The United Nations ditched expectations of a tightening in grain supplies this season, citing improved expectations for US and Indonesian corn output, besides a European Union wheat crop upgrade too.
The UN food agency, the Food and Agriculture Organization, raised its estimate for world cereal inventories at the close of 2017-18 by 7.1m tonnes to 725.8m tonnes, setting a record by an even higher margin than previously forecast.
As compared with consumption, to form the stocks-to-use ratio closely followed as a pricing metric, the upgrade raised the figure by 0.3 points to 27.3%, taking it above last season’s reading, and to its highest since 2002-03.
“Large stocks are seen to lift the global cereal stock-to-use ratio to… its highest level in 16 years,” said the FAO, which includes rice as well as wheat and coarse grains, such as sorghum and corn, in its definition of cereals.
The upgrade reflected a “cereals boom” which has seen output hit 2.627bn tonnes in 2017-18 – an estimate raised “sharply” from last month’s figure of 2.613bn tonnes, and reflecting an upgrade to ideas on world corn output.
“The increase from November is mostly driven by higher estimates for maize [corn] production in the US, following positive revisions for yields, and in Indonesia, where production is now estimated at a record high as a result of a significant expansion in plantings,” the agency said.
“These increases more than compensated for a cut to Ukraine’s maize output.”
The FAO also raised its estimate for world wheat output by 2.0m tonnes to 754.8m tonnes, “mainly reflecting” a higher figure for the European Union crop, which more than offset a downgrade to the estimate for the Argentine harvest.
The comments came as the FAO reported an easing of 0.5% in world food prices last month to a five-month low, although they remain 2.3% higher year on year.
The November price dip was led by a 4.9% tumble in dairy values, as “international price quotations for butter, cheese and whole milk powder all fell.
“Rising milk output in all the major producing countries contributed to reducing concerns about the availability of supplies,” the FAO said.
Prices of skim milk powder prices fell to a “near 18-month low, on continued uncertainty over the intervention stocks held by the EU”, which has built inventories of some 400,000 tonnes of the product, spurring talk of a reform to the bloc’s market support strategy, besides weighing on global values.
By contrast, sugar prices soared 4.5%, “mostly supported by a drop in exports from Brazil and concerns over firmer oil prices encouraging greater switch of cane crush to produce ethanol than sugar”.
Cereals prices nudged 0.3% higher, to a four-month top, led by rice values, which “rose by 1.1%, amid stronger buying interest and currency movements”.
The FAO added that cereals pries have “remained largely steady since August, generally reflecting an overall balanced supply and demand situation especially with regard to wheat and maize markets”.