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Posts Tagged ‘commodities

Grains market report, 2011 April – IGC highlights volatile trading

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The International Grains Council has released its grain market report for 2011 April. Here are the salient points and outlooks for wheat, rice and maize.

IGC grains and oilseeds prices index

The past month was again volatile in global markets, with a sharp jump in grain values in early April largely centred on renewed bullish trading in maize (corn), partly in response to new US data indicating heavier than anticipated domestic use. However, there was also general nervousness about world weather conditions for upcoming northern hemisphere harvests, while developments in other commodities, energy markets and global economic news played a role too.

Day-to-day volatility in futures exchanges remained very high, with the average “historical volatility” percentage (HV20) for nearby US CME corn in Chicago showing a further increase since March. International wheat prices registered net gains of some $30 per ton, reflecting a generally tight market for milling wheat, especially premium varieties, with concerns about the impact of dry conditions on the next US Hard Red Winter crop and overly wet weather on spring wheat plantings.

There were also uncertainties about the future relaxation of export controls in the Black Sea region. US nearby maize futures climbed to all-time highs in early April, when the latest quarterly stocks data, indicating much higher than anticipated use, eclipsed the slightly bearish US planting forecast, reigniting worries about the likely low level of pipeline stocks. Heavy US export sales activity and continued speculation about purchases by China added further to the bullish market sentiment. [Get the IGC index data file here.]

In contrast, prices of oilseeds showed little net change in the past month, with new-crop soyabeans from South America beginning to enter the market, offsetting concerns about the tighter supply outlook in the US. Global rice prices actually moved lower in the face of improved supplies from recent Asian exporter crops. Despite strong global demand for commodities and raw materials, and rising bunker fuel prices, dry bulk ocean freight rates fell significantly due to a continuing build-up of surplus tonnage.

WHEAT: Less than ideal conditions for some crops lower the projection of world wheat production in 2011-12 by 1m. tons, to 672m., but this is still 22m. more than the year before. Winter wheat in the US has been affected by dry conditions and rains are also needed in the EU and China. Spring wheat sowing is being hindered by wet soils in the US, Canada and Russia. This year’s bigger global harvest is expected to be matched by higher consumption: the world total is placed slightly above last month’s, at 672m. tons. World stocks are projected to remain steady, at 186m. tons. World trade will be lifted by larger milling imports in North Africa and Near East Asia as well as by anticipated strong global demand for competitively-priced wheat for feed. Shipments in 2011-12 are forecast at 126m. tons (122m.).

MAIZE: High prices are forecast to boost world plantings by 3% in 2011-12. Assuming yield growth returns to trend, global production is projected to increase by almost 5%, to a record 847m. tons. Potentially tight supplies and firm market prices are expected to limit consumption growth to 1.3%. Although meat demand will remain firm in number of developing countries, overall growth in maize use will likely slow, as livestock producers switch to wheat. Due to a projected standstill in demand from US ethanol producers, global industrial use of maize is forecast to slow to only 1.3%. A larger crop in the EU and increased competition from feed grade wheat is projected to result in 1% drop in world trade, to 94m. tons.

RICE: World rice production in 2010-11 is placed at a record 450m. tons. Ample availabilities will underpin rice consumption, set to expand by 2%, to 448m. tons, while the 2010-11 carryover is expected to reach an eight-year peak of 96.5m. tons (94.0m.). After last year’s solid rise, world trade is forecast to decrease by 2%, to 30.3m. tons reflecting a likely steep fall in imports by the Philippines.

Written by makanaka

April 29, 2011 at 18:13

FAO March bulletin, Crop Prospects and Food Situation for 2011

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The FAO has released its Crop Prospects and Food Situation, the first for 2011, in March. The overview is:

  • Wheat production: leading producers, (million tonnes)

    FAO’s first forecast for world wheat production in 2011 stands at 676 million tonnes, 3.4% up from 2010. This level of production would still be below the bumper harvests of 2008 and 2009.

  • International grain prices remained volatile in the first three weeks of March.
  • The cereal import volume in low-income food deficit countries (LIFDCs) as a group is anticipated to decline in 2010-11 due to increased production. However, their import bill is forecast to rise by 20% following higher international prices.
  • In Asia, prospects for the 2011 wheat crop are mostly favourable. In China, the outlook remains uncertain but the easing of the drought situation in the North China Plain is a positive development. In Japan, a powerful earthquake and subsequent tsunami have caused devastation with a potentially significant impact on agriculture and food trade.
  • In North Africa, the current situation in Libyan Arab Jamahiriya has resulted in the displacement of large numbers of people and disruption to the flow of goods and services in this heavily cereal import dependent region. WFP has initiated a regional emergency operation to provide food assistance to the affected people.
  • In Southern Africa, prospects for the main 2011 maize crop are generally favourable and relatively low prices have helped stabilize food security.
  • In Eastern Africa, food insecurity has increased in drought-affected pastoral areas of Somalia, Kenya and Ethiopia despite bumper harvests in 2010 and generally low and stable food prices.
  • In Western Africa, post-election violence continues to cause a large population disruption and disturb trade and livelihoods in Côte d’Ivoire and the neighbouring countries.

Countries requiring external assistance for food, 29 of which 21 in Africa

Overall favourable outlook for global 2011 wheat production: At this stage of the season, with the bulk of the coarse grains and paddy crops yet to be planted in the coming months, it is still too early for even a preliminary forecast of global cereal output in 2011. For wheat, however, in the northern hemisphere, which accounts for the bulk of the global production, winter crops are already developing or soon to come out of dormancy, while spring planting is underway in some countries and a preliminary picture of global prospects is already available.

FAO’s first forecast for world wheat production in 2011 stands at 676 million tonnes, representing a growth of 3.4% from 2010. Plantings have increased, or are expected to increase, in many countries in response to strong prices, and yield recoveries are expected in areas that were affected by drought in 2010, the Russian Federation in particular. The global output forecast for 2011 would be still below the bumper harvests in 2008 and 2009.

In Asia, prospects for the 2011 wheat crop, to be harvested from April, are mostly favourable in India and Pakistan, where good harvests are forecast. However, the outlook in China is uncertain because of winter drought in the North China Plain despite recent beneficial precipitation.

Cereal export prices

In the Asia CIS subregion, Kazakhstan is the major producer and the bulk of the crop is yet to be sown this spring. Weather permitting, farmers are expected to maintain the relatively high planting level of the past two years, especially in view of strong prices. Assuming also a recovery in yields after last year’s drought-reduced level, a significant increase in production could be achieved. In North Africa, early prospects for the 2011 wheat crops are generally favourable, except in Tunisia where dry conditions point to a repeat of last year’s drought-reduced crop.

In the southern hemisphere, where the major wheat crops are still to be sown, producers are also expected to increase plantings in response to this year’s favourable price prospects. However, this may not translate to larger crops in Australia or Argentina, where yields are assumed to return to average after bumper levels in 2010.

World cereal production and utilisation

Estimate of world cereal production in 2010 slightly up on December forecast: The estimate for world cereal production in 2010 has been revised upward slightly since previously reported (Crop Prospects and Food Situation, December 2010) to 2,237 million tonnes (including rice in milled terms), just 1.1% below the bumper output in 2009. The decline in cereal production in 2010 was entirely due to lower output in developed countries while in developing countries production rose significantly by almost 5%. The estimate for world wheat production in 2010 now stands at almost 654 million tonnes, 1 million tonnes above FAO’s December forecast but still some 4% less than in 2009.

The latest revision mostly reflects a better than expected outcome of the harvest in Argentina, which more than offset some downward adjustments to estimates in Asia (most notably Kazakhstan) and Europe (mostly the Russian Federation). For coarse grains, the estimate of output in 2010 is now put at 1 117 million tonnes, 7 million tonnes up from the previous forecast and just marginally less than the 2009 level. The upward revision was largely driven by increased estimates for China, India, Ethiopia and Sudan.

The estimate for global rice production in 2010 remains unchanged since December at 466 million tonnes (in milled terms). Improved prospects for Brazil, China mainland and Thailand largely offset a sizeable downward revision for India. At this level, the aggregate output of the 2010 rice seasons, which will close when the northern hemisphere countries complete the harvest of their secondary crops by May-June, would be 2% up from 2009, mostly on account of large gains in Asia, where Bangladesh, China, India and Indonesia, the leading world producers, are all expected to tally larger crops.

Food reserves, strategic foodgrain stocks and port protests

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Sujit Kumar Mondal sailing to his floating garden - one of the initiatives cited for Bangladesh's success in fighting under-nutrition. Photo: IRIN/Peter Murimi

Sujit Kumar Mondal sailing to his floating garden - one of the initiatives cited for Bangladesh's success in fighting under-nutrition. Photo: IRIN/Peter Murimi

Food inflation and industrial action have come together in a new signal about the unsustainability of consumption. Port workers in Argentina had stopped, for three days, the loading of vessels with soya, of which Argentina is a major producer. Their reason is the continuing high cost of food in their country, which in this Reuters report on the matter is recorded as having been 25%. They struck work and blocked loading to demand higher wages so they could afford to buy their household food needs. They’re also directly responsible for loading an East Asian food staple. Block food to buy food.

The blockade by members of Juarez’s cooperative targeted a terminal north of the city of Rosario shared by Bunge and Argentina’s AGD, and at another nearby facility operated by Cargill. Argentina is the world’s No. 3 soybean exporter and a major supplier of corn and wheat. About 80 percent of its soyoil and meal is produced around Rosario, located 180 miles (300 km) north of the capital Buenos Aires.

The two terminals account for about 16 percent of the South American country’s soyoil-processing capacity. Argentina is the world’s biggest supplier of soyoil and soymeal. Earlier on Friday, port workers suspended a brief protest that halted shipping activity in the southern grains ports of Quequen and Bahia Blanca, SOMU shipping workers’ union Omar Suarez told Reuters. He said the union wanted exporters to use a logistics company that hires its members, but had called off the protest following a request from the government.

Major grain importing countries are set to build more storage silos and expand strategic stocks after seeing the role played by record food prices in political upheaval in the Middle East and North Africa, Reuters has reported. Egypt, South Korea and Saudi Arabia are among nations which have already unveiled strategic plans as grain markets adjust to the prospect of further supply crunches over the next few years.

Global demand for grain has risen steadily as consumers in emerging economies grow richer and suppliers have struggled to overcome erratic climatic conditions, which last year included Russia’s worst drought in decades and heavy rains in Australia. The upshot has been a near-60 percent surge in key US wheat prices in the year to March, while global food prices as measured by the United Nations hit their second straight record high in February.

Importers also no longer have the safety net of large stocks held by exporters such as the European Union, which has sold off the grain mountains it first accumulated in the 1980s and moved to more market-oriented policies. Nomani Nomani, vice chairman of the General Authority for Supply Commodities (GASC) in top wheat exporter Egypt, said in February it was looking to improve and boost storage capacities.

“We have a long-term plan to improve storage capacity in Egypt and to build a network of silos that would allow GASC to purchase at the suitable time. We are also seeking improving performance of storage,” he said. South Korea, the world’s fourth-largest grain importer, is also among those building a strategic grain reserve, while another major importer Saudi Arabia hopes to double wheat reserves within three years. International Grains Council figures issued last week show a major shift in stocks from exporting to importing countries, said the Reuters report.

China is expected to hold 114.6 million tons of grain by the end of 2010-11, more than the combined total of 104.5 million tons held by all the major exporters, according to IGC estimates. Nie Zhenbang, state administration of grain head, said in an interview with the official Ziguangge magazine that China would continue to build up local government reserves of grains and edible oils and expand stockpiling capacities.

Mexico, the world’s second-largest maize importer, has not yet expanded its stocks but has plenty of space if necessary. Maize stocks currently total around 2 million tons, little changed from previous years, but the national association of warehouses (AAGEDE) estimates there is storage space for about 11 million tons. AAGEDE director Raul Millan said there is no deficit in storage space but that infrastructure is lacking in the southern part of the country where warehouses are not as well equipped. Mexico has no strategic reserves of grain, although there are some stocks held by the government to hand out to the poor.

In India, the government maintains a ‘Food Security Reserve’ of 3 million tons of wheat and 2 million tons of rice. This reserve – maintained from 2008 – is part of what the Indian government calls ‘buffer’ norms’. The buffer stock norms are recalibrated four times a year and as on 2010 October, the ‘buffer stock norms’ stood at 14 million tons for wheat and 7.2 million tons for rice. Against these norms, the government’s actual stocks were 27.7 million tons of wheat and 18.4 million tons of rice. From 2009 July, the actual stocks of total foodgrains in India has been held at around 50 million tons, much above what the government calculates it needs for the Public Distribution System and other welfare programmes.

Unctad’s Global Commodities Forum is here

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The United Nations Conference on Trade and Development (UNCTAD), will hold the second Global Commodities Forum in Geneva on 2011 January 31-February 01.

The rationale for the first Unctad Global Commodities Forum 2010 was described last year as centred on developing countries and their dependence on on commodities for their economic well-being. “As demand for commodities in the long term is going to increase, thus posing major challenges for their sustainable and efficient production, there is a very real need to consider how to make the commodities markets more stable and policies better designed, so that the benefits would be more equitably distributed between commodity producers and consumers.” Unctad’s GCF 2010 said then that it was important that an appropriate economic return could be delivered to commodities producers, many of whom are in developing countries.

Policy actions to consider were said to include, inter alia, the development of policies to ensure that countries producing commodities do not face the so-called ‘resource curse’ and, of equal importance, measures that could be taken to mitigate or reduce the adverse effects of price and commodities market volatility, “which cause so much uncertainty and hardship to many of the most vulnerable people in developing countries”.

Moreover, said the Unctad GCF 2010 rationale statement, “there is a clear need to ensure that commodities markets are more effective in serving the interests of the real economy, and that financial market speculators do not, through excessive influx or unwinding of liquidity in commodity futures markets, disturb the performance of commodity producers, consumers and intermediaries”. (We will have to pay close attention to the proceedings of GCF 2011, and not only the statements or resolutions, to judge how far they have progressed from last year’s positions.)

Unctad said then that markets should serve the interests of these stakeholders whose livelihoods are involved in commodities production, shipment, consumption, rather than being subject to manipulation directed at the single-minded purpose of providing a short-term financial return. “Solutions must be found to ensure that the prevailing terms of trade between countries are balanced and that regulatory interventions are optimized, with a view to protect the most vulnerable stakeholders without providing an impediment to trade.”

Now, Unctad has described GCF2011 as focusing on the instability of mineral and agricultural markets and their interconnectedness, the effectiveness of commodity policies and the sustainability of the production and use of commodities, long-term energy and food security, and the role of innovation and early warning systems. “The second meeting of the GCF, organized by UNCTAD with the support of its partners, including the Governments of China, France and Switzerland, as well as Global Fund for Commodities, is a major multi-stakeholder meeting to discuss and find better solutions to perennial problems of the commodity economy,” stated Unctad. “The GCF will also address such key issues as the performance of commodity supply chains and the state of business practices and innovation.”

From the GCF 2011 programme material – themes of the second meeting of this Forum will include the following plenary and parallel sessions:

Plenary A: The State of energy markets: lower volatility and a new price zone for hydrocarbons (A1), The state of agricultural markets: the drivers of increased volatility (A2) The state of selected metals market: fundamentals, non-fundamental factors and terms of trade (A3) Commodity markets’ volatility and interconnectedness (A4), Overcoming market volatility through better regulation, data and transparency (A5); Commodity policy challenges for oil and gas-exporting countries (A6) Commodity policy challenges for minerals and metal exporting countries (A7) Trade and other policy options for modernizing agriculture in developing countries (A8).

Parallels B: Long-term sustainable supply & demand and technological innovation: hydrocarbons and other energy (B1), Long-term sustainable supply & demand in the energy sector: developing early warning systems (B2), New technologies and commodities: agriculture (B3) Long-term sustainable supply and demand and technological innovation and early warning systems for food security (B4), New technologies and commodities: energy (B5); Forecasting trends and strengthening early warning systems for producers, innovators and other supply chain participants (B6).

Parallels C: Current trends and next frontiers for commodity finance (C1), The emerging regulatory environment and trade finance: new challenges and opportunities for banks and other financiers (C2), Support institutions for commodity finance (C3), Shipping and international trade in commodities (C4) Commodity futures markets: do they obscure underlying market realities, or provide long-term signals and management tools? (C5) Risk management in commodity markets: paper and physical markets and the realities of commodity exporters (C6).

FAO food price index tops the 2008 peak

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The UN Food and Agriculture Organization’s food price index has risen to 214.7 for December 2010, which is above its peak of 213.5 in June 2008.

This new peak, at a time when the price of crude oil is above USD 90 a barrel, is the strongest signal yet that global foodgrain supply has entered a critical phase. The FAO index has been rising steadily through the second half of 2010 – we discussed it here.

The cereal price index stands at 237.6 which is almost 40 points below the peak of 274.3 (in April 2008). The oils price index stands at 263 which is just under 20 points less than the peak of 282.6 (in June 2008). The dairy price index stands at 208.4 which is 60 points under the peak of 268.6 (in November 2007).

But the sugar and meat price indices are at all-time highs. The meat price index is now at 142.2 (in September 2008 it was 137.4 and its previous all-time high was 139.3 in September 1990). The sugar price index is now at 398.4 which is an extraordinary 180 points above its all-time high of 218 (in March 1990 – it was 207 at the maximum during 2008). The sugar price index crossed 300 in August 2008 and remained above 300 until March 2010, and again crossed 300 in September 2010.

Comparing three-month averages for the FAO food index and its main index components helps us understand how the 2010-11 food price crisis compares with its predecessor in 2007-08:

Food     Meat       Dairy     Cereals    Oils       Sugar
3-month avg
at 2008 Jun    210.4    129.5    240.8    271.7    273.9    173.9
3-month avg
at 2010 Dec    206.4    141.2    206.3    227.0    242.1    373.7

A Bloomberg report quotes FAO senior economist Abdolreza Abbassian: “One might expect prices to come down in spring, and this may be in fact the worst. But given how unexpected the weather events have been, I for one would not want to bet on anything along those lines.” The report said that concern about drought doing harm to Argentine harvests helped corn jump 52% in Chicago last year and soybeans to rise 34%. Prices also gained as China, the world’s largest soybean buyer, became a net corn importer. Wheat added 47% in 2010 as Russia, hit by its worst drought in a half-century, banned all cereal exports.

“Eyes will be on the Argentina corn crop,” Abbassian said. “There is still, unfortunately, a potential for grain prices to strengthen on the back of a lot of uncertainty. If anything goes wrong with the South American crop, there is plenty of room for them to increase further.” Potential damage to South American soybean and corn crops is of greater concern for world grain prices than harm to wheat in Australia caused by floods, according to the economist. Argentina and Brazil are the world’s second- and third-biggest corn and soybean exporters after the US. “The watch is definitely on South America for the next two weeks,” Abbassian said. “Given the very tight corn market, and demand from China for soybeans and the tight soybean market, if those commodities start to rise more, that will also lift wheat.”

Agrimoney has a report polling commodities fund managers in several financial centres worldwide for their views. What they say about the impact major forecasts, such as the World Agricultural Supply and Demand Estimates, have is worth paying close attention to. The WASDE report provides the US Department of Agriculture’s comprehensive forecasts of supply and demand for major US and global crops.

Reuters has reported that India’s food inflation rose for the fifth straight week to the highest in more than a year, reinforcing fears it has spilt over to broader prices and cementing expectations of a January interest rate hike. “But the spurt in prices of many basic foodstuffs has also raised questions over the government’s ability to control price rises through monetary policy, with poor infrastructure, hoarding and supply bottlenecks contributing to stubbornly-high food inflation.”

Unseasonal rains are officially blamed for pushing up prices of vegetables such as onions and tomatoes, but some commentators point instead to poor agricultural productivity and transport after years of few reforms and weak government investment. Onion prices, a key food staple for Indian families, rose over 23% percent over the week to December 25. The food price index rose 18.3% in the year to December 25 and the fuel price index climbed 11.6%. This compared with 14.4% and 11.6% annual rises the previous week.

The Wall Street Journal has said that food prices in India are continuing their sharp rise, increasing concerns among economists about a prolonged spell of high prices and adding pressure to the central bank to raise interest rates later this month. “The Reserve Bank of India next meets on Jan. 25 to consider an interest rate rise after pushing up rates six times in 2010 – one of the most aggressive tightenings of any central bank. But calls for a further move keep coming, most recently with the International Monetary Fund saying in a report released Thursday that rates need to be higher to curb inflation.

“The central bank will need to walk a fine line, however, since liquidity within the bank system is tight and further rate hikes could exacerbate that problem, economists said. Data from the Ministry of Commerce and Industry Thursday showed that the wholesale price index for food articles rose 2.5% in the week ended December 25 from the previous week. The year-on-year inflation rate for food surged to 18.32% from 14.44% the week before. It was the fifth straight week of rising food prices, which have been hovering at elevated levels in recent months.”

From miscalculation to emergency, the wheat crisis of 2010

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Wheat trade, CBOT

Wheat trade on the CBOT, 2009 April to 2010 September. Chart from CME

The wheat supply and price crisis from June 2010 onwards has meant that consumers, producers and food industry processors are now struggling with price increases of as much as 90%. The wheat problem of 2010-11 is lurching from crisis to miscalculation to emergency at all scales. And even then, some big international commodities traders are counting windfall profits.

In the first week of August, Reuters reported that Russia’s worst drought on record has devastated crops in parts of the country and caused international grain prices to spike as markets placed bets that without shipments from one of the world’s leading exporters, global supplies would be restricted. Soon thereafter, Bloomberg reported that the share prices of US agricultural companies including Archer Daniels Midland, Monsanto and Potash Corp of Saskatchewan rose in New York trading amid speculation that US wheat exports will jump as importers seek alternatives to Russian grain.

According to the average estimate of analysts surveyed by Bloomberg, the US Department of Agriculture (USDA) will forecast that global wheat stockpiles before the 2011 harvest will drop to 171.09 million metric tons, from 193.97 million tons a year earlier. That will be smaller than the USDA’s 174.76 million ton estimate last month. The USDA has cut its estimates every month since May, when it predicted stockpiles at 198 million tons.

Photo: USDA, Amber Waves, 2010 SeptemberFarmers in Russia, the world’s third-largest wheat grower last season, lost between 50% and 60% percent of crops in the drought-stricken central and Volga River regions this year, Deputy Agriculture Minister Sergei Korolyov has told a conference in Moscow.

The Russian government’s ban left some of the world’s largest wheat importers scrambling to secure alternative supplies. Typically, Cargill, one of the world’s biggest grain agglomerators and foodgrain logistics companies, attacked Russia’s ban, saying that this amounted to “trade barriers”. Cargill’s cynical and profit-driven reaction indicates the rush to profit from what is clearly a foodgrains disaster in Central Asia and which has major implications for foodgrains importing countries in developing Africa and Asia.

Wheat trade, CBOT

Wheat trade on the CBOT, 2010 June to 2010 September. Chart from CME

Still, over a 3-6 month period, rising wheat prices will probably pinch foodgrains suppliers (who also take powerful positions in the international agricultural commodities trade) because they have signed contracts to supply wheat at lower prices than are prevailing in September. But, since the beginning of July 2010, wheat prices have jumped straight up. Increasing demand from important regions of the world and other supply problems beyond Russia’s drought, such as floods in Canada, crop failure in Ukraine and foodgrains storage and movement problems in India will substantially add to the 2010-11 global wheat crisis.

The uncertainty has also spread to corn. Reuters has reported crop forecaster Informa Economics stating that the USDA report will show the corn yield at 164.8 bushels per acre, below the USDA’s August estimate of 165 bushels. Informa also told clients that the USDA’s final yield estimate for 2010 was likely to be significantly lower at 158.5 bushels per acre. Informa’s estimate of the USDA’s likely final yield count helped propel Chicago Board of Trade corn futures to their highest level in nearly two years.

Photo: USDA, Amber Waves, 2010 SeptemberEarlier last month (August 2010) the World Agricultural Supply and Demand Estimates (WASDE) monthly report, which provides USDA’s comprehensive forecasts of supply and demand for major global crops, said that global wheat supplies for 2010-11 are “reduced sharply with world production lowered 15.3 million tons, mostly on reductions for FSU-12 (former Societ Union) and EU-27 (European Union) countries”. It said production for Russia is lowered 8.0 million tons as continued extreme drought and record heat during July and early August have further reduced summer crop prospects. Kazakhstan production is lowered 2.5 million tons reflecting the same adverse weather conditions as in Russia. Ukraine production is lowered 3.0 million tons as heavy summer rains damaged maturing crops and hampered harvesting in western and southern growing areas.

WASDE also said EU-27 production is “lowered 4.3 million tons with yields reduced for northwestern Europe on untimely heat and dryness”. Yields are lowered for southeastern Europe as heavy rains from the same weather pattern that affected Ukraine reduced output. Production is also lowered for Algeria, Brazil, Uruguay, Belarus, and Croatia. Partially offsetting are increases for India, the United States, Australia, and Uzbekistan.

OECD-FAO Agricultural Outlook 2010-2019

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OECD-FAO Agricultural Outlook 2010-2019The OECD-FAO Agricultural Outlook 2010-2019 has just been released. A major joint document, this follows the regular, roughly ten-year wide focus series followed by both organisations on global agriculture. The new release has sections on food price volatility and the impact of commodity markets, and so will be of interest to the research and practitioner community looking at the finance-food-policy interfaces.

The Outlook says that demand for cereals for food and feed is projected to rise by one-third to 3 billion tons by 2050, and possibly higher due to a growing liquid biofuel market. Net cereal imports into the developing countries would increase almost three-fold to nearly 300 million tons by 2050, some 14% of their total cereal consumption. Demand for more income-responsive vegetable oils, meats and dairy products are expected to rise even faster. Livestock is one of the fastest growing sub-sectors in agriculture with over 80% of the projected growth in the next decade taking place in developing countries, particularly in Asia and the Pacific (especially China) and Latin America, outpacing growth in the OECD area by a factor of 2:1 over the next decade.

To support the necessary expansion in output in developing countries, FAO estimates the required average annual investment in primary agriculture and necessary downstream services (e.g. storage, processing) at USD 209 billion in 2009 prices (or USD 83 billion net of depreciation), much of which would come from private sources. Still, this amount represents a 50% increase from current levels and does not include the public investments required in such areas as roads, irrigation, electricity and education. In general since the 1970s, those countries with higher net investment per agricultural worker have been more successful at reducing hunger.

I’ve extracted three of the more interesting points from the Overview which prefaces the Outlook:

1. Average crop prices over the next ten years for the commodities covered in this Outlook are projected to be above the levels of the decade prior to the 2007/08 peaks, in both nominal and real terms (adjusted for inflation). Average wheat and coarse grain prices are projected to be nearly 15-40% higher in real terms relative to 1997-2006, while for vegetable oils real prices are expected to be more than 40% higher. World sugar prices to 2019 will also be above the average of the previous decade but well below the 29-year highs experienced at the end of 2009.

2. Developing countries will provide the main source of growth for world agricultural production, consumption and trade. Demand from developing countries is driven by rising per capita incomes and urbanisation, reinforced by population growth, which remains nearly twice that of the OECD area. As incomes rise, diets are expected to slowly diversify away from staple foods towards increased meats and processed foods that will favour livestock and dairy products. Also, with increasing affluence and an expanding middle class, food consumption in these countries should become less responsive to price and income changes, as is currently the case in OECD countries. This implies that larger changes in price and incomes will be required for consumption to adjust to any unforeseen shocks.

3. National and local emergency stockholding of key food security commodities, for food emergencies, particularly for low-income food importing countries, may increase confidence in the access to food in times of crisis and help stabilise local markets. Increased research, capacity building, and sharing of best practices to improve the functioning of emergency stock schemes are required. Whatever actions governments consider taking, it is always important to keep in mind the full set of policy measures, risks and possible responses for the targeted population.

India’s 2008 food flows mystery

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CPI for Agricultural Labour data from 2007-10 March and FAO food index data over the same period

CPI for Agricultural Labour data from 2007-10 March and FAO food index data over the same period

My working experience with a central agriculture ministry programme (the NAIP – National Agricultural Innovation Project) has left me with some impressions of the perspective of the central institutional approach to agriculture, and these aren’t encouraging. My finding is (although I have little access to academic output on agriculture which is not crop science):

1. We in India lack an independent food retail price gathering and monitoring network. The data gathered by the Ministry of Agriculture (through its Directorate of Economics and Statistics) and by the Ministry of Consumer Affairs, Food and Public Distribution use different formats and schedules. Validating these is a huge task, and that is the reason why the unit level (place, food item, time) extraction becomes so very cumbersome.

2. We have even less knowledge (outside the commercial circuit) of the flows of agricultural produce: (a) From mandis to urban centres. Large transfers of foodgrains are logged by Indian Railways, but at district level, we have very little reliable data of the flows of cereals, pulses, vegetables and fruit, within district centres and outside; (b) From mandis (and contract farms, now strengthened by a draft national agriculture produce marketing committee act, APMC) to the food processing industry, and to commercial storage depots for use by either food processing sector and by the agri commodities exchanges.

3. Agriculture continues to be seen by central and state governments mainly as an APY (area, production, yield) activity, only rarely as a livelihood activity for a rural household (institutes such as Crida buck this trend, but we need more of them). That is why our organised state-level assessments are also still APY-centric (with a few scattered instances of enlightenment in the form of recognition of conservation agriculture). This is frustrating at a systemic level, because for example the Planning Commission has at hand any number of NGO and commissioned studies and assessments that place cultivation as a socio-cultural livelihood activity.

I’d say there that are technology answers to points 1 and 2 (see how commercial ventures like Nokia Lifetools, Reuters Market Light, Hariyali Kisan Bazar have used tech) but point 3 needs a lot of work.

This chart that I’ve made shows why. It uses the consumer price index (CPI) for Agricultural Labour data from 2007-10 March and FAO food index data over the same period. The eight states I’ve chosen (Haryana, Karnataka, Punjab, West Bengal, Maharashtra, Rajasthan, Tamil Nadu, Andhra Pradesh) recorded the highest increases among large states of CPI-AL over the period.

The FAO indices climb steeply till around Feb 2008. By December 2008 the FAO cereal index is back to the level it was at in August 2007. For that time the CPI-AL 8-state rise is relatively gradual and disconnected from the FAO trend. Between around Jan 2009 and July 2009 both FAO indices show some volatility in the 100-125% band. The 8 states’ CPI-AL however continue their rising trend. Only in December 2009 is there evidence of some congruence between the FAO set and the 8 states CPI-AL set, although the FAO pair are 105-120% up from March 2007 and the all-India CPI-AL is more than 135% up.

The big question for us is: what happened with food movements in India between 2007 July and 2008 November, when India and FAO data diverged so dramatically, and then from 2009 May onward, when the movements showed some similarity, although at different levels of the comparative index? Do the agricultural commodities markets hold the answer?