Grain prices on the rise
May 01, 1995
by Teresa Acklin
Buoyant demand, lower export subsidies to support wheat, coarse grain prices through 2000, O.E.C.D. report says
World market prices for wheat and coarse grains should advance steadily during the next five years, as demand climbs and market-distorting export subsidies gradually diminish, according to a recent report by the Organization for Economic Cooperation and Development, Paris.
The report, “The Agricultural Outlook, 1995-2000,” analyzes trends and prospects for grains, oilseeds, meat and dairy products through the remainder of the decade. The projections are based on a set of assumptions regarding economic growth, national agricultural policies and trade developments.
The O.E.C.D., chartered in 1961, consists of 25 member countries, including European Union and North American nations as well as Japan and Australia. Promoting sustainable economic growth, expanding world trade and maintaining financial stability are among the organization's goals.
BOOMING ECONOMIES, FADING SUBSIDIES.
A major factor in the report's projection for higher grain prices is the outlook for relatively strong economic growth in non-O.E.C.D. countries, where rising incomes should lead to increased food consumption and higher-protein diets. This trend should be particularly robust in Asian and Latin American countries.
Gradual cuts in the value and volume of wheat export subsidies, as required by the Uruguay Round of the General Agreement on Tariffs and Trade, are another element in the O.E.C.D. projections. The cuts should foster rising wheat prices on the world market because lower export subsidy levels will ease competitive price pressure on unsubsidized wheat exports.
By 2000, unsubsidized wheat exports should account for 66% of world trade, compared with about 48% between 1990 and 1993, the report says. It also projects that unsubsidized wheat prices, as reflected by the Argentine export price, could stand at U.S.$153 a tonne by 2000, a 37% increase in nominal terms from the 1990-93 average of U.S.$112.
The O.E.C.D. also expects coarse grain prices to move higher, albeit much less dramatically than wheat prices. Production should increase in O.E.C.D. member countries, but the higher output will be met by strong demand from non-members, the report says. By 2000, the price of No. 2 U.S. yellow maize should stand at U.S.$110 a tonne, an increase of about 5% from the 1990-93 baseline average of U.S.$105, the report projects.
The report notes that the projected wheat and maize prices, after adjusting for inflation, will continue to fall in real terms. Even so, annual inflation-adjusted declines will occur at a slower rate than in the 1980s.
Because wheat prices are expected to advance more than maize prices during this period, the price spread between the two should widen. The report observes that the wheat/maize price relationship could well return to more traditional levels that are based on relative nutritional values.
For much of the past two decades, the activities of the former Soviet Union arguably were the largest single influence in world grain trade. But since its breakup and the onset of economic problems, the F.S.U.'s market influence has dwindled along with its level of imports. At best, the O.E.C.D. expects F.S.U. grain import levels to stabilize through the decade.
During the next five years, a different “wildcard,” China, should carry the most influence on the world grain market, the O.E.C.D. says. China is one of the world's largest wheat and coarse grains producers, but, as events of the past season demonstrate, China's future self-sufficiency is in doubt.
China's maize exports this season declined by 65% from the previous season, while its maize imports soared to the highest level in at least a decade. Although logistics problems contributed to the current situation, the O.E.C.D. report says other factors should cause this trend to intensify.
During the next five years, China's grains production is not expected to keep pace with either population or demand increases, primarily because of structural changes to the agricultural economy and limited yield gains. Consequently, China's wheat imports are expected to grow much larger, while its net maize export position continues to erode.
Because China is becoming a key market player, actual developments in that country will play a critical role in the overall world grain outlook. Yields that exceed expectations or political developments could alter radically current predictions, the O.E.C.D. says.
A variety of other uncertainties also bear watching, according to the report. Developments affecting economic growth, currency exchange rates and problems in emerging markets could temper current relative optimism.
Other areas inspiring caution focus on national agricultural policies, particularly those involving supply control measures. The amount of land kept out of production in the U.S. and the E.U., for example, clearly will affect the world supply/demand balance sheet in the next five years.
Prospects for world oilseeds prices differ from grains. Although prices should advance from current marketing year levels, they are likely to remain lower than 1990-1993 levels.
The report projects that world production of the three main oilseeds (soybeans, rapeseed and sunflower seed) will increase by more than 20% from the 1990-93 average. The increase will be concentrated in non-O.E.C.D. countries, with member states' production expected to increase by less than 12%; U.S. production should increase by about 10%, while E.U. harvests should remain about unchanged.
As with grains, economic growth and rising incomes should result in sharply higher consumption levels in non-O.E.C.D. countries. As a whole, consumption in that group in 2000 should be 32% higher than the 1990-93 average; in O.E.C.D. countries, oilseed consumption should increase by about 13% during the period.
The stronger demand for oil is likely to encourage production of high-oil-content crops, which will increase meal supplies and tend to depress meal prices. Even so, oil and meal prices, as well as processing margins, should be sufficient to motivate producers to switch some land to oilseeds from grains, national policies permitting.
Trade in oilseeds and products also will receive a slight boost from the increased demand among developing countries, which should account for more than 50% of world trade in oils, fats and meals by 2000, the O.E.C.D. projects. Little change is expected in market shares; for example, Brazil will remain the leading soybean meal exporter, but the rate of its export growth is likely to slow because of increased domestic demand.