Food markets will face many more months of uncertainty due to COVID-19, but the agri-food sector is likely to show more resilience to the pandemic crisis than other sectors, according to a new report released by the Food and Agriculture Organization of the United Nations (FAO).
The Food Outlook report provides the first forecasts for production and market trends in 2020-2021 for the world's most traded food commodities - cereals, oilcrops, meat, dairy, fish and sugar. "The impacts of the COVID-19 pandemic have been felt - at varying degrees - across all food sectors assessed by FAO. Whilst COVID-19 has posed a serious threat to food security, overall, our analysis shows that from the global perspective, agricultural commodity markets are proving to be more resilient to the pandemic than many other sectors. That said, owing to the size of the challenge and the enormous uncertainties associated with it, the international community must remain vigilant and ready to react, if and when necessary," said Boubaker Ben-Belhassen, Director of the FAO Trade and Markets Division.
In spite of uncertainties posed by the pandemic, FAO’s first forecasts for the 2020/21 season point to a comfortable cereal supply and demand situation. Early prospects suggest global cereal production in 2020 surpassing the previous year’s record by 2.6 percent. Based on conditions of crops already in the ground, planting expectations for those still to be sown, and assuming normal weather for the remainder of the season, world cereal output is forecast at 2.780 million tonnes (including rice in milled equivalent), nearly 70 million tonnes higher than in 2019, setting a new record high.
After stagnating in 2019/20, world cereal utilization in 2020/21 is tentatively forecast to expand by 1.6 percent (43 million tonnes) year-on-year to reach an all-time high of 2.732 million tonnes. The projected growth would mainly mirror a more robust expansion foreseen in feed use relative to 2019/20, although both food and industrial uses are also forecast to increase.
Based on FAO’s first forecasts for production in 2020 and consumption in 2020/21, world cereal inventories by the end of national marketing seasons in 2021 are forecast to reach a new record of 927 million tonnes, an increase of 5.0 percent (44 million tonnes) from their already high opening levels. The expected increase in cereal stocks would result in a slight rise in the global cereal stock-touse ratio, from 32.5 percent in 2019/20 to 32.9 percent in 2020/21, indicating a generally comfortable supply situation when compared to the 21.2 percent low registered in 2007/08. Of the total cereal stocks, as much as 47 percent are expected to be held in China, where national stocks could increase for the second consecutive season and reach a new high of at least 439 million tonnes.
FAO’s first forecast for world cereal trade in 2020/21 stands at 433 million tonnes, up 2.2 percent (9.4 million tonnes) from 2019/20 and setting a new record, boosted by expected expansions in trade of all major cereals. The FAO Cereal Price Index averaged 162.2 points in May, down 1.6 points (1.0 percent) from April and very close to its level in the corresponding month last year.
Global production of wheat in 2020 is forecast to fall slightly below the previous year’s good out-turn. The latest prospects largely pertain to expectations of production downturns in the European Union (EU), Ukraine and the United States of America (USA) more than offsetting increases in Australia, Canada, the Russian Federation and several countries in Asia. While the dampening impact of the COVID-19 pandemic on demand could push up global inventories despite a decline in production, the prospect of a modest increase in world trade in 2020/21, amid tighter export availabilities among major exporters, is expected to provide support to international wheat prices, especially during the second half of the marketing season.
Total wheat utilization in 2020/21 is likely to remain close to the 2019/20 estimated level, as projected growth in food consumption is expected to almost offset a foreseen fall in feed utilization and a contraction in industrial use. However, at the current projected level, total wheat utilization would be 1.2 percent below the 10-year trend, marking the first time that global utilization falls below the trend in six years. Notwithstanding uncertainties regarding the impact on food consumption of the COVID-19 pandemic, feed use of wheat is expected to decline due to ample supplies of coarse grains, in particular maize, which is likely to erode wheat’s price competitiveness in feed rations.
By the close of crop seasons in 2021, world wheat stocks are forecast to increase slightly above their already high opening levels, but would still stay below the 2017/18 record. The bulk of the anticipated year-on-year expansion is set to occur in China (mainland), where expectations of a large production and a slower growth in domestic utilization could raise the country’s wheat inventories to an all-time high. By contrast, ending stocks in major exporting countries are likely to remain close to their opening levels, except for the USA, where they could decline to a six-year low. Consequently, while the world wheat stocks-to-use ratio in 2020/21 may register a small rise, the ratio of major wheat exporters’ closing stocks to their total disappearance is likely to drop to an eight-year low.
Modest growth in wheat trade foreseen in 2020/21
World wheat trade (including wheat flour in wheat equivalent) in 2020/21 (July/June) is likely to reach a record level of 177.5 million tonnes, up 1.4 percent (2.4 million tonnes) from 2019/20. Larger imports into Europe, in part reflecting the inclusion of trade flows between the EU-27 and the UK from 2020/21, account for most of the apparent growth in world wheat trade. Stronger import demand by several countries in Asia and North Africa are also seen to contribute to the expansion. With concerns over possible extension of wheat export restrictions mostly receded, the early outlook for 2020/21 assumes no new COVID-related hurdles affecting trade flows.
Following a significant demand slowdown caused by COVID-19 in early 2020, total utilization of coarse grains is forecast to regain momentum in 2020/21, but would still remain below global production for a second consecutive season, leading to higher stock levels and keeping international prices under downward pressure.
FAO’s first forecast for world coarse grains production in 2020 is pegged at a record 1.513 million tonnes, an increase of 65 million tonnes (4.5 percent) from 2019, almost exclusively due to higher maize production. Forecast to reach an all-time high, global maize production is boosted by expected record harvests in the United States of America (USA), Canada, and Ukraine, and near-record harvests in Argentina and Brazil. By contrast, world production of barley is likely to decline, largely on reduced output in the Russian Federation.
After stagnating in 2019/20, world total utilization of coarse grains is forecast to increase in 2020/21 by 2.7 percent. The bulk of the growth comes from anticipated higher feed use, but also a rebound in industrial use on expectation of some recovery in maize-based ethanol production, as well as higher demand for starch production. These expansions mostly concern maize and stem from expected increases of feed and industrial uses in China (mainland), the USA, Brazil and Argentina. However, with utilization foreseen to remain below production for a second consecutive year, world coarse grain inventories could increase by nearly 10 percent, with most of the anticipated growth corresponding to a larger build-up of maize inventories in the USA. The projected increase in global coarse grain inventories would push the world stocks-to-use ratio up to its highest level in 21 years.
Ample supplies and price advantages, particularly relative to wheat, are expected to boost global trade in coarse grains in 2020/21 above the 2019/20 level. Increased maize and sorghum import demand from China (mainland) is anticipated to be an important driver behind the expected expansion in global trade, while foreseen greater barley imports by Saudi Arabia and the Islamic Republic of Iran would also add support. On the export side, bigger shipments of both maize and sorghum are forecast from the USA while increases in barley exports are expected from Australia.
FAO’s first forecast for world trade of coarse grains in 2020/21 (July/June) is pegged at just under 208 million tonnes, up 4.2 million tonnes (2.0 percent) from 2019/20, reflecting expectations of larger shipments of all major coarse grains (maize, barley and sorghum).
World rice production is set to recover in 2020, boosting rice utilization and keeping carry-overs at their third highest level on record. While economic constraints and firm prices may curb trade growth in 2020, a more robust trade expansion is projected for 2021.
After El Niño-influenced weather patterns negatively affected the outcome of the 2019 season, the return to more normal growing conditions could facilitate a 1.6 percent annual expansion in world rice production in 2020 to a new high of 508.7 million tonnes. Anticipated increases in Asia are seen to sustain much of the forecast growth, although a strong output recovery is also set to take place in the United States of America (USA), with further production inroads anticipated for Africa. However, prospects are more subdued for other regions, on a combination of tight producer margins and insufficient supplies of water for irrigation.
Stagnating African imports and scattered Asian demand may limit the increase in global rice trade in 2020 to 800 000 tonnes, resulting in world rice flows of 44.9 million tonnes. World trade in rice is tentatively forecast to expand more vigorously in 2021, as ample exportable availabilities and more attractive prices rekindle African demand, while sustaining continued import growth in all other regions except Asia.
World rice utilization is forecast to expand by 1.6 percent in 2020/21 to a fresh peak of 510.0 million tonnes. This level would surpass anticipated production, requiring reserves to be drawn down by some 0.8 percent over the season. Still, at 182.0 million tonnes, global stockpiles at the close of 2020/21 marketing years are forecast to stand at their third highest level on record, thanks to still large stockpiles in China (mainland) and continued carry-over expansions in the major rice exporting countries.
International prices of rice have risen steadily since the start of the year, resulting in the May 2020 value of the FAO All Rice Price Index exceeding its December 2019 level by 12.7 percent. Indica prices underpinned much of this increase, reacting to weather-related supply constraints in some exporting countries, which were exacerbated between March and April by spikes in domestic demand, the imposition of temporary export restrictions, and logistical constraints.
International rice flows have progressed sluggishly so far this year, first held back by generally subdued Asian and African demand, then by a rapid increase in international prices and quarantine-related logistical constraints. Heading towards the third quarter of the year (a traditionally seasonally tight period that precedes the arrival of fresh northern hemisphere harvests), prospects of import pace regaining much momentum are dampened by the economic impacts that the pandemic and slide in petroleum prices could have on demand in price-sensitive markets. Where cross-border exchanges also play an important trade role, for instance in the Greater Mekong and Western and Eastern African subregions, border shutdowns, heightened surveillance and fear of contagion are also tempering trade expectations. As a result, a total of 44.9 million tonnes are forecast to be traded across the world over the full course of 2020 (January-December), implying an 800 000-tonne increase from the 2019 depressed level.
Despite subdued demand prospects linked, amongst other things, to the pandemic, FAO's latest 2019/20 forecasts for oilseeds and derived products point towards a tightening global supply-demand situation, triggered by a marked contraction in production. Tentative forecasts for 2020/21 suggest that supplies could remain tight relative to demand.
After growing steadily for the past couple of decades, international trade in oils/fats is forecast to contract slightly in 2019/20, amounting to 131.1 million tonnes (including the oil contained in traded oilseeds). The anticipated drop mostly reflects a likely decline in palm oil sales, tied to sluggish demand from major importing countries amid narrowing price spreads versus competing soft oils. Conversely, soy and sunflower oil transactions are expected to rise to new highs, while global trade in rapeseed oil is seen stalling at last season’s level, due to the anticipated weakening of global demand, especially from biodiesel producers. As a result, the market share of palm oil is set to drop slightly, though palm oil would maintain its position as the leading traded oil.