The world’s wheat production is expected to exceed utilization for the fourth consecutive year, according to the Food and Agriculture Organization of the United Nations (FAO). This will boost wheat inventories to a 15-year high, with major increases in China and the United States.

The FAO’s biannual Food Outlook report, released June 2, says wheat utilization will decrease marginally as farmers turn to corn to feed livestock. In China, the government’s decision to lower corn reserves is expected to increase its consumption.

“China has massive (corn) inventories, and a demand in inventories would mean that domestic consumption of (corn) will probably pick up,” said FAO senior economist Abdolreza Abbassian in an interview on FAO’s website.

China’s actions and policies have implications on every aspect of the report, Abbassian said. Therefore, China’s move on corn reserves is expected to affect international markets by leading to a sharp decline in demand for barley and sorghum.

A decline in international trade could intensify competition among major exporters.

Cereal production forecast

The FAO raised its world cereal production forecast for 2016 to 2,543 million tons, 0.7 percent below the record high from 2014. World cereal utilization is expected to be 2,546 million tons. New production numbers in its updated Cereal Supply and Demand Brief is 17 million tons higher than reported in May, reflecting upward revisions for wheat and corn in major producing countries.

The forecast for global cereal stocks was raised 642 million tons, less than two million tons below their all-time high, driven by a revision to China’s wheat inventory.

Global cereal trade is expected to decline 1.9 percent from the previous year to 369 million tons. The contraction "is likely to intensify competition for market share among major exporters, a prospect that could keep international prices in check," FAO said.

“When you have lots of supplies and demand is not very strong, as seems to be the case in many food products including cereals, you’re going to see more competition among the main players,” Abbassian said.

Food Price Index up

In its Food Price Index, the FAO said dairy prices are expected to remain weak, and fish prices will remain contained due to healthy aquaculture production. Meat production in general is expected to be stable, but poultry output, especially for export, is expected to grow.

The FAO said its Food Price Index rose in May for the fourth consecutive month, by 2.1 percent from April to 155.8 points. That is down 7 percent from a year ago.

  • The FAO Cereal Price Index rose 1.6 percent from April, led by a sharp increase in corn prices.
  • The FAO Meat Price Index rose 2 percent, spurred by brisk import demand from Asia for pig meat from the European Union.
  • The FAO Dairy Price Index, which is 24 percent below its level from a year ago, rose just 0.4 percent increase thanks to improved prices in the EU and sustained international demand for whole milk powder and butter.
  • The FAO Vegetable Oil Price Index declined 1.8 percent, as palm oil receded after three months of sharp gains. Import demand was weaker than anticipated in China, India and the EU.
  • The FAO Sugar Price Index jumped 11.7 percent from the previous month, as deteriorating production prospects in India, the world's No. 2 sugar producer, outweighed a bumper crop and large export availabilities in Brazil, the leading producer.