse grain consumption in 2002-03 is estimated at 898.5 million tonnes, down from 904.8 million in the previous season. That usage level would put 2002-03 ending stocks at 134.4 million tonnes, down 21% from 2001-02 and the lowest since 133.2 million in 1983-84.

U.S. maize, China maize, and E.U. barley and rye are forecast to make up more than of world coarse grain stocks.

Global maize production in 2002-03 was estimated at 590.0 million tonnes, down from 596.0 million in 2001-02. With 2002-03 maize consumption estimated at 623.3 million tonnes, ending stocks will drop to 91.48 million, the lowest since 89.1 million in 1983-84.

Maize trade in 2002-03 is forecast to be virtually unchanged from the previous season, at about 75 million tonnes. U.S. exports are put at 50.8 million tonnes, with China forecast to be the world’s second-largest exporter, at 9.52 million.

In fact, in just four years, China has replaced the United States as the predominant maize supplier in three key Asian markets. The United States now has only a quarter of its former market share in South Korea, Malaysia and Indonesia, while China’s share in these markets has tripled.

For many years, the United States had a comparative marketing advantage in those markets because of its ability to consistently and reliably ship large quantities of good-quality, government-inspected and certified maize. Despite significantly higher freight costs and relatively high prices, this reliability was of primary importance to major buyers.

In recent years, however, as markets evolved to accommodate buyers’ changing needs and priorities, China’s situation has undermined the U.S. advantages.

Despite inconsistent quality and shipment scheduling, China is able to offer lower freight costs and low prices, in part as a result of its proximity, government support of internal transportation costs and value-added tax rebates. Additionally, China has been able to capitalize on its ability to make small, more frequent shipments, thereby lowering storage cost for buyers.

Global malting barley supplies in 2002-03 will slide by 3.5% to 26.4 million tonnes, but constriction in Australia and Canada will affect trade flows. In fact, with Canada expected to have the smallest crop since 1968, it is in the unusual position of having to import from the E.U. China, the world’s largest barley importer, will have to partially forego its traditional reliance on Australia and Canada, increasing imports from the E.U.

But the E.U.’s dominance in malting barley supplies is not matched in the feed market because of the meteoric rise of Russia and Ukraine. The European Commission thus far has been unwilling to subsidize barley exports, and with E.U. domestic prices significantly higher than prices in the Black Sea region, the E.U. cannot compete.

Saudi Arabia, the world’s largest importer, has increasingly chosen cheap Black Sea supplies. Until the Commission decides to subsidize or until E.U. domestic prices fall, Russia and Ukraine will continue to dominate global feed barley trade.