abare.gov.au - Australian commodities – September quarter . volume 15 . number 3 2008

Coarse grains

Leanne Lawrance

The world coarse grains indicator price (US corn, fob Gulf) reached a peak of US$288 a tonne in June 2008. Since then prices have fallen to an average of US$269 a tonne in July 2008 and US$234 a tonne in August. Despite the recent decline, the July and August averages are still well above those of 12 months earlier.

In 2008-09 continued strong demand for coarse grains, particularly for corn for ethanol production, is forecast to place upward pressure on corn prices. The world coarse grains indicator price is forecast to average US$230 a tonne in 2008-09, US$12 a tonne above the average 2007-08 price.

Australian barley production is forecast to rebound from the drought affected harvest of 2007-08, placing downward pressure on domestic prices. Australian feed barley prices are forecast to fall by 21 per cent to $A242 a tonne and malting barley by 17 per cent to $A287 a tonne in 2008-09.

World production remains at record highs

World coarse grains production is forecast to remain largely unchanged at around 1.1 billion tonnes in 2008-09. A 6 per cent decline in US production, the world’s largest coarse grains producer, is expected to be outweighed by production increases in China and the European Union (by 1 and 13 per cent respectively).

Global end of season coarse grain stocks were at a low of 148 million tonnes in 2007-08. In 2008-09 end of season stocks are forecast to fall further to around 144 million tonnes. Although stocks are low, the expected record production in 2008-09 will lead to an increase in coarse grains supplies. In 2008-09 world coarse grain supplies are forecast to be slightly more than 1.2 billion tonnes, 2 per cent more than in the previous year.

Coarse grains production in the United States is forecast to decline to around 330 million tonnes in 2008-09, 22 million tonnes less than the previous year. Despite the forecast decline, this production will still be the second highest on record. Corn is the major coarse grain produced in the United States, accounting for around 95 per cent of its total coarse grains production. Floods in mid-June 2008 across Iowa, one of the largest corn producing states, were thought to have damaged planted corn crops. However, the United States Department of Agriculture has indicated that the damage was less than anticipated. It is forecast that the United States will produce 312 million tonnes of corn in 2008-09.

Corn production in China is forecast to increase by around 1 per cent in 2008-09 to a record 153 million tonnes. Seasonal conditions have been favourable in China and yields are forecast to be one of the highest on record, at 5.50 tonnes per hectare, compared with the average of 5.22 tonnes per hectare in the five years ended 2007-08.

In the European Union, one of the largest coarse grains producing regions and the largest barley producer, total production is forecast to be 18 million tonnes higher in 2008-09, reaching 154 million tonnes. The total area sown to corn and barley is estimated to have increased by 5 per cent in 2008-09. Combined with favourable growing conditions yields of both crops are forecast to be above historical averages. EU barley production is forecast to be 8 per cent higher in 2008-09 compared with the previous year at around 63 million tonnes. Corn production is forecast to be around 59 million tonnes in 2008-09, 11 million tonnes more than the previous year’s harvest.

Barley production in the Russian Federation is forecast to be 18 million tonnes in 2008-09, 15 per cent more than the previous year. This is despite a 2 per cent fall in the area planted to barley mainly as a result of a switch into wheat. Seasonal conditions in the Russian Federation have been favourable and yields are forecast to be 9 per cent above the average in the five years ended 2007-08.

Record world consumption

For a third consecutive year, world coarse grains consumption is forecast to be over 1 billion tonnes. In 2008-09 world coarse grains consumption is forecast to be 26 million tonnes more than the previous year at 1.1 billion tonnes. Increased coarse grains consumption is being driven by a forecast 32 million tonne increase in industrial use (primarily ethanol), while feed use is forecast to decline by 1 per cent.

Ethanol is driving consumption

The United States and Brazil are the world’s largest ethanol producers, producing 24.6 billion litres and 19 billion litres respectively in 2007. In the United States, corn is the major feedstock in the production of ethanol while sugar cane is the major feedstock in Brazil. World industrial use of corn is forecast to be 307 million tonnes in 2008-09, a 31 million tonne increase compared with the previous year.

The US ethanol industry has expanded rapidly with production capacity increasing from 6.7 billion litres in 2000 to an estimated 27.4 billion litres in 2008. It is also estimated that in 2008 there are an additional 23.5 billion litres of capacity under construction.

Corresponding with the rising production capacity has been an increase in the amount of corn used in the United States for industrial purposes. Corn used for industrial purposes has increased from 50 million tonnes in 2000-01 to 110 million tonnes in 2007-08. In 2008-09 industrial use of corn is forecast to increase to 138 million tonnes, which will be around 44 per cent of the total US corn production.

Mandated use of biofuels in transport fuels under the Energy Independence and Security Act of 2007 (EISA), means that US domestic use of corn is likely to rise again in 2008-09. Under the Act, mandated use of biofuels will be around 9.0 billion gallons (34.1 billion litres) in 2008.

Coarse grains outlook

2006-07

2007-08

2008-09

% change

World

Production

989

1 076

1 089

1.2

– barley

137

133

147

10.5

– corn

712

789

790

0.1

Consumption

1 012

1 064

1 090

2.4

Trade

118

125

116

– 7.2

Closing stocks

138

148

144

– 2.7

US corn price

US$/t

157

218

230

5.5

(fob Gulf, Sept–Aug)

Australia

Area

’000 ha

6 216

6 529

6 612

1.3

– barley

’000 ha

4 182

4 405

4 506

2.3

– sorghum

’000 ha

613

800

767

– 4.1

Production

6 727

10 412

12 058

15.8

– barley

4 257

5 920

7 836

32.4

– sorghum

1 283

2 812

1 989

– 29.3

Exports

3 255

4 427

5 829

31.7

– value

A$m

875

1 620

2 087

28.8

Feed barley price

A$/t

276

305

242

– 20.7

Malting barley price

A$/t

321

346

287

– 17.1

f ABARE forecast. s ABARE estimate.

Feed use declining

The use of coarse grains for livestock feed is forecast to decline by 1 per cent in 2008-09 to around 650 million tonnes. Consumption in both the European Union and the United States is forecast to fall by 4 and 11 per cent respectively.

The demand for coarse grains for livestock feed in the European Union is forecast to fall in 2008-09 as the availability of feed wheat increases. Wheat production in the European Union is forecast to increase by around 26 million tonnes in 2008-09. Increased wheat supplies are forecast to lower the price of feed wheat in the European Union. In August 2008 the UK feed wheat price averaged US$242 a tonne, compared with US$318 a tonne in August 2007. The lower wheat price and an expected increase in wheat availability, is likely to result in a decline in the use of coarse grains for livestock feed in the European Union.

The use of coarse grains for livestock feed is also forecast to fall in the United States as feed wheat and distillers grains (a by-product from the production of ethanol) replaces some corn in feeding rations. Corn used for livestock feed is forecast to be around 135 million tonnes in 2008-09, the lowest since 1996-97.

Trade declining

Lower import demand, particularly from the European Union, is forecast to result in world trade being around 7 per cent lower in 2008-09. In the European Union forecast increases in production of both wheat and coarse grains are likely to result in a substantial drop in import demand for corn. EU imports of corn increased substantially in 2007-08 (more than double the imports in 2006-07) because of domestic production shortfalls. In 2008-09 as domestic supplies increase, corn imports are forecast to fall from 19 million tonnes in 2007-08 to around 6 million tonnes.

Stocks also lower

Coarse grain stocks at the end of the 2008-09 season are forecast to be 3 per cent lower than at the end of 2007-08. This is the lowest level of coarse grain stocks since the late 1970s. Balanced against a forecast 10 million tonne decline in corn stocks in 2008-09, is a forecast 5 million tonne increase in barley stocks.

Corn stocks in both the United States and China are forecast to decline by 28 and 11 per cent respectively in 2008-09. Corn stocks in China are forecast to fall, despite three consecutive years of production above

150 million tonnes. This reflects continued strong growth in feed demand combined with increased demand for corn as a feedstock for ethanol production.

The majority of the increase in world barley stocks is in the European Union. Barley stocks at the end of 2008-09 in the European Union are forecast to be around 9 million tonnes, a rise of close to 4 million tonnes from the previous season.

Australian barley production to increase

The area sown to barley is estimated to have increased by 2 per cent in 2008-09, to be around 4.5 million hectares. Barley crops are currently in reasonable condition heading into the critical spring months. The 2008-09 barley crop is forecast to be 7.8 million tonnes, close to 2 million tonnes more than was harvested in the previous year.

The total area planted to grain sorghum is forecast to be 767 000 hectares in 2008-09, a 4 per cent decline from the area sown in the previous year. Parts of the 2007-08 grain sorghum area were double cropped into winter cereal crops and will therefore not be planted to grain sorghum in 2008-09. Assuming average yields, grain sorghum production in 2008-09 is forecast to be slightly less than 2 million tonnes.

Exports to rise in 2008-09

Total coarse grains exports, in volume terms, are forecast to be 5.8 million tonnes in 2008-09, a 1.4 million tonne increase from the shipments in 2007-08. The value of Australian coarse grains exports is forecast to rise by 29 per cent to around $2.1 billion in 2008-09.
The major increase in coarse grains exports is expected to come from barley exports.

Australian barley exports on a marketing year basis (November – October) are forecast to reach 5.1 million tonnes in 2008-09, a 16 per cent increase on the previous year. The value of barley exports on a financial year basis (July-June) is forecast to be $1.8 billion in 2008-09, 18 per cent more than the previous year.