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IGC: 2019/20 supply and demand outlook

14 October 20197 min reading

“The International Grains Council (IGC) forecasts a 1% year-on-year (y/y) increase in world total grains (wheat and coarse grains) production, to 2,159m t, which would be the second largest in history. Gains in global output are wholly linked to an expansion in acreage, with average yields seen slightly lower compared to the previous season’s record. While worldwide harvests of wheat, barley oats and rye are expected to be larger than last year, the maize and sorghum crops are set to be smaller.”

Nathan Kemp Senior Economist International Grains Council

With harvesting of wheat, barley, oats and rye nearing completion across the northern hemisphere, the 2019/20 global grains supply outlook is beginning to crystalize. However, with rowcrop planting now only just underway in the export powerhouses of Brazil and Argentina, projections for maize are somewhat tentative at this stage.

Based on conditions as at the end of September, the International Grains Council (IGC) forecasts a 1% year-on-year (y/y) increase in world total grains (wheat and coarse grains) production, to 2,159m t, which would be the second largest in history. Gains in global output are wholly linked to an expansion in acreage, with average yields seen slightly lower compared to the previous season’s record.

The headline figure masks some opposing trends. While worldwide harvests of wheat, barley oats and rye are expected to be larger than last year, the maize and sorghum crops are set to be smaller.

Despite heightened concerns about dryness in Australia and Argentina, it is looking like a record-breaking year for wheat production, with global output forecast at 764m t, 4% more than the season before. While question marks linger about spring wheat (and durum) yield and quality in North America, overall availabilities across the eight major exporters are expected to be ample.

Farmers responded positively to last year’s spike in barley prices, sowing the largest area in a decade. With cropping weather also broadly favourable, production is on track to reach 155m t, the most in eleven seasons and up by 10% compared to the year before. Large surpluses are expected in Russia, Ukraine and the EU, typically the three biggest exporters, where competition for available export business will likely be fierce.

The outlook for maize production is clouded by uncertainty about final yields in the US and acreage decision in South America. Despite extremely challenging conditions across the Midwest, the US crop is expected to be significantly larger than was predicted just a few months ago, albeit smaller than last year and below the recent average. Part of the slack may be taken up by Ukraine, where farmers have just started collecting another bumper crop, with yields again seen well above the long-run average. The 2019/20 season is just starting in South America. After recent gains, maize area in Argentina could be capped by economic woes and significant uncertainty in the run up to the October presidential election, with some producers tempted to switch to lower risk soyabeans. While Brazil could conceivably be an even larger producer this season, planting of the main export crop will not start until after the New Year. Taking into account a smaller crop too in China, world production is predicted to shrink by 3% y/y, to 1,099m t.

All-grains consumption in 2019/20 is seen rising by 1% y/y, to 2,186m t. Feed demand accounts for around 45% of overall consumption, compared to 33% for direct human food use and 17% for industrial processing, with a further 5% used for seed and waste. These shares have remained fairly consistent over the past decade or so.

While global consumption is expected to reach a new all-time high in 2019/20, the rate of growth may only be half of the prior five-year average. Feed use is seen expanding more slowly than in the past, mainly owing to weak demand in China, where African swine fever has decimated the country’s huge pig herd. Use for food (mainly wheat and sorghum) will continue to trend higher, with the year over year expansion seen close to the long-run average. Population growth remains the primary driver of food wheat demand, but with shifts in diets and incomes also important, particularly in developing countries in Asia and Africa.

Following earlier extraordinary growth, world industrial demand is now expanding by a more moderate 2% per year. Production of maize-based biofuels and starch is expected to increase once more in 2019/20, with the strongest gains in China and South America. With US ethanol processors struggling with thin profit margins and lacklustre demand, authorities are reportedly considering a new support package, rumoured to include higher biofuel blending mandates. More generally, uncertainty has increased about global economic prospects in recent months and with growth expectations generally softening, this could yet temper demand for industrial products.

Despite a potentially bumper crop and prospects for sub-par demand growth, world carryover stocks (aggregate of respective local marketing years) are forecast to decline for a third successive season, seen 26m t lower y/y, at 601m t. The tightening is almost entirely linked to a further drawdown in maize stocks, estimated at a six-season low and seen outweighing build-ups of wheat (to a record) and barley (to a 10-year high). The drop in maize inventories primarily reflects a sustained contraction in Chinese stockpiles, as that country continues to work through supplies built up earlier in the decade. Exporter stocks, seen as potentially a better proxy of market supplies, are forecast to be down very slightly from the season before but broadly in line with the recent average. Underpinned by sustained increases in demand for animal proteins, wheat-based foods and starch products, world grains trade (basis July/June) is projected to reach unprecedented levels in 2019/20, seen rising by 1% y/y, to 370m t, including 172m t of wheat (+2% y/y), 165m t of maize (unchanged) and 27m t of barley (+8%). By region, Asia is the top destination, accounting for around half of world imports, followed by Africa and North & Central America. While the US remains the world’s dominant exporter, supplying about one-quarter of the world’s import needs, market share has been lost to Russia, Ukraine and Argentina in recent years.

Owing to a completely different market structure, the IGC’s analysis of rice supply and demand fundamentals is typically kept separate from wheat and coarse grains. Global rice production in 2019/20 is anticipated to be broadly unchanged from the prior year, at 500m t (milled basis) as declines in some key producers in Asia, namely China, India and Thailand, are broadly offset by increases in other regional producers and elsewhere. While output in India and Thailand may decrease from 2018/19 on unfavourable conditions during the main crop planting periods, China’s fall will be driven by policy changes aiming to curtail burdensome stocks and re-balance supply and demand, following a decade in which inventories are estimated to have more than doubled amid supportive government programmes.

These policy changes have been felt in the world market over the last year, with competitively price Chinese supplies a growing presence in several key destinations. Perhaps most significantly has been a sharp increase in long grain dispatches to sub-Saharan Africa, yet sizeable medium grain exports have also been noted in several markets, including Turkey, where Chinese rice has largely replaced imports from the USA.

In contrast to the uptick in China’s exports, shipments from the two leading exporters, Thailand and India, are set to post sharp y/y falls in 2019 (January/December) amid slower regional demand, with Bangladesh, Indonesia and China all set to buy less than during the prior year. Assuming ample availabilities of competitively priced supplies, global trade in 2020 is anticipated to rebound by 4% y/y to 46.5m t, just short of 2017’s peak, with sizeable dispatches of Chinese rice expected to again feature.

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