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Global prices of key staple food commodities, represented by the Food and Agriculture Organization’s (FAO) Food Price Index rose for the third consecutive month in April. However, it is essential to note that this increase remains far from even – it was driven primarily by palm oil prices and to an extent, cereals. A perspective on the pain within the sector, in spite of the gradual uptick this year, can be gained from the recently released results for agricultural equipment maker Deere – it not only took a hit in profits tumbling 28%, projections on lower commodity prices in the current quarter are driving revised full year forecasts at USD 1.2 bn from the earlier estimated USD 1.4 bn.
As per the recently released World Agricultural Supply and Demand Estimates, US Department of Agriculture, global wheat supplies are projected to rise 2% over 2015/16. Total wheat production is projected at 727 million tons, the second highest total on record. Large crops are expected in most key countries including EU, Russia and Ukraine and yields are expected to be well above trend. Global wheat consumption for 2016/17 too is projected slightly higher. Rice production too is forecast strong, registering a record 480.7 mt (2016.17), up 2.17% from the previous year.
Global corn consumption for 2016/17 is projected at a record 1,011.9 mt, 43 mt higher than the current year. This is on the back of China recording a 9.5 mt increase in projected consumption and the United States seeing the same increase 9.2 mt. Smaller increases are projected for EU, Argentina, Brazil, India, Russia, Vietnam, Mexico, and South Korea. Exports are projected to be higher with increases for Argentina, EU, and Ukraine more than offsetting a reduction for Brazil. Imports on the other hand are expected to trend lower with declines for South Africa, EU, Vietnam, and China. 2016/17 corn stocks are projected at 207 mt, down slightly from the 207.9 million for 2015/16.
Global consumption for 2016/17 is forecast at a record 174 mmt, exceeding production and drawing stocks down to the lowest level since 2010/11. Production is up 4 mt to 169 m as gains in Brazil and the European Union more than offset a decline in India. With growing demand, imports are forecast up 1.2 million tons. The rising pace of global consumption has been sustained by drawing down stock levels in recent years.
World raw sugar prices, after falling for over a year and bottoming at less than 11 cents per pound in August 2015, are trending higher to near 17 cents in May 2016.
It is worthy to highlight here that India’s consumption is forecast to exceed production for the first time since 2009/10. While consumption is expected to head towards to a record 27.2 mt, production is forecast to drop 2.2 mt to 25.5 mt, due to lower area and yield. Drought conditions have encouraged farmers to keep existing cane in production longer rather than planting new cane.
The USDA expects world 2016/17 cotton projections to see a decline in stocks of more than 6 mn bales, as consumption exceeds production for the second consecutive season. Production is expected to rise nearly 5%, despite marginally lower area, as yields recover from weather and pest pressures that affected crops in 2015/16. Production is forecast to rise mainly in Pakistan, the US, India and Turkey, partially offset by a 1.3 mn bale reduction for China. Consumption is projected to rise 1.6%, as prices overall remain low and the usage in India and Pakistan are expected to offset the lower partially reduced offtake in China.
Moving against the tide, pulse prices continue to trend higher. India’s (which contributed nearly a quarter of the world’s pulses) below-average and a largely flat food production this year is expected to keep prices of pulses high. Pulses output is estimated to decline marginally to 17.06 mt in 2015-16 from 17.15 million tonnes last year. The Indian government, on its part, is relying on a newly created pulses reserve to keep prices from flaring, apart from offering higher minimum support prices to encourage farmers to grow more.