abare.gov.au - Australian commodities – June quarter . volume 15 . number 2 2008

Coarse grains

Continued strong demand for coarse grains, particularly corn as feedstock for the production of ethanol, is forecast to place upward pressure on world coarse grains prices in 2008-09. The world coarse grains indicator price (US corn, fob Gulf) is forecast to increase by US$11 a tonne to average US$225 a tonne in 2008-09.

Despite this expected rise in world prices, Australian feed and malting barley prices are forecast to fall in 2008-09, as Australian barley production is forecast to rebound from the drought reduced harvest of 2007-08 placing downward pressure on prices. Australian feed barley prices in 2008-09 are forecast to fall by 10 per cent to average A$284 a tonne and malting barley by 8 per cent to average A$327 a tonne. Despite the forecast falls, these prices are still historically high.

World production remains high

Total world coarse grains production is forecast to remain around 1.1 billion tonnes in 2008-09, despite a forecast decline in world corn production. Corn is the major coarse grain produced around the world, accounting for around 71 per cent of total world coarse grains production. Corn production is forecast to decline in 2008-09. This decline is expected to be partially offset by an 8 million tonne increase in world barley production, the second major coarse grain produced.

The area planted to corn in the United States is forecast to fall by 7 per cent in 2008-09, to around 41 million hectares. Despite the forecast decline, this will still be one of the largest areas sown to corn in the United States. While the price of both corn and soybeans have increased over the past year, the expected returns from soybeans relative to corn have resulted in some shift of US arable land back into the production of soybeans. US corn production is forecast to decline by 7 per cent in 2008-09, to be 308 million tonnes.

In mid-June 2008, flooding occurred across much of Iowa in the United States, one of the largest corn producing states. At the time of writing insufficient information was available on the extent of the damage to crops. If significant damage has occurred, US corn production could be lower than currently forecast, resulting in a higher than forecast world indicator price.

The area sown to corn in China is forecast to decrease slightly in 2008-09, but remain around a record 28 million hectares, reflecting high corn prices and strong domestic demand. With an assumed return to average yields, Chinese production is forecast to be 150 million tonnes in 2008-09, 3 per cent more than the 2007-08 harvest.

In Brazil and Argentina, harvest of the 2007-08 corn crop is approaching completion and production is estimated to be one of the highest on record. High corn prices are forecast to result in the area sown to corn in Brazil increasing by around 3 per cent in 2008-09, to a record 15 million hectares. Production in Brazil in 2008-09 is forecast to be close to 55 million tonnes, compared with the 10 year average of 45 million tonnes.
In 2008-09 the area sown to corn in Argentina is forecast to remain around 3.1 million hectares, well above the 10 year average of 2.7 million hectares. Argentina’s corn production is forecast to be 23.5 million tonnes, close to 10 per cent more than was harvested in the previous year.

World barley production is forecast to increase by 6 per cent in 2008-09. The European Union and the Russian Federation are the world’s largest barley producers, accounting for an average of just more than half of global production. The area sown to barley in the European Union is forecast to increase by around 3 per cent in 2008-09 and with an improvement in seasonal conditions, production is forecast to increase by around 2 million tonnes. In the Russian Federation, with an improvement in seasonal conditions and yields returning closer to historical averages, it is expected barley production will increase by around 9 per cent in 2008-09.

In Canada, corn and barley production are both forecast to fall in 2008-09 as the area sown to these crops declines in favour of wheat and oilseeds. The area sown to corn is forecast to decrease by 12 per cent and production by 14 per cent in 2008-09, compared with the previous year. Despite a forecast improvement in barley yields, the decline in area sown to barley is expected to lead to a decline of barley production in Canada by 5 per cent in 2008-09.

Coarse grains outlook

2006

2007

2008-09

% change

World

Production

989

1 076

1 068

– 0.7

– barley

137

134

142

6.0

– corn

713

790

775

– 1.9

Consumption

1 011

1 065

1 080

1.4

Trade

117

125

119

– 4.8

Closing stocks

140

146

131

– 10.3

US corn price

US$/t

157

214

225

5.1

(fob Gulf, Sept–Aug)

Australia

Area

’000 ha

6 216

6 529

6 678

2.3

– barley

’000 ha

4 182

4 405

4 484

1.8

– sorghum

’000 ha

613

800

763

– 4.6

Production

6 727

10 291

12 407

20.6

– barley

4 257

5 920

7 942

34.2

– sorghum

1 283

2 691

1 940

– 27.9

Exports

3 255

4 273

5 783

35.3

– value

A$m

875

1 529

2 044

33.7

Feed barley price

A$/t

276

315

284

– 9.8

Malting barley price

A$/t

321

355

327

– 7.9

f ABARE forecast. s ABARE estimate.

Consumption to remain constant

In 2008-09, global coarse grains consumption is forecast to remain at around 1.1 billion tonnes. A forecast decline in demand for coarse grains for livestock feed is likely to be outweighed by an increase in the demand for coarse grains for industrial purposes, particularly in producing ethanol.

US driving consumption

Total coarse grains consumption in the United States, the world’s largest consumer, is forecast to increase by around 5 million tonnes in 2008-09. Increased US consumption is largely the result of growing demand for corn in producing ethanol. The use of coarse grains for livestock feed is forecast to fall by around 13 per cent in 2008-09, as feed wheat and distillers grains, a by-product from the production of ethanol, replace corn in feeding rations. The availability of distillers grains is also replacing a proportion of corn in feed rations. However, the use of distillers grains is still in the developmental stage and significant research is being undertaken to determine its suitability for different animals.

The ethanol industry in the United States has expanded rapidly. In January 2000 there were around 54 operational ethanol plants with capacity of around 6.6 billion litres per year. It is now estimated there are 134 ethanol plants operational in the United States with a production capacity of 27.4 billion litres. It is also estimated that 77 plants are under construction or expansion, which will increase capacity by a further 23.5 billion litres.

Mandated use of biofuels in transport fuels under the US Energy Independence and Security Act of 2007 (EISA), will mean that US domestic use of corn is likely to rise again in 2008-09. The mandate was set under the Act to 9.0 billion gallons (34.1 billion litres) by 2008, compared with domestic production of 8.7 billion gallons (32.9 billion litres) in 2007.

European Union consumption declining

The demand for coarse grains for livestock feed in the European Union is forecast to decline by around 7 million tonnes in 2008-09, where a poor wheat harvest in the previous season led to a higher use of coarse grains in feeding rations. In 2007-08 the use of coarse grains for livestock feed increased to 116 million tonnes, compared with an average consumption of 111 million tonnes. With a larger wheat harvest expected in 2008-09 and a forecast decline in world wheat prices, the use of coarse grains for livestock feed in the European Union is forecast to fall.

Stocks to fall as consumption rises

End of season coarse grains stocks are forecast to be around 131 million tonnes in 2008-09, the lowest ending season stocks since the late 1970s. US corn stocks are forecast to decline to 19 million tonnes in 2008-09, the lowest level since the 1972-73 season.

Corn stocks in China are expected to decline by around 1 per cent in 2008-09, making it the ninth consecutive year of declining corn stocks and the lowest level since the 1977-78 season. This reflects continued strong growth in feed demand and increased demand for corn as a feedstock for ethanol production.

Balanced against a decline in corn stocks is a forecast 10 per cent increase in ending season barley stocks in 2008-09. Despite the forecast increase, barley stock will remain close to the lowest they have been since the early 1980s.

International trade in coarse grains decline

World trade in coarse grains in 2008-09 is forecast to decline by 5 per cent on last year’s record, to around 119 million tonnes. US corn exports are forecast to fall by around 16 per cent in 2008-09 because of stronger domestic demand.

A decline in world corn exports is forecast to outweigh an increase in global barley exports in 2008-09. Barley exports from Ukraine and the Russian Federation are forecast to increase in 2008-09, assuming a relaxation of current export restrictions imposed by these two countries. In late May 2008, the Russian Agriculture Minister announced grain export duties would not be extended beyond 30 June 2008. In May 2008, the Ukraine Government lifted current export restrictions which it is unlikely to re-impose for the next season. An increase in Australia’s barley production in 2008-09 is also expected to result in increased exportable supplies.

The European Union in 2007-08 is estimated to have imported a record 13 million tonnes of coarse grains to meet domestic production shortfalls. With a forecast rebound in production in 2008-09, import demand in the European Union is forecast to fall. The European Union suspended import duties on all cereals (except oats, buckwheat and millet) until 30 June 2008, as a reaction to high grain prices.

Australian production to increase in 2008-09

In Australia, the area sown to barley is forecast to remain largely unchanged in 2008-09 at 4.5 million hectares. Production is forecast to increase by 2 million tonnes to close to 8 million tonnes in 2008-09.

The recently harvested 2007-08 summer grain crops were significantly larger than historical averages. Above average summer rainfall in northern New South Wales and Queensland was of benefit to grain sorghum crops with yields being above the long-term average in both states. Total grain sorghum production is estimated to have reached a record 2.7 million tonnes in 2007-08, close to 600 000 tonnes greater than the previous record production in 1999-2000.

Exports to increase in 2008-09

Total Australian coarse grains exports, in volume terms, are forecast to increase by around 35 per cent in 2008-09, reflecting a recovery in production. The most significant increase is expected to come from barley exports, which are forecast to increase by 860 000 tonnes in 2008-09. The value of Australian coarse grains exports is forecast to rise by 34 per cent to around $2.04 billion in 2008-09.