Feed grains forcast
April 01, 1999
by Teresa Acklin
China seen as the "wild card" in the world outlook for feed grains trade through 2007.
China, increasingly the center of U.S. market expectations and concerns, poses the greatest threat and perhaps the greatest potential to strong growth in the feed grains industry in the coming decade, the U.S. Grains Council said in its annual “World Feed Grains Demand Forecast” released in February.
“The U.S.-China relationship will bear close watching as China's rapid swings in coarse grain trade make it a key wild card in the world outlook,” the Grains Council said.
China as recently as 1992-93 exported more than 12 million tonnes of coarse grains, 13% of the world's total production. In 1994 and 1995, China became a major importer, but has since returned to net exporter status.
“Given its long-standing concerns regarding self-sufficiency in grain production, the Chinese government redoubled efforts to boost output,” the U.S. Grains Council said.
However, the demand for meats and other high-value, grain-intensive foods, especially from China's large and growing middle class, will likely exceed the country's production potential, the council said. As a result, China could import more than 6.2 million tonnes of coarse grains by 2007-08, the council said.
“Despite the uncertainty surrounding China's potential to be self-sufficient in coarse grains, it is certain that the expanding economy and growing consumer incomes will fuel demand for improved diets and more livestock and dairy products that inevitably will require additional feed grain consumption,” the Grains Council said. “It is expected that over the forecast period (1998-2007), growth in domestic feed grain use will outpace yield and production growth, especially since population growth will continue to generate significant new food demand.”
Mexico, Saudi Arabia, South Korea and Taiwan also are expected to substantially increase feed grain imports over the next decade, the U.S. Grains Council said. Potential market constraints for the U.S. include Japan, still the world's largest importer of feed grains but whose imports are projected to decline steadily in the next decade; Russia, which has had to severely reduce feed grains purchases as a result of its weak economy; and from increasing export competition from the European Union, Eastern Europe, Argentina, Australia, Canada and South Africa.
“Since the outlook depends so heavily on growing export markets for meats and for grain, economic slowdowns overseas could diminish growth and international tensions could disrupt trade, constituting key threats to the outlook,” the council said.
Current long-term growth patterns reflect continued shifts in both world economic structure and in world food markets, the Grains Council said.
“Before the 1980s, most of the world's economic growth came from industrial economies where the vast bulk of wealth is found in Europe, North America and Japan,” the council said. “However, these economies were largely stagnant in the early years of this decade.
“The developing economies, with most of the world's people and most of the population growth, along with the economies in transition from central planning to more open markets, long were constrained by inflation and debt, by self-defeating economic policies,” the council said. “For many of these nations, the transition to open markets progresses only gradually.” World economic growth in the coming decade is likely to be more congruent with population growth, the council said. The world population, which exceeded 5.83 billion in 1997, is expected to grow 13% to nearly 6.7 billion by 2007. Output must increase nearly 1.4% each year merely to hold food consumption per person at current levels for the coming decade, the Grains Council said.
“The outlook is for stronger markets, particularly for high-value foods and feed grains,” the council said, adding that the outlook was dominated by expectations of growth resumption in Asia and Latin America, and by markets expanding more rapidly than production.
There are some areas of uncertainty, the Grains Council said. Southeast Asia, Russia and Brazil all have experienced weakened economies from currency devaluations in recent years. “These new developments make the economic outlook considerably less favorable now than it was last year,” the council said. “Still, trends toward freer economies and trade are likely to continue and future economic growth patterns likely will be more positive, although a bit slower than formerly expected.”
Another area of uncertainty, the council said, is the continued adjustment to new, less interventionist agricultural policies in the United States. “In spite of recent price swings, the U.S. feed grain sector has adjusted relatively smoothly to shifting short-term supply and demand conditions under the Federal Agricultural Improvement and Reform Act of 1996 that ended annual land-idling and market intervention programs,” the council said. “However, economic problems have severely constrained growth in several important emerging markets nations that accounted for the bulk of feed grain demand growth in the early 1990s.”
These developments are expected to limit short-term economic growth and will slow U.S. coarse grain export growth this year and next, the Grains Council said. However, economic recovery is projected by 2002 or before, resulting in resumed world market growth through the balance of the period, the council said.
In spite of growing world economic uncertainty, the U.S. Grains Council said its outlook for feed grains was “fundamentally strong and positive.”
FORECAST FOR GROWTH.
The world feed grains demand forecast for 1998-2007 implies strong market growth, significant growth in harvested area, strong reliance on technology, modest growth in stocks, slow price increases and strong export market growth, the Grains Council said.
World grain use is projected to increase by 151.3 million tonnes (1.83% annually) during the 1998-2007 decade. Total coarse grain use by 2007-08 could exceed 1.04 billion tonnes, up from just over 750 million tonnes a decade ago, the council said.
Coarse grain plantings and harvested area are projected to grow by just over 26 million hectares, or 0.93% annually, to 324 million ha by 2007. With harvested area growing less rapidly than population, demand growth will be satisfied primarily by increasing yields, the Grains Council said.
“Yield growth is projected to be quite steady and very significant, reflecting advances in genetics, nutrient use and the growing use of seeds improved through biotechnology that boost yields, reduce production costs and improve crop quality,” the council said.
World coarse grain stocks are projected to total just under 111 million tonnes by 2007-08, the Grains Council said. With total use projected to reach nearly 1.05 billion tonnes, the projected stocks level would be just under 13% of consumption, or a supply sufficient for 47 days. That is considerably higher than the low levels of 1995-96 when stocks fell to 11.8% of use (94.8 million tonnes) but still below the historic standards at 14.4% of use at the end of 1997-98 (122.7 million tonnes).
Strong world demand and a declining stocks-to-use ratio could boost world coarse grain prices slightly during the forecast period, the council said. While well below record levels of 1995-97, corn prices (F.O.B. Gulf) could increase from U.S.$96 per tonne in 1998-99 to U.S.$102 per tonne by 2007-08.
Competition for world feed grain markets will continue to grow throughout the decade, the Grains Council said. Trade in coarse grains, which was below 90 million tonnes in 1990, could exceed 110 million tonnes by the end of 2007, the council said.
Mexico, Saudi Arabia, South Korea and Taiwan are expected to substantially increase feed grain imports over the next decade. Mexico's coarse grain imports are projected to reach 10.4 million tonnes by 2007, up 2.9 million tonnes or 38%. Saudi Arabia imported more than 5.6 million tonnes in 1998-99 and modest growth is expected through 2007, the council said, as economic difficulties and the increasing trade liberalization in high-value agricultural products slow demand.
South Korea, the second-largest coarse grain importer worldwide, could increase coarse grain imports to more than 10.9 million tonnes by 2007-08 as its economic growth continues, the council said. Although Taiwan's feed grain imports fell sharply in recent years as its hog industry was struck by foot-and-mouth disease, import growth is expected to resume. The U.S. Grains Council has projected Taiwan's imports to reach 6.8 million tonnes by 2007, up from 4.7 million tonnes in 1999.
Brazil's feed grain imports in just two years have grown to 3.2 million tonnes in 1998-99, but are expected to slow to 1.6 million tonnes by 2007-08, the council said. However, the region known as “other Latin America,” including Chile, Colombia and Central America, is a market for more than 2.3 million tonnes of coarse grains because of rapidly growing meat and poultry production.
Japan, the world's largest coarse grain buyer, imported 19.7 million tonnes in 1998, or 20% of the world's total. Although Japan's imports have declined since the mid-1980s, its imports are projected to be steady from 1998 to 2007, the Grains Council said.
“Environmental constraints on livestock production and better market access negotiated under the Uruguay Round have increased the availability of high-value imports and diminished feed grain use somewhat,” the council said. “Still, Japan's import trends are projected to stabilize during the coming decade, at just under 20 million tonnes.”
Russia imported more than 14.5 million tonnes of feed grains as recently as 1988-89, but was forced to reduce purchases to only about 650,000 tonnes during its economic crisis in 1998-99. “The weakness of its economy continues to restrict food consumption,” the Grains Council said.
In other F.S.U. republics, excluding Ukraine, imports of coarse grains declined sharply through the large 1980s. Imports could range between 550,000 and 710,000 tonnes through 2007.
The United States' greatest trade competition will come from the European Union, Eastern Europe, Argentina, Australia, Canada and South Africa, the Grains Council predicted.
The E.U. was a large coarse grain importer in the 1970s and early 1980s, but by 1985-86 became a major exporter. Its feed grain exports reached 7.1 million tonnes in 1991-92. However, domestic grain subsidies were lowered by Common Agricultural Policy reforms in 1992, and the E.U.'s exports fell to 3.24 million tonnes in 1998-99. The U.S. Grains Council's forecast is for the E.U.'s exports to increase to 4.64 million tonnes in 2007-08.
Eastern Europe has been a highly variable market through the 1980s and early 1990s, the Grains Council said, importing as much as 2.5 million tonnes in 1990-91 and exporting 3.2 million tonnes the following year. However, grain production has grown persistently, and the region is projected to export 1.2 million tonnes of coarse grains in 1999, increasing to 4.6 million by 2007-08.
Argentina's exports fell substantially during the late 1980s, but have rebounded the past few years and could grow to 10.4 million tonnes by 2008, the council said. Australia is projected to reduce its grain exports from 3.2 million tonnes to between 2.5 million and 3 million tonnes through 2004-05, and then return to 3.2 million tonnes by 2008.
Canada is projected to export between 1.4 million and 1.5 million tonnes annually throughout the period. South African exports are expected to increase more than three-fold over the period, to 3.3 million tonnes by 2007-08.
The outlook for the United States in the coming decade is for strong markets for grains and high-value meat, milk and egg products that require coarse grains for their production, the U.S. Grains Council said. “Feed grains likely will compete advantageously for cropland throughout the decade, and could maintain their share of major crop area harvested at just under 40%,” the council said.
The Grains Council is predicting slow growth in harvested area, rapid growth in domestic and export markets and moderately stronger prices.
Harvested area of coarse grains in the U.S., up 1.2 million tonnes over 1998, will have an average growth rate of 0.36% annually, the council said. Steady yield growth of 1.18% annually implies production growth averaging just over 1.5% annually.
Feed use accounted for over 63% of total maize use in 1997-98, making it more than three times as important as exports (20%) or other domestic use for industrial products, food and seed (17%), the Grains Council said. “Little change is expected in this balance over the next several years, although the growth of other domestic uses may outpace growth in feed use,” the council said.
Domestic use is projected to expand by just under 26 million tonnes for the decade, the council said. Export markets, by contrast, which accounted for 18.4% of total use in 1998, could grow over 15 million tonnes and account for nearly one-third of total market growth during the decade, the council said.
U.S. meat imports in 1988 were the equivalent of 2.6 million tonnes of feed grain imports, the Grains Council said. In the past decade, U.S. meat exports have grown rapidly and the U.S. is now a significant net meat exporter, accounting for the equivalent of an additional 8.9 million tonnes of grain exports in 1998.
While that tonnage is a small share of the domestic feed market, the use of grain for meat exports is growing more rapidly than other domestic feed uses, the council said. The feed grain equivalent of meat exports is expected to grow more than 6% annually through 2007 more than three times as fast as the 1.7% annual growth rate projected for total domestic feed use. By 2007, meat exports could add the equivalent of 14.3 million tonnes of feed grain exports, adding more than 22% to feed grain sales overseas, the Grains Council said.
The strengthening markets projected during the next decade could press producers to provide adequate supplies and make the system increasingly vulnerable to bad weather and price shocks, the council said. “With stocks holding at about 16% of use during the period, even a 20% reduction in yields could substantially curtail use and market growth,” the council said. “Thus, while the projections imply little change in stocks, the stocks-to-use ratio likely will decline slowly but steadily, remaining well below the levels of the mid-1980s.”
The council also predicts moderately stronger prices. “Although farm prices have adjusted to more normal levels following their record high in 1995-96, they are projected to increase steadily from current levels throughout the period as markets expand,” it said.