Global cereal stocks will fall sharply again by the end of the 2003-04 season, FAO said. The forecast came in the UN food agency's Food Outlook, a publication of the Global Information and Early Warning System.

Closing inventories are expected to be down by 89 million metric tons, or 18 percent from their opening levels.

The anticipated sharp decline in cereal stocks from the previous season would be mainly due to China, although substantial reductions are also anticipated in India, Russia, Ukraine and the European Union, mostly driven by the reductions in their 2003 cereal production, says the report.

Wheat and rice

However, the report says world cereal production in 2004 is forecast to increase to 2.13 billion metric tons, some 2 percent up on last year and 3 percent above the average of the past five years and that could help alleviate the tight global supply situation in the new 2004-05 season.

The bulk of the cereals increase is expected in wheat, although rice output is also seen to rise significantly. By contrast, coarse grains production could decrease marginally.

The report emphasizes, however, that this first forecast, especially for rice and coarse grains, is tentative and assumes normal weather conditions.

According to the report, “The increase in global cereal output forecast for 2004 would come as a very welcome development for global food supply. The continued tightening of global cereal supplies for four successive years since 1999-2000 has brought international cereal prices under significant upward pressure in the past months.”

The report says, “Export prices for wheat, maize and rice all registered strong gains, reflecting tight market conditions.” Because early prospects for wheat crops are favorable, some easing of wheat prices could be anticipated as the harvest approaches in the northern hemisphere in the coming months.

But, the report says that export prices for coarse grains and rice are unlikely to recede any time soon based on current supply and demand prospects.

Demand strong

World cereal utilization in 2003-04 is forecast at 1.971 billion metric tons, up 1 percent from the previous year, but still slightly below the 10-year trend. In spite of a significant increase in international cereal prices and major animal disease outbreaks in the second half of the season, global cereal utilization is expected to rise above the previous season because of strong demand for feed and industrial use, especially in the United States.

The report anticipates an increase in food aid costs per unit in view of generally tighter world cereal supplies, strong international prices and soaring ocean freight rates for 2003-04. It notes that total food aid shipments during this period “could decline slightly.”

The report adds that although world imports of cereals are forecast to decline by around 10 million metric tons in 2003-04, higher prices and freight rates, and smaller food aid shipments, are expected to push up the overall cost of cereal imports by 2 percent from the previous year.