Required citation:

FAO. 2022. Food Outlook – Biannual Report on Global Food Markets. Rome. https://doi.org/10.4060/cb9427en

The designations employed and the presentation of material in this information product do not imply the expression of any opinion whatsoever on the part of the Food and Agriculture Organization of the United Nations (FAO) concerning the legal or development status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. The mention of specific companies or products of manufacturers, whether or not these have been patented, does not imply that these have been endorsed or recommended by FAO in preference to others of a similar nature that are not mentioned.

The views expressed in this information product are those of the author(s) and do not necessarily reflect the views or policies of FAO.

ISSN 0251-1959 [Print]

ISSN 1560-8182 [Online]

ISBN 978-92-5-136028-6

E-ISBN 978-92-5-136431-4 (MOBI)

© FAO, 2022

Some rights reserved. This work is made available under the Creative Commons Attribution-NonCommercial-ShareAlike 3.0 IGO licence (CC BY-NC-SA 3.0 IGO; https://creativecommons.org/licenses/by-nc-sa/3.0/igo/legalcode).

Under the terms of this licence, this work may be copied, redistributed and adapted for non-commercial purposes, provided that the work is appropriately cited. In any use of this work, there should be no suggestion that FAO endorses any specific organization, products or services. The use of the FAO logo is not permitted. If the work is adapted, then it must be licensed under the same or equivalent Creative Commons licence. If a translation of this work is created, it must include the following disclaimer along with the required citation: “This translation was not created by the Food and Agriculture Organization of the United Nations (FAO). FAO is not responsible for the content or accuracy of this translation. The original [Language] edition shall be the authoritative edition.”

Disputes arising under the licence that cannot be settled amicably will be resolved by mediation and arbitration as described in Article 8 of the licence except as otherwise provided herein. The applicable mediation rules will be the mediation rules of the World Intellectual Property Organization http://www.wipo.int/amc/en/mediation/rules and any arbitration will be conducted in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL).

Third-party materials. Users wishing to reuse material from this work that is attributed to a third party, such as tables, figures or images, are responsible for determining whether permission is needed for that reuse and for obtaining permission from the copyright holder. The risk of claims resulting from infringement of any third-party-owned component in the work rests solely with the user.

Sales, rights and licensing. FAO information products are available on the FAO website (www.fao.org/publications) and can be purchased through publications-sales@fao.org. Requests for commercial use should be submitted via: www.fao.org/contact-us/licence-request. Queries regarding rights and licensing should be submitted to: copyright@fao.org.

Photo credits (left to right/top to bottom):

©FAO; ©PEXELS; ©FAO; ©Fotolia; ©FAO; ©Shutterstock; ©FAO; ©FAO; ©FAO; ©FAO; ©Shutterstock; ©Freepik; ©Freepik; ©Shutterstock; ©FAO; ©PEXELS

HIGHLIGHTS

In view of the soaring input prices, concerns about the weather, and increased market uncertainties stemming from the war in Ukraine, FAO’s latest forecasts point to a likely tightening of food markets and food import bills reaching a new record high.

WHEAT

Wheat markets are embarking on the 2022/23 season with a great deal of uncertainty amid the impacts of the ongoing war in Ukraine, trade policy changes, near-record high prices and a forecast fall in global production from the 2021 record level.

COARSE GRAINS

Prospects for a fall in global maize production, foreseen to be concentrated among major exporters, coupled with uncertainty about Ukraine’s export prospects and the implications for global availability, point to likely tighter markets in 2022/23.

RICE

Although high input costs and water constrains may prevent world rice production from rising, the 2022 harvest is predicted to remain abundant amid public efforts to help the sector cope with profitability challenges. Thus, world rice utilization and trade may continue rising, while reserves remain ample.

MEAT

World meat production is forecast to expand moderately in 2022, despite a challenging production environment characterized by widespread animal diseases, conflicts and rising input costs. Only a modest expansion in world trade in meat and meat products is anticipated in 2022, reflecting limited export availabilities from leading exporting countries and a likely decline in pig meat imports by China.

SUGAR

World production of sugar in 2021/22 is forecast to rebound and surpass global consumption, which is expected to be below earlier estimations. Global trade in sugar is foreseen to contract slightly because of a slowdown in import demand and reduced shipments from Brazil.

OILCROPS

FAO’s 2021/22 forecasts suggest a tightening market outlook for oilseeds and derived products, broadly underpinned by production shortfalls coinciding with a rather resilient demand. Tentative forecasts for 2022/23 point towards increased outputs across the oilcrops complex, although the global supply-demand picture may remain relatively tight.

DAIRY

World milk production in 2022 is forecast to expand, albeit more slowly than in previous years, constrained by falling dairy herd numbers, squeezed profit margins and labour shortages in several major producing regions. World trade in dairy products is predicted to contract moderately from the 2021 elevated level.

FISHERIES

The demand for fisheries and aquaculture products has strengthened rapidly as foodservice businesses return to help revitalize the retail sector, pushing prices steeply upwards. However, the uncertainties stemming from the war in Ukraine and widespread inflation are negatively impacting businesses and preventing a full recovery.

SPECIAL FEATURES

The war in Ukraine and the risks it poses for global food commodity markets

The war in Ukraine is engaging two of the world’s most important agricultural market players, at a time of already high and volatile international food and agricultural input prices. This Special Feature highlights the significant risks this war poses to` world food markets and global food security, at large.

High input prices protract high food prices, creating a double burden for import-dependent countries

This Special Feature analyses developments in global markets for inputs with reference to FAO’s Global Input Price Index (GIPI), as well as the mounting burden of importing them. With the GIPI rising much faster than food prices (both are at all-time highs), farmers are disincentivized to increase production, possibly protracting high prices in food markets.

ACKNOWLEDGEMENTS

MARKET SUMMARIES

MARKET ASSESSMENTS

Wheat

Coarse grains

Rice

Oilcrops, oils and meals

Sugar

Meat and meat products

Milk and milk products

Fish and fishery products

SPECIAL FEATURES

The war in Ukraine and the risks it poses for global food commodity markets

High input prices protract high food prices, creating a double burden for import-dependent countrie

MAJOR POLICY DEVELOPMENTS

Grains

Rice

Meat

Dairy

STATISTICAL TABLES

MARKET INDICATORS

Futures markets

Ocean freight rates

Food import bills

The FAO price indices

ACKNOWLEDGEMENTS

The Food Outlook report is a product of the FAO Markets and Trade Division of the Economic and Social Development Stream. This report was prepared under the overall guidance of Boubaker Ben-Belhassen, Director and Upali W. Galketi Aratchilage, Senior Economist. Market assessments were written by a team of economists, whose names appear under their respective market summary contributions. A contribution by the International Grains Council on ocean freight rates for the market indicators section is also gratefully acknowledged. The report benefited from research support from many staff, namely, David Bedford, Harout Dekermendjian, Lavinia Lucarelli, Emanuele Marocco, Emanuele Mazzini, Marco Milo, Fabio Palmeri, and the Fisheries and Aquaculture Statistics Team and GLOBEFISH.

Special thanks go to David Bedford and Lavinia Lucarelli for preparing the charts and statistical tables and to Valentina Banti for her administrative support. Additionally, the team is grateful to Ettore Vecchione for the desktop publishing and Ruth Raymond for her valuable editorial assistance.

CEREALS

Early prospects for cereal production in 2022 point to a likely decrease of 16 million tonnes from the record output estimated for 2021, reaching 2 784 million tonnes (including rice in milled equivalent). This would mark the first decline in four years. Among the major cereals, the largest decline is foreseen for maize, followed by wheat and rice. By contrast, global outturns of barley and sorghum will likely increase in 2022.

World cereal utilization is also forecast to decline in 2022/23 by 0.1 percent from the estimated 2021/22 level, to 2 788 million tonnes. The predicted contraction, the first in twenty years, would mainly stem from expected declines in the feed use of wheat, coarse grains and rice, along with a smaller foreseen decrease in industrial uses, mainly of wheat and rice. By contrast, global food consumption of cereals is expected to increase, keeping pace with the continued rise in world population.

Based on FAO’s initial forecasts for global cereal production in 2022 and utilization in 2022/23, global cereal stocks are heading for a contraction of 0.4 percent below their opening levels, to 847 million tonnes. At the current levels of utilization and stock forecasts, the world cereal stocks-to-use ratio would drop from 30.5 percent in 2021/22 to 29.6 percent in 2022/23, the lowest level since 2013/14. Among the major cereals, the drawdown in maize inventories is expected to be the largest. Stocks of barley and rice are also forecast to decline, while those of wheat and sorghum will likely increase

World trade in cereals is expected to fall to a three-year low estimated at 463 million tonnes, 2.6 percent below the 2021/22 level. This anticipated decline reflects a likely contraction in global trade of coarse grains and wheat, while prospects for rice remain positive. The FAO Cereal Price Index averaged 173.4 points in May, reaching a new all-time high and 39.7 points (29.7 percent) above the previous year’s value. Tighter supplies and market uncertainty, as well as rising energy and input prices, will likely keep world cereal prices elevated, at least through the first half of the 2022/23 season.

WHEAT

Global wheat markets are embarking on the 2022/23 season with a great deal of uncertainty. The impacts of the ongoing war in Ukraine, trade policy changes in several countries, and high international prices will shape much of the wheat market outlook. International wheat prices are at levels not reached since 2008, following a season of tight global availability due to reduced harvests in some major exporting countries and export suspensions by others, including Ukraine (a major exporter) and India (an emerging exporter), along with supply concerns for 2022/23 also adding pressure.

Global wheat production in 2022 is predicted to decline from the 2021 record level by 0.8 percent, reaching 771 million tonnes and marking the first drop in four years. Year-on-year falls in production in Australia, India, Morocco and Ukraine will likely outweigh expected increases in Canada, the Islamic Republic of Iran and the Russian Federation.

While world food consumption of wheat is projected to expand, albeit at a below-average pace, a decrease in the feed use, driven by high prices and, to a lesser extent, industrial use of wheat is anticipated to cause a 0.4-percent decline in total wheat utilization in 2022/23 to 769 million tonnes. This would be 1.1 percent below the ten-year trend, marking the first time in three years that global utilization has fallen below the trend.

With global production in 2022 preliminarily forecast to exceed utilization in 2022/23, world wheat stocks are set to increase marginally, by 0.4 percent, to 298 million tonnes by the close of the seasons in 2023. However, much of that increase is foreseen to be concentrated in China, the Russian Federation and Ukraine, while stock drawdowns are anticipated in several countries in Africa and Asia.

At 189 million tonnes, the preliminary forecast for world trade in wheat (including wheat flour in wheat equivalent) in 2022/23 (July/June) points to a 1.7-percent decline from the 2021/22 level. The contraction mainly stems from an anticipated significant reduction in exports from Ukraine as a result of the blockade of its ports by the Russian Federation. Smaller shipments are also forecast for Argentina, Australia and India, stemming from lower production on top of an export ban in India. On the import side, smaller purchases by several countries in Asia, especially China and Iran, are seen lowering global import demand.

Contact:

Erin Collier

Jonathan Pound (Production)

COARSE GRAINS

World production of coarse grains in 2022 is forecast to fall slightly (0.6 percent) from last year’s record level. This is entirely attributed to a predicted drop in maize production, while outputs of all other major coarse grains, including barley and sorghum, are forecast to increase. Making up the bulk of the expected decline in maize production are a smaller harvest foreseen in the United States of America, the largest maize producer in the world, and a considerable decrease expected in Ukraine’s output due to war-related disruptions.

Global total utilization of coarse grains in 2022/23 is set to decline marginally from the 2021/22 level, by just 0.1 percent, representing the first decrease in 10 years. At 1 498 million tonnes, utilization would fall 2.0 percent below the 10-year trend. A forecast contraction in the feed use of coarse grains, largely due to an anticipated reduction in Northern America, is expected to outweigh a predicted growth in food consumption, while the total industrial use component is projected to remain nearly unchanged from last season.

With production forecast to fall below utilization in 2022/23, global inventories of coarse grains are projected to decline by 1.1 percent below their opening levels. Among the major coarse grains, maize stocks are predicted to contract the most, with most of the foreseen drawdown concentrated in China (mainland) and the United States. World barley stocks are also forecast to decline below their opening levels. Consequently, the world stocks-to-use ratio of coarse grains would drop from its 2021/22 level, reaching the lowest level since 2012/13.

Global trade in coarse grains in 2022/23 (July/June) is forecast to decrease for a second consecutive season, down 3.7 percent from 2021/22 to 220 million tonnes. A steep fall in maize and barley exports from Ukraine, reflecting the impacts of the war, and lower exportable maize supplies in Argentina and the United States are predicted to underpin the lower trade prospects. On the import side, compared with 2021/22, weaker imports are forecast for maize, especially by Canada, China (mainland), Brazil and the European Union (EU), and for barley, almost solely for Asia.

In May, coarse grain prices remained higher for a third consecutive month than the previous record levels reached in 2012. Prospects for tighter markets in 2022/23, due to a predicted fall in global production, concentrated among major maize exporters, combined with uncertainty regarding Ukraine’s export prospects, point to likely continued elevated prices.

Contact:

Erin Collier

Jonathan Pound (Production)

RICE

Although much will depend on weather conditions during the critical Northern Hemisphere summer months, FAO’s preliminary forecast for world rice production in 2022 is pegged at 519.5 million tonnes, which is only 1.4 million tonnes below the 2021 record high. Another large Asian harvest is expected to sustain this positive production result. Nevertheless, early prospects also point to an upturn in African production, while a good outcome has also been registered in Australia. Expectations are subdued elsewhere, due to water constraints and/or diminishing returns caused by high input costs.

International trade in rice is anticipated to expand for the third successive year in 2022, with volumes exchanged across the world forecast at 53.1 million tonnes, 3 percent higher than the 2021 peak. On the import side, an intensification of demand from all regions, except for Asia, is predicted to sustain this expansion. This may benefit shipments from Brazil, China (mainland), Pakistan, Uruguay and especially Thailand. India is nevertheless predicted to remain the world’s largest rice exporter.

Total rice utilization in 2022/23 is pegged at 522.0 million tonnes, only slightly above the 2021/22 high, as another sturdy expansion in food intake is forecast to be mostly outweighed by declines in non-food uses. To meet this forecast volume of use, global rice inventories would need to be drawn down, albeit by a small volume of 0.8 million tonnes. This would place world rice stocks at 191.6 million tonnes, their second highest level on record, largely due to accumulations in China (mainland) and India.

International rice prices have risen steadily since the beginning of 2022 amid strong import demand and supply constraints in the Japonica and fragrant segments. Nevertheless, as measured by the FAO All Rice Price Index, in May 2022, they remained 1.2 percent below their year-earlier levels, as abundant Asian availabilities of the most-widely traded Indica varieties have capped price increases.

Contact:

Shirley Mustafa

OILCROPS

FAO’s 2021/22 forecasts point towards a tightening market outlook for oilseeds and derived products, broadly underpinned by production shortfalls coinciding with a rather resilient demand, while the war in Ukraine and restrictive export policy measures are expected to bring additional uncertainty.

Global oilseed production is forecast to contract in 2021/22, primarily driven by expected lower soybean and rapeseed outputs, with reduced yield levels seen more than offsetting a further expansion in harvested areas. While world oilmeal supply is anticipated to decline accordingly, the utilization of meals/cakes is forecast to fall only fractionally, tied to a slowdown in feed consumption in response to poor livestock profit margins. With world oilmeal uptake forecast to exceed global supply, the ending stocks of meals/cakes are expected to drop further to multiyear lows, resulting in a lower global stocks-to-use ratio.

As for oils/fats, global production is expected to increase marginally, with the foreseen growth in palm oil production overshadowing the estimated losses in soy and rapeseed oil outputs. In the meantime, global consumption of vegetable oils is forecast to stagnate at the 2020/21 level, as demand rationing is anticipated for both food and non-food uses owing to elevated prices, supported by a weakening outlook tied to COVID-19-related lockdowns in China. With total oils/fats production poised to fall short of consumption, world carryout inventories of oils/fats should decline for the fourth consecutive season, resulting in a further drop in global stocks-to-use ratio. World trade in vegetable oils is forecast to contract to a four-year low due to lower import demand amid restrictive export measures.

Regarding the upcoming 2022/23 season, highly tentative forecasts suggest a possible sharp rebound in the world production of oilseeds and derived products, while global utilization will likely resume growth at a moderate level. Consequently, a stock replenishment seems possible, although world supply-demand balances would remain relatively tight, as suggested by below average global stocks-to-use ratios for both oilmeals and vegetable oils.

Contact:

Di Yang

SUGAR

FAO’s forecast for world sugar production in 2021/22 (October/September) is pegged at 174.6 million tonnes, up 5.1 million tonnes (3 percent) from the reduced level of 2020/21. The anticipated rebound, after three years of decline, reflects expectations of production increases in India, Thailand and the European Union, and will likely more than offset significant declines in Brazil and China.

Global sugar consumption is set to recover for a second successive season in 2021/22, but its growth is anticipated to be slower than previous expectations. The downward revision mainly reflects a significant slowdown in global economic growth forecast for 2022. India, the world’s largest sugar consumer, and African countries are expected to drive the foreseen global increase in sugar consumption. In China, the world’s second largest sugar consumer, consumption is forecast to grow, albeit to a lesser extent than earlier foreseen. The anticipated expansion in global sugar intake is not seen sufficient to surpass total production, leading to an estimated output surplus of 1.8 million tonnes.

World sugar trade in 2021/22 is forecast at 59.0 million tonnes, slightly down from the estimated volume for 2020/21. Despite expectations of record exports from India and a recovery in shipments from Thailand, lower exports from Brazil are anticipated to curb world sugar trade. On the import side, high import costs, coupled with a slowdown in consumption, are likely to negatively affect import demand from Asia, particularly China, the world’s largest sugar importer.

International sugar prices have generally decreased since October 2021, although they have remained at relatively elevated levels. Price declines were mainly triggered by favourable production prospects in major exporting countries, notably India and Thailand. Concerns over the impact of the COVID-19 pandemic on the global demand for sugar, following the resumption of containment measures in many countries, also weighed on prices in late 2021. However, the strengthening of the Brazilian real against the United States dollar and concerns over a higher diversion of sugarcane to ethanol in Brazil, supported by higher international crude oil prices, prevented a more substantial decline in prices.

Contact:

Elmamoun Amrouk

Fabio Palmeri

MEAT AND MEAT PRODUCTS

Global meat production is forecast to reach 361 million tonnes (carcass weight equivalent) in 2022, expanding by 1.4 percent in 2022, albeit at a slower pace than the 4.5 percent growth realized in 2021. The expansion is driven mainly by a steep growth in meat output foreseen in China and notable increases in Brazil, Australia and Viet Nam, to be partly offset by anticipated declines in the European Union, the United States of America (the United States), Canada, the Islamic Republic of Iran and Argentina.

In China, overall meat production is forecast to rise to 96 million tonnes, growing by 4.4 percent year-on-year. This growth will be principally driven by a projected expansion in pig meat production by 8 percent to 58 million tonnes, exceeding the output level before the dramatic spread of the African swine fever (ASF) virus in 2018. Brazil is anticipated to increase its meat production, benefiting from disease-free status across major meat production systems and a surge in global demand, although escalating production costs and possible margin squeezes could constrain production expansion. Increased availability of competitively priced slaughter cattle following a herd-rebuilding phase and improved labour market conditions are expected to support bovine and ovine meat production expansion in Australia. By contrast, the limited availability of slaughter-ready cattle, lower herd inventories, widespread animal diseases, and smaller profit margins could reduce meat output or slow growth in several leading producers, including the European Union and the United States.

World trade in meat and meat products is forecast to reach 42 million tonnes (carcass weight equivalent) in 2022, marking the slowest growth in the last seven years. Moderate import expansions in several countries, including the United States and the United Kingdom of Great Britain and Northern Ireland, are likely to be partially offset by a steep decline in imports by China, among others.

International meat prices have been on an upward trend since October 2020, reaching an all-time high in May 2022, reflecting tight supplies from leading exporting countries amid robust global import demand, especially from Asia and the Middle East.

Contact:

Upali Galketi Aratchilage

MILK AND MILK PRODUCTS

World milk production in 2022 is forecast to reach 937 million tonnes, up 1.0 percent from 2021, which, if confirmed, would mark the fifth consecutive annual growth slowdown. Milk production in Asia is likely to be the primary driver of this year’s global output expansion, continued to be driven by rising dairy cattle numbers and increasing milk collection efficiency in India and Pakistan, with rising output in large-scale farms in China. Milk output may also increase moderately in North America and Central America and the Caribbean, mostly on improving yields, offset by production disincentives brought by squeezed producer margins in some countries. By contrast, milk production levels are expected to drop in Europe, South America and Oceania due to declining dairy cattle numbers, rising costs of feed, mounting skilled labour shortages, and less-than desirable pasture quality.

World trade in dairy products is forecast at 88 million tonnes (milk equivalent), down 0.4 percent from the elevated trading volume registered in 2021. The projected decline in 2022 is attributable to anticipated drops in imports by Ukraine, Sri Lanka, the Russian Federation, Nigeria and Brazil, among others, due to conflicts, economic downturns, and low consumer purchasing power. However, these declines are forecast to be counterbalanced by increased purchases by China and, to a lesser extent, Indonesia, Thailand and Mexico, with recoveries anticipated for the United Kingdom of Great Britain and Northern Ireland (the United Kingdom), Algeria, the Philippines and Saudi Arabia. On the export side, New Zealand and Australia are expected to record the most significant declines in sales among the major exporters, reflecting tight export availabilities, mostly stemming from lower milk production. These declines are likely to be compensated by higher shipments from the European Union, the Islamic Republic of Iran, Türkiye, the United Kingdom and the United States of America.

Except for three months from June to August in 2021, international dairy product prices have been trending upward since mid-2020, as global import demand exceeded export supplies from the leading exporting countries. Reflecting this trend, the FAO Dairy Price Index reached an eight-year high in April 2022 but retreated moderately in the following month, underpinned by a decline in global buying interests.

Contact:

Upali Galketi Aratchilage

FISH AND FISHERY PRODUCTS

As the effects of the pandemic diminish, the dynamics in the global market for fisheries and aquaculture products are shifting. Newly reopened foodservice businesses have revived demand, boosting sales significantly. The recovery of the tourism industry is also contributing to a rapidly strengthening market, particularly for popular restaurant species such as bivalves, lobster, crab, seabass and seabream. Despite its negative impacts, the pandemic has served as a catalyst for various innovations in delivery, sales, marketing and products, which look set to endure in the long term. The revitalization of tourism and retail markets is driving prices steeply upwards for many aquatic products. For some species, such as salmon, prices are now at levels that have not been seen in several decades.

Despite this improved outlook, the war in Ukraine and the Russian Federation has introduced a number of additional concerns and uncertainties that are affecting the market. The extensive trade sanctions and boycotts of Russian products imposed by governments and businesses have prompted a reshuffling of trade routes and a scramble to fill shortfalls with alternative suppliers. In addition, inflation rates are now at extreme levels in many countries, while increasing commodity prices mean more expensive inputs, including feed and fuel. Combined with the continuing high cost of freight, this is squeezing margins all along the supply chain, particularly for processors.

Global fisheries and aquaculture production in 2022 is expected to increase by 1.5 percent, to 184.6 million tonnes. Growth in the aquaculture sector has picked up relative to last year, at 2.9 percent, but continued caution over stocking and input costs keeps the rate below the long-term trend. For capture fisheries, fuel costs and reduced quotas are contributing to a growth slowdown of 0.2 percent year-on-year. Total export revenue is forecast to climb by 2.8 percent to reach USD 178 billion, while volumes are set to drop by 1.9 percent. These figures reflect both the ongoing recovery of the market and the continuing challenges affecting suppliers, which together are causing an increase in fish prices.

Contact:

Felix Dent

Audun Lem

Stefania Vannuccini

WHEAT

PRICES

International wheat prices at near-record highs

After starting the 2021/22 season 33 percent higher than their previous year’s values, international wheat prices increased further in 2021/22 to levels not reached since 2008. World wheat prices rose by 23 percent in the first half of 2021/22 as global supplies tightened, especially of high-quality wheat, following reduced harvests in several major exporting countries in 2021. With markets already tight, the abrupt suspension of exports from Ukraine – a major wheat exporter – when it was invaded by the Russian Federation further exacerbated global supply concerns, sending prices sharply upwards in March 2022. Prices surged further in May, when India, which had increased shipments significantly in 2021/22 helping to compensate for lost exports from Ukraine, announced a ban on exports of wheat. By May 2022, world wheat prices were 55 percent above their May 2021 values and only 12 percent below the record high reached in February 2008. The US wheat, No.2 Hard Red Winter, f.o.b. Gulf, which sets the benchmark price for global wheat markets, averaged USD 521 per tonne in May 2022, 76 percent above its May 2021 value.

Reflecting these trends, in addition to anticipated production declines in 2022 in some major exporting countries, including Ukraine (due to war-related disruptions), Australia, India and the United States of America (United States), wheat futures at the Chicago Board of Trade (CBOT) for nearby delivery surpassed the 2008 record high in March and again in May, setting a new all-time high. Averaging USD 449.5 per tonne in May, the September CBOT soft red winter futures also increased, up almost 74 percent from the same month last year. A more detailed analysis of the futures market can be found in the Market Indicators section of this report.

PRODUCTION

Production to fall slightly in 2022 for first time in four years

At 770.9 million tonnes, FAO forecasts a 0.8-percent year-on-year decrease in global wheat production in 2022, the first fall after three consecutive years of growth.

In Northern America, due to months of dry weather, 70 percent of the winter wheat area in the United States was under drought conditions in early May. Consequently, the abandonment rate is foreseen to increase and yields are expected to decline, resulting in a lower winter production (the principal wheat crop) by an estimated 8 percent in 2022. Nevertheless, the country’s total wheat production is still foreseen to climb by 5 percent to 47.1 million tonnes this year, underpinned by expectations of a large spring harvest that would more than compensate for the reduced winter harvest. In Canada, the main spring wheat crop is being sown, and total acreage is forecast to increase as farmers are expected to capitalize on the prevailing high prices. Factoring in a likely return to trend yields after drought-reduced levels in 2021, total wheat production is pegged at 31.2 million tonnes, 44 percent higher year-on-year.

In Europe, the war in Ukraine has significantly affected the country’s wheat production outlook. Reflecting the disruptions to agricultural operations caused by the war, sharp reductions in the area harvested and yields are seen reducing wheat production by 38 percent year-on-year in 2022. By contrast, beneficial weather conditions in the Russian Federation underpin expectations of higher yields and an increase in total output by nearly 10 percent above last year’s level, pegging the harvest at 83 million tonnes, despite an estimated contraction in plantings. In the European Union (EU), the forecast for wheat production is set at 138.7 million tonnes, almost unchanged on a yearly basis, with a moderate year-to-year increase in the wheat area expected to counter a likely drop in yields owing to persistent dryness in southern areas. Following a strong rebound in 2021, wheat production in the United Kingdom of Great Britain and Northern Ireland is anticipated to remain almost unchanged in 2022 at 13.5 million tonnes.

In Asia, wheat production in India is forecast at 105.5 million tonnes, down nearly 4 percent from the record crop gathered in 2021. Despite an above-average planted area, motivated by an increase in the government’s procurement price and favourable weather early in the season, this year’s foreseen decline is precipitated by unseasonably high temperatures in March and April that resulted in lower-than-expected yields and localized crop losses. In Pakistan, wheat production is forecast at a near-average level of 26.5 million tonnes. In China (mainland),[1] despite adverse weather in some areas, wheat production is expected to remain near last year’s level, and above average, at 137 million tonnes in 2022. In Near East Asia, weather conditions have been broadly favourable, with the exception of some eastern areas that suffered from drought. In the leading producer, Türkiye, despite a cutback in sowings partly linked to rising input costs, beneficial weather during the cropping season is expected to lift yields, and production could rise to 19 million tonnes in 2022, up by about 1 million tonnes from the 2021 output.

In North Africa, wheat production prospects have been hindered by lingering rainfall deficits in several countries. Below-average rainfall has been particularly pronounced in Morocco, where a reduction in total plantings and an expected steep drop in yields underlay a forecast of nearly 67 percent fall in production compared to last year’s output. Dry, but less severe, conditions have also been present in Algeria, where the harvest is expected to remain below average.

Planting of the 2022 wheat crop is underway in the Southern Hemisphere. In Australia, based on a small reduction in the area sown and a likely drop in yields from exceptionally high levels in 2021, the 2022 harvest is preliminarily forecast at 28 million tonnes, down 23 percent from last year’s record but still above average. In South America, rising costs of inputs are seen as countering the high wheat prices and instigating a small decline in sown area in Argentina, leading to an expected 5-percent decrease in wheat production in 2022 from the 2021 record high. Early planting intentions in South Africa point to a moderate climb in plantings, encouraged by high prices, and production is forecast to remain near last year’s level.

TRADE

Wheat trade to contract in 2022/23 from record in 2021/22

FAO’s first forecast for world trade in wheat (including wheat flour in wheat equivalent) in 2022/23 (July/ June) is pegged at 188.9 million tonnes, down by 3.2 million tonnes (1.7 percent) from the current season’s estimated record level.

Driving much of the predicted contraction in world trade in 2022/23, exports by Ukraine, a major wheat exporter, are forecast to fall by nearly 50 percent (down 9 million tonnes) from the previous season based on the assumption of continued war-related export disruptions. Ukraine’s major ports have been blocked by the Russian Federation since late February 2022, and internal infrastructure has been damaged. Ukraine is likely to continue to export small volumes of wheat via railroad through its European borders, but it is unknown when it will be able to resume exporting from its ports. For other major exporting countries, smaller exportable supplies due to year-on-year falls in production are also seen lowering exports from Australia, India and, to a lesser extent, Argentina. In India, a ban on wheat exports (introduced in May 2022) is also seen limiting shipments in 2022/23 after the country greatly increased its market share in 2021/22, amid lower exports from Ukraine, high domestic supplies following a record production in 2021, and competitive prices that helped to open trade with new markets, including Egypt and Viet Nam. However, exceptions to the export ban for previous contractual commitments, government-to-government sales, and food security purposes are expected to support an export forecast of 7 million tonnes in 2022/23, remaining well above India’s export average over the past five-years. Exports from the United States of America are forecast to fall slightly below last year’s reduced level, as domestic supplies remain tight. Helping to offset those expected declines, larger shipments are forecast for Canada and the Russian Federation in 2022/23, based on expected production upturns. Given its abundant supply and geographic proximity to several of Ukraine’s markets, the European Union is also anticipated to increase exports in 2022/23 to 38 million tonnes, which, if realized, would make it the largest wheat exporter in the world.

On the import side, foreseen smaller imports into Asia are mostly behind the projected fall in global wheat demand. At the regional level, aggregate wheat imports by Asia are pegged at 99.3 million tonnes, down nearly 6 percent from 2021/22. Making up the bulk of that decline, wheat purchases by the Islamic Republic of Iran are forecast to fall by 57 percent (4.5 million tonnes) in 2022/23 from their 2021/22 record level, owing to a production recovery from last season’s reduced level, but are still set to remain well above the five-year average given the importance of wheat. Uncompetitive wheat prices relative to other grains are expected to result in smaller wheat imports by China (mainland) in 2022/23, predicted down 15 percent (1.7 million tonnes) from their record level in 2021/22, but also still well above average to meet high feed demand. Partially offsetting those expected declines, larger imports are forecast for Iraq in 2022/23 to compensate for a second consecutive year of declining domestic production and to replenish stocks from last season’s low level. Imports by Indonesia and Türkiye, the largest and third largest importers in Asia, will likely remain steady at 10.8 million tonnes and 9 million tonnes, respectively.

By contrast, in Africa, stronger import demand by several countries is expected to lift the continent’s wheat purchases in 2022/23 to 54.0 million tonnes, up 5.0 percent (2.6 million tonnes) from the estimated level for 2021/22. The increase is largely attributed to a forecast 32-percent (1.5 million tonnes) increase in Morocco’s imports to a record level of 6.2 million tonnes, in order to compensate for an expected significant decline in domestic production. In Egypt, the world’s largest wheat importer, purchases are forecast at 13 million tonnes, up slightly from 2021/22, to replenish stocks from the five-year low opening levels. The Government of Egypt has taken measures in recent months to open import routes from new sources, including Argentina and India. Wheat imports are also forecast to rise slightly for Algeria, the second largest wheat importer in Africa and the fifth largest globally, as well as for Ethiopia, Mauritania, Sudan and Tunisia, all of which rely on imports to meet domestic wheat needs. Nigeria, the most populous country and third largest wheat importer in Africa, is forecast to import 6.2 million tonnes, down marginally from 2021/22. In Latin America and the Caribbean, total wheat imports in 2022/23 are forecast to remain near the 2021/22 level of 23.8 million tonnes. A record production forecast is seen lowering slightly demand from Brazil, the region’s leading wheat importer, to 6.3 million tonnes, down 3.1 percent from 2021/22. Imports by Mexico, the region’s second largest wheat importer, will likely remain near last season’s level of 3.3 million tonnes.

UTILIZATION

Wheat utilization seen falling in 2022/23

Early forecasts for world wheat utilization in 2022/23 point to a slight decline of 0.4 percent to 769 million tonnes from the record level estimated for 2021/22, with a projected growth in food consumption outweighed by a likely contraction in the use of wheat for animal feed and, to a lesser extent, in industrial use. At the current forecast level, total wheat utilization in 2022/23 would be 1.1 percent below the ten-year trend, marking the first time that total utilization drops below this trend in three years. Behind the bulk of the foreseen overall global decrease, total feed utilization of wheat is anticipated to decline by 4.1 percent from the 2021/22 level to 144 million tonnes. High prices are seen dampening feed use of wheat, especially in China and the European Union, the world’s second largest and largest markets for feed wheat, respectively. While in China a large price premium for wheat is seen supporting substitution towards maize for feed use, the decline in the European Union is part of an expected overall decrease in feed demand due to the high prices of feed grains, as well as reduced meat demand and the impact of avian influenza.

Other uses of wheat, which include the industrial sector, seeds and post-harvest losses, are also forecast to decline in 2022/23, down 1.8 percent from 2021/22, to 89 million tonnes. This decline mostly reflects lower anticipated industrial use in India on account of tighter domestic supplies following record high exports in 2021/22 and a predicted fall in production in 2022/23.

By contrast to feed and industrial uses, global utilization of wheat for direct human consumption, which accounts for 70 percent of total wheat utilization, is set to expand, albeit at a below-average pace, by 0.9 percent in 2022/23, reaching 536 million tonnes. This would yield an average annual per capita consumption of 67.4 kg globally, almost unchanged from the 2021/22 level of 67.5 kg. The largest increase in human consumption of wheat in expected in Asia, where the regional aggregate represents nearly 60 percent of global wheat food consumption, with the region’s per capita wheat consumption continuing its steady slight rise to 66.9 kg. In Europe, a cut to Ukraine’s food consumption estimate, on account of population displacement resulting from the ongoing war, has been allocated to the EU given the movement of most Ukrainian refugees to the EU.

STOCKS

Wheat inventories seen increasing marginally in 2022/23

Based on the preliminary forecasts for 2022 production and 2022/23 utilization, world wheat stocks are tentatively predicted to reach 298 million tonnes by the close of the seasons in 2022, up 1.2 million tonnes (0.4 percent) from their opening levels and establishing a new record high. The anticipated increase in stocks will be mostly concentrated in China (up 6.8 million tonnes based on expectations of a fall in utilization amid steady production), the Russian Federation (up 5.1 million tonnes stemming from an expected rise in production) and Ukraine (up 2.0 million tonnes as a result of export disruptions due to the war). These increases exceed anticipated drawdowns in several countries, including India and Morocco due to production downturns.

At the current forecast levels, the world wheat stocks-to-use ratio in 2022/23 would stand at 37.9 percent, down from the 38.6-percent expected for the current season, but well above the historic low of 23.3 percent registered in 2007/08. Without China, the ratio is much lower, at 24.4 percent, but still significantly above the respective historic low of 19.2 percent registered in 2007/08. The ratio of major exporters’ closing stocks to their total disappearance (defined as domestic utilization plus exports), a measure of availability in global markets, is predicted to increase from 17.6 percent in 2021/22 to 19.0 percent in 2022/23. However, it should be noted that that this value includes a build-up of stocks in Ukraine, where they are forecast to reach, in 2022/23, roughly three times their past five-year average level and remain largely inaccessible for export due to the blockade of Ukraine’s ports by the Russian Federation. It is unknown at this time when Ukraine will be able to resume exporting from its ports, and thus when those stocks will be available to world markets. In other major exporting countries, stocks are forecast to contract in Australia and the United States, where they are expected to decline to their lowest level in nine years, based on a forecast sixth consecutive year of production below the five-year average. While stocks are forecast to recover slightly in Canada from last season’s record low, they will likely remain at their second lowest level since 2007/08.

[1] China in this section is restricted to the mainland of China

COARSE GRAINS*

PRICES

Prices remain at record levels

After rising steadily in the first half of the 2021/22 season, international prices of major coarse grains surged 13 percent above the 2012 record highs reached in March 2022 in reaction to the abrupt disruption of exports from Ukraine –a major maize and barley exporter – caused by the war. Prices of the major coarse grains (maize, barley and sorghum) registered their highest levels on record (since 1990) in March. Although they subsided slightly in April and May, world prices remained above the previous record levels of 2012. The sudden loss of exports from Ukraine exerted strong pressure on markets given the high concentration of maize exports among four countries (Argentina, Brazil, the United States of America (United States) and Ukraine) and the already tight supply levels of barley. With supplies in Ukraine largely unavailable for global markets, as its ports remain blocked due to the war, the prospects of lower maize export availabilities in both Argentina and the United States in 2022/23 added further pressure. High energy and input prices, on top of limited fertilizer availability, also provided support. Reflecting these trends, the benchmark US maize prices (yellow, No. 2, f.o.b.) averaged USD 348 per tonne in May, up 14 percent year-on-year. International prices of barley and sorghum also remained elevated, respectively 59 and 10 percent above their previous year’s values in May.

An anticipated decline in global production in 2022, concentrated in major export countries, combined with uncertainty regarding Ukraine’s export prospects and the implications for global availability during the 2022/23 season, have also put upward pressure on futures prices. The Chicago Board of Trade (CBOT) maize futures for delivery in December 2022, which is the benchmark delivery month for the new United States crop, averaged USD 451 per tonne in May, up nearly 74 percent from the previous year’s level. More detailed analysis of the futures markets can be found in the Market Indicators section of this report.

PRODUCTION

Production to fall below last year’s record

FAO’s first forecast for global coarse grains production in 2022 points to a year-on-year downturn of 0.6 percent, with the output pegged at 1 494 million tonnes.

The decrease is being driven by expectations of a reduced world maize output, forecast at 1 188 million tonnes in 2022, down 1.6 percent from the previous year’s outturn. A large proportion of the forecast decline is concentrated in Northern America, where the pace of sowings in the United States has been below average due to detrimental spring weather and survey data from March indicating a likely cutback in maize acreage in 2022. With yields assumed to remain unchanged, production is currently forecast at 367.3 million tonnes, down 4 percent from last year. By contrast, production of maize in Canada may increase slightly in 2022, since early prospects point to an increase in sowings that would more than offset an anticipated decline in yields, following historical highs in 2021.

In Europe, production of maize in Ukraine is forecast to fall by 50 percent to 21 million tonnes in 2022. The war in the country has significantly restricted access to both agricultural inputs and land for planting, contributing to low area and yield prospects. In the Russian Federation, maize production is foreseen to decline but remain above the five-year average. In the European Union (EU), production of maize is pegged at 73.7 million tonnes in 2022, up 1.6 percent on a yearly basis, with an expected 2-percent increase in the area sown, driven by high maize prices, and stable yield prospects.

In South America, where harvesting of the 2022 maize crop is underway, production in Brazil is forecast to reach a record high of 114.6 million tonnes. A steep increase in plantings underlies this outlook, with robust prices estimated to have instigated a 20-percent expansion in maize area compared to the past five-year average. Although yields are also anticipated to increase in 2022, further shoring up production prospects, rainfall shortages in April and May caused a small downgrade in the yield forecast relative to earlier predictions. Production of maize in Argentina is anticipated to fall on a yearly basis, but at 57 million tonnes would still exceed the five-year average by 6 percent, owing to an enlarged sown area, which is expected to partly compensate for lower in yields.

In Africa, the 2022 maize crop is being harvested in Southern Africa, while sowing has recently started in East and West Africa. In South Africa, the continent’s principal maize producer, this year’s output is forecast to decline to 15.4 million tonnes, albeit still an above-average level. Despite a cutback in the maize planted area, in part caused by high input costs, remunerative grain prices at planting kept sowings at an above average level, partly countering the effects of a modest decline in yields. Sizeable production decreases are forecast in neighbouring Southern African countries in 2022, where persistent rainfall deficits have lowered yield expectations and resulted in smaller maize sown areas.

In Asia, maize production in China (mainland) is predicted to reach an above-average level of 273 million tonnes, virtually unchanged on a yearly basis. Similarly, maize outputs in other Asian countries in 2022 are foreseen at comparable levels to the preceding year.

Global barley production is forecast at 147.9 million tonnes in 2022, up 2.6 percent from the previous year’s output. The anticipated production upturn is underpinned by good prospects in North America, where yields in Canada are expected to rebound from the last year’s low levels and high prices are anticipated to prompt a substantial increase in plantings in the United States. Favourable outlooks in some Near East Asian countries and the Russian Federation further support positive global prospects. These expected increases are foreseen to more than offset a substantial production decline anticipated in Ukraine owing to the war.

The forecast for world production of sorghum is pegged at 61.6 million tonnes in 2022, 1.6 percent higher than the 2021 outturn. The increase reflects expected production upturns in Australia and Brazil, where conducive weather is predicted to lift yields, which would more than offset a reduced harvest expected in the United States.

TRADE

World trade in coarse grains to contract in 2022/23 for the second consecutive season

FAO’s first forecast for world trade in coarse grains in 2022/23 (July/June) is pegged at 220 million tonnes, which is down 4.4 percent from the estimated level for 2021/22 and represents a second consecutive annual contraction. Global trade in maize, barley, and sorghum are all predicted to decline in 2022/23 from their respective 2021/22 levels.

Pegged at 174 million tonnes, global maize trade in 2022/23 (July/June) is projected to fall by 3.7 percent (6.6 million tonnes) from its 2021/22 level, due largely by a foreseen steep fall in exports from Ukraine due to the war. Ukraine’s major ports have been blocked by the Russian Federation since late February 2022 and internal infrastructure has been damaged. Ukraine is likely to continue to export small volumes via railroad through its European borders, but it is unknown when grain exports from its seaports will resume. As a result, Ukraine’s maize exports are forecast to fall by 7 million tonnes (32 percent) in 2022/23, reaching 15 million tonnes, its lowest level since 2012/13. Elsewhere, reduced domestic production is anticipated to reduce shipments from Argentina and the United States, down 5.5 million tonnes and 6 million tonnes, respectively, compared to their 2021/22 levels. However, an expected boost in exports from Brazil, up 12.5 million tonnes from 2021/22, supported by a record harvest, should partially offset those declines.

On the import side, the largest decline in imports is expected in Europe. A predicted fall in utilization, largely for feed, amid an expected increase in production is behind the forecast 6 million tonnes (40 percent) decrease in the EU’s purchases compared to the 2021/22 volume.

In Asia, imports of maize by China (mainland) are expected to wane slightly, by 3.5 million, but at 20 million tonnes would still register a third consecutive year of high import volumes relative to historical averages, maintaining the country’s position as the world’s top maize importer for a third year. Aside from China (mainland), imports of maize by nearly all other countries in Asia are forecast to remain stable or to expand from their 2021/22 levels, with a large increase seen in Viet Nam to meet growing feed demand. With higher imports by most countries in the region balancing the decline from China (mainland), the aggregate maize import volume by Asia is forecast near last season’s level of 96 million tonnes.

Import demand from Latin America and the Caribbean is predicted to be lower in 2022/23, with the regional maize imports forecast to drop by 5.6 percent. After rising in 2021/22, maize imports by Brazil, a net exporter, will likely return closer to average levels in 2022/23. Purchases by Mexico, the world’s second largest maize importer, are forecast to remain near the 2021/22 level of 17 million tonnes.

By contrast, to other regions, Africa’s maize imports are predicted to register a strong rebound of 16.4 percent in 2022/23, reaching 23.7 million tonnes, after falling in 2021/22. Leading that increase, Algeria, Egypt and Morocco are all forecast to increase purchases in 2022/23, mostly in order to replenish stocks. Lower maize imports by Northern America are also anticipated to weigh down on global trade prospects. In particular, maize purchases by Canada are forecast to fall by 3 million tonnes after rising sharply to a record high last year to meet heightened feed demand amid low domestic barley supply.

World trade in barley (excluding malt) is also forecast to contract in 2022/23, down 8.6 percent (2.9 million tonnes) from 2021/22 to 30.3 million tonnes. The anticipated contraction reflects a likely reduction in purchases that are almost entirely from Asia, especially China (mainland), the Islamic Republic of Iran and Türkiye. Lower barley utilization in China (mainland), the world’s leading barley importer, is seen reducing the country’s purchases by 1.5 million in 2022/23, but, pegged at 9 million tonnes, they are expected to remain above the past five-year average for a third consecutive year. Barley imports by the Islamic Republic of Iran and Türkiye are also forecast to decrease, by 1 million and 2.3 million tonnes, respectively, due to higher anticipated domestic outputs. Regarding exports, smaller barley exports are projected, primarily from Ukraine and, to a lesser extent, Australia.

Similar to maize and barley, global trade in sorghum is forecast to fall in 2022/23 to 11.4 million tonnes, down 6.6 percent (0.8 million tonnes) from the 2021/22 record level. The projected decrease is almost entirely attributed to anticipated smaller purchases by China (mainland), mostly due to substitution towards maize for feed. On the export side, sales from Australia and, to a lesser extent, Argentina could decline given the prospects of weaker import demand.

UTILIZATION

Total utilization seen down marginally from the 2021/22 record

World total utilization of coarse grains in 2022/23 is forecast to fall marginally, by 0.1 percent (1.2 million tonnes), from the all-time high estimated for 2021/22 to 1 498 million tonnes, which would be the first decline in eleven years. While industrial use of coarse grains is projected to remain stable year-on-year, an expected decline in the feed use will likely outweigh a forecast growth in the food use.

At around 870 million tonnes, feed use of coarse grains, which makes up nearly 60 percent of total coarse grains utilization, is forecast to contract by 4.2 million tonnes (0.5 percent) in 2022/23 from the 2021/22 estimated level. Driving the decline is an expected 5.4 million tonnes (0.8 percent) drop in feed use of maize to 698 million tonnes; this mostly reflects lower feed use of maize in Northern America. In Canada, feed use of maize is predicted to fall by 26 percent and return to five-year average levels after rising sharply to a record level last year to compensate for low barley availability. Anticipated tighter maize supplies, due to reduced harvest prospects, are behind an expected 4-percent fall in the feed use of maize in the United States. The EU is also expected to slightly reduce its use of maize for feed as part of a likely overall decrease in total feed demand driven by high prices, lower demand for meat and the impact of avian influenza. Partially offsetting some of these declines, feed use of maize is expected to continue to rise in China (mainland), up 2.4 percent (4.5 million tonnes) in 2022/23. The increase is supported by greater substitution to maize from other grains for feed, including wheat (down 5 million tonnes year-on-year), barley (down 0.5 million tonnes) and sorghum (down 0.5 million tonnes). China (mainland)’s total feed use of coarse grains is forecast at 208.1 million tonnes, up 1.7 percent (3.5 million tonnes) from 2021/22. Greater feed use of coarse grains also gains support from significant year-to-year anticipated increases of both maize and sorghum uses for feed in Brazil, up 2.4 percent and 49.5 percent from the 2021/22 levels, respectively, supported by record harvest forecasts.

By contrast to feed use, global food consumption of coarse grains (which accounts for approximately 15 percent of total utilization) is forecast to increase in 2022/23, up 1.3 percent (2.8 million tonnes) from 2021/22 to reach 227 million tonnes. Higher use for food expected in Africa accounts for most of the forecast increase, pointing to a growth of 2.1 percent (2.1 million tonnes) to 103 million tonnes in 2022/23. Globally, the growth in the use of coarse grains for food is anticipated to match the increase in world population, thus maintaining a stable per capita consumption of 28.5 kg per year.

Industrial use of coarse grains in 2022/23 is forecast to remain near last season’s level estimated at 400 million tonnes. A foreseen increase in the industrial use of barley in Canada and the United States in particular, supported by good harvests, is balanced by lower industrial use of maize expected in several countries in Africa and in the EU, as well as an anticipated decline in industrial use of sorghum in China (mainland).

STOCKS

Stock likely to contract slightly in 2022/23

Based on current forecasts for global production in 2022 and utilization in 2022/23, world inventories of coarse grains should contract slightly by the close of the seasons in 2023, by 3.9 million tonnes (1.1 percent) from their opening level to 357 million tonnes. Most of this decline is due to a forecast 3.4-million tonne (1.1 percent) reduction in global maize stocks, which are forecast at 300 million tonnes. Maize stocks are seen down in several countries, leading to contractions at the regional level in Asia, Northern America, Africa, Central America and Europe (in descending order of magnitude). The largest drawdowns are seen in China (mainland), amid rising consumption and a stagnant production forecast, and the United States, where output is forecast to fall.

World barley stocks are also projected to decline by 3.2 percent, to 26.6 million tonnes, marking the second consecutive annual drop. Most of the drawdown is foreseen to be concentrated in Australia, on account of lower production, in China (mainland), due to lower imports, and in the Syrian Arab Republic, in view of the prospects for a second consecutive below average harvest (2017/18-2021/22). By contrast, to maize and barley, sorghum inventories are forecast to rise by 6.1 percent, to around 8 million tonnes, almost exclusively reflecting a buildup in Australia due to higher domestic production.

Given the predicted contraction in world inventories, which outweighs the forecast decline in global utilization, the world stocks-to-use ratio for coarse grains should drop from 24.1 percent in 2021/22 to 23.0 percent in 2022/23. At this level, the ratio would be the lowest since 2012/13, but would remain well above the historical low of 18.2 percent registered in 1983/84. The ratio of major exporters’ stocks-to-disappearance (defined as domestic consumption plus exports), which reflects global availabilities for trade, will likely increase from 13.5 percent in 2021/22 to 14.0 percent in 2022/23. However, this measure includes stocks of coarse grains held in Ukraine, a major maize and barley exporter; these are predicted to be more than three times higher than their five-year average levels but not available for export to world markets, due to war-related export disruptions. Among other major exporters of maize, stocks in Argentina and United States of America are forecast at well-below the past five-year average levels, while Brazil’s stocks could recover from last year’s low level on the back of a predicted record harvest.

RICE

PRICES

Although still comparatively subdued, international prices have risen steadily since the beginning of 2022

Abundant exportable supplies – ensured by successive bumper harvests – have helped the rice market to defy much of the price increases dominating most other food commodity markets since mid-2020. Yet, international rice prices have been on the rise since the beginning of 2022. As measured by the FAO All Rice Price Index, although they remained 1.2 percent below their year-earlier levels in May 2022, they were up 11.1 percent from their levels at the close of 2021. Price increases have been most notable for Japonica and Aromatic rice since December 2021, whose quotation have risen by 14.0 and 20.3 percent. Prospects of protracted drought severely constraining medium-grain plantings in California have been behind the price gains registered in the Japonica segment, while revived Near Eastern demand in the context of output shortfalls in the Basmati origins have instigated those of fragrant prices. In the Indica segment, Thai and Vietnamese quotations have likewise risen, drawing support from a demand acceleration and signs of local quotations beginning to adjust to the higher production costs faced during the latest cropping cycle. Expectations of consecutive output contractions in the United States of America (the United States) and of drought-induced declines in competing Argentina and Brazil have also raised prices in the Americas. Yet, this bullishness has not extended to all Indica origins, especially those in Southern Asia. Indeed, a currency depreciation in the wake of a large crop has kept Pakistani offers generally subdued. In India, the world’s largest rice exporter, large availabilities have also continued to weigh on whole-grain quotations, despite sizeable government local purchases and strong exports. This has in turn kept prices of the most-widely traded Indica rice somewhat more resilient to upward pressure.

PRODUCTION

World rice production to remain close to the 2021 all-time high

The 2022 season is by now well-advanced south of the equator, where harvests of the first or sole crop of the season have wrapped up, while in the northern hemisphere, sowings of 2022 crops have just begun. Although much will depend on weather patterns, especially in the context of the lingering La Niña conditions, FAO pegs its preliminary forecast for world rice production in 2022 at 519.5 million tonnes (milled basis), implying a minor (1.4 million tonne) fall from the 2021 record-high and the second largest harvest on record.

Asia, the world’s rice bowl, is expected to sustain this generally positive result. Prospects for the region are bolstered by forecasts of generally normal monsoon rains. In addition, although hikes in the prices of alternate crops are exposing the sector to more intense competition for land this season, Asian paddy plantings are seen as remaining largely unscathed as the strategic role of rice in food security provides the sector with strong government assistance. On the output side, such assistance often takes the form of producer price support schemes. Nevertheless, it often also extends to the input side through price controls on fertilizers, such as those in place in Bangladesh, India (most notably for urea) and Indonesia (for small-scale farmers), or through the extension of special outlays compensating producers for increases in production costs, as in China (mainland), the Republic of Korea and Malaysia. Such measures are expected to cushion the sector’s profitability losses incurred because of soaring input prices, thus helping aggregate output in Asia to replicate the excellent 2021 outcome of 468.0 million tonnes.

At the country level, Bangladesh, China (mainland), India, Indonesia, Malaysia and the Philippines are all seen ending the 2022 with positive production results. This should offset potential yield cuts stemming from lower input use and/or changes in the varietal structure of plantings in favour of less input-demanding strains in Cambodia, Thailand and Viet Nam. Limited availabilities of water for irrigation also cloud the outlook for Iraq, the Islamic Republic of Iran and Pakistan, with output also seen falling in the Republic of Korea and Japan. Yet, the largest absolute Asian output contractions are forecast to take place in Sri Lanka and Myanmar, where scarce and/or inaccessible inputs, on the backdrop of broader economic constraints, weigh heavily on production prospects this year.

Africa is predicted to harvest a total of 25.5 million tonnes of rice in 2022, a 1.4 percent expansion over the 2021 outcome. Much of this increase is expected to take place in sub-Saharan Africa, where fertilizer usage is generally considerably more limited than in other regions and where area expansions, often supported by governments under self-sufficiency programmes, have been the key drivers of production growth. Within the region, the outlook is particularly positive for Western African countries, including Côte d’Ivoire, Guinea, Nigeria, Senegal and Sierra Leone, which, after last season’s weather-induced setbacks, could see strong domestic prices and more normal growing conditions foster further area expansions and some yield recoveries. Despite some damage inflicted by passing storms, Madagascar is also anticipated to harvest a larger crop in 2022, aided by generally normal growing conditions in non-storm affected areas and state programmes fostering the uptake of hybrid varieties and expanding irrigated output. By contrast, the United Republic of Tanzania could see late and irregular rains in the last quarter of 2021 depress output for the second successive season. Forecasts of poor performing early season rains also cloud expectations for production in Benin, Ghana, Liberia, and Togo. In the case of Ghana, prospects are further aggravated by reports of reductions in fertilizer subsidy rates and limited fertilizer supplies available for distribution under the Planting for Food and Jobs programme, to which much of the country’s recent production gains have been attributed. Production in Egypt is likewise expected to remain on a contractionary trend to reach 4.0 million tonnes in 2022, as amid uncertainties regarding access to subsidized fertilizers for producers cultivating rice outside of government-determined limits, hikes in the prices of competing crops, such as maize and, especially, cotton, could accelerate the rate of area conversions away from rice.

The outlook is negative for Latin America and the Caribbean, where aggregate output is predicted to fall 7.9 percent below the positive 2021 outcome to 17.5 million tonnes, its lowest level in 12 years. Much of this fall is expected to occur in South America, reflecting the negative impact of water shortages and high temperatures associated with the ongoing La Niña phenomenon in Argentina, Brazil and Paraguay. Poor producer margins at planting time in Colombia, Ecuador and Peru look set to compound these losses, overshadowing gains expected in the Plurinational State of Bolivia, Guyana, the Bolivarian Republic of Venezuela and, especially, Uruguay, where output is seen just short of the 1.0 million tonne mark, buoyed by favourable prices and fewer weather disruptions. Elsewhere in the region, assuming normal summer growing conditions, expectations are positive for Costa Rica, the Dominican Republic, Mexico and Panama, where government steps to increase producer prices and offer special credit lines or inputs at subsidized rates may help to avert area or yield cuts stemming from the hike in input costs. On the other hand, reduced producer margins are forecast to lower output in Nicaragua from the record high achieved the previous season, while heightened shortages of basic inputs may undermine production in Cuba and Haiti once again.

In Northern America, the United States could harvest 4.7 percent less than the already reduced 2021 crop – 5.8 million tonnes – given that hikes in prices of fuel, fertilizer and alternative crops, such as soybeans, are set to curb plantings in southern producing states, where rain-induced sowing delays have further complicated yield prospects. Consecutive years of drought in California may also severely undermine Japonica plantings in the country. The outlook is also negative for Europe, given unseasonable dryness in the leading producers in the European Union (EU) – Italy and Spain, but also in Portugal. Infrastructural impairments of a key irrigation dam in its lead producing Krasnodar territory have also compromised the outlook for the Russian Federation, which may see production slide to a five-year low of 654 000 tonnes as a result. By contrast, in Oceania, attractive prices, combined with sufficient water for irrigation, are estimated to have enabled output in Australia to rise by 38 percent year-on-year to a four-year high of 422 000 tonnes.

TRADE

Import demand to remain generally strong, except in the Asian Far East

International trade in rice is predicted to register its third successive annual increase in 2022 (January–December), with volumes exchanged across the world forecast to reach 53.1 million tonnes, up 3.0 percent from the 2021 all-time high. With the exception of the Asian Far East, most regions are anticipated to step up their imports over the course of the year, often aided by state efforts to contain inflationary pressure. Such steps have taken the form of import duty remissions in various African and Latin American countries, or of an acceleration of government-contracted imports, as has been most notably the case of Iraq and the Islamic Republic of Iran. In the United States and the EU, import growth is instead expected to be associated with strong demand for aromatic varieties and a partial easing of container freight rates. This is after logistical constraints and soaring container rates put a dent on their purchases last year. Anticipated expansions in imports by South American countries, such as Brazil, Chile, Peru and Colombia, are instead linked to poor production outruns, which, in the case of Brazil, may be further reinforced by a rebound in the value of the Brazilian real. Notable exceptions to the near across-the-board demand strengthening in the various regions would be Ghana and Haiti, where the prevailing weakness of national currencies may constrain purchases, as well as Guinea and Madagascar, where a spate of purchases last year together with favourable domestic harvests could cut the need for imports.

As for Far Eastern imports, they are predicted to fall by 14.4 percent year-on-year to an aggregate of 15.5 million tonnes. Within this sub-region, the import outlook is especially subdued for Bangladesh, which could see its purchases drop from 2.6 million tonnes in 2021 to just 200 000 tonnes this year, owing to refurbished state stockpiles and domestic output growth. Nevertheless, purchases by Viet Nam, a major rice exporter, could also drop by nearly half in 2022, as its feed and industrial needs may be met by ample inventories of lower-grade rice amassed through record imports last year. Ample glutinous availabilities already at hand are, likewise, behind an anticipated 3.7 percent cut in imports by China (mainland) to 4.9 million tonnes, even though at that level they would remain comparatively abundant due to attractive prices of lower grades abroad. Among other Asian buyers, little import change is expected in the Philippines, with overall purchases steadying at 3.0 million tonnes, while Malaysia and Nepal may step up purchases amid stagnating or declining domestic output. Singularly, however, the largest Far Eastern import increase is anticipated to take place in Sri Lanka, where purchases could reach a five-year high of 600 000 tonnes, supported by state purchases from abroad to compensate for an input-induced slump in local production.

Expectations of demand reductions in key Far Eastern outlets cloud the export outlook for Cambodia, India and Viet Nam the most, which, alongside Argentina and the United States, could close 2022 with lower exports. Nevertheless, at a forecast 20.1 million tonnes, Indian shipments are still envisaged to remain well above pre-2021 levels, given that its large availabilities at hand should be more than sufficient to meet rising local consumption needs and continue large exports. This should enable India to keep its role as the world’s leading global rice exporter, distantly followed by Thailand, which, however, could regain part of the market share it lost since 2018. Indeed, after being undermined by logistical constraints and/or uncompetitive prices last year, Thai rice sales are predicted to reach a four-year high of 8.1 million tonnes. Exports by Myanmar, Pakistan and Uruguay are also anticipated to register strong rebounds in 2022, with tight Japonica availabilities in their main medium-grain competitor, the United States, also behind expectations of rising sales by Australia and China (mainland).

UTILIZATION

Growth in food intake to be largely counterbalanced by cutbacks in non-food uses of rice

World rice utilization has expanded at an accelerated annual rate of close to 2 percent since 2020/21, as expansions in state assistance programmes helping vulnerable consumers cope with the impact of the pandemic coincided with a revival in the use of rice for animal feed. Early expectations for the 2022/23 season, however, point to a somewhat altered rice consumption landscape. Total rice utilization is forecast to exceed its 2021/22 record volume by a small margin of 0.2 percent (1.0 million tonnes) to reach 522.0 million tonnes (milled basis), as another sturdy expansion in food intake is predicted to be mostly outweighed by cutbacks in other uses.[1]

Food, by far the prime use of rice, is expected to absorb 428.4 million tonnes in 2022/23, up 1.1 percent from 2021/22 and enough to keep global per capita food consumption broadly steady at 53.9 kilos. This relative stability largely reflects expected trends in Asia, where some important market players continue to implement expanded rice distribution schemes. This is particularly the case in Southern Asian countries, such as Bangladesh and, especially, India, which, in the context of tighter wheat availabilities, has already announced an enlargement of rice rations under its public distribution programme for part of 2022/23. Such moves may keep per capita food consumption of rice in Southern Asia, and the region at large, above pre-pandemic levels for the third successive season. This is notwithstanding the longstanding dietary shifts away from rice taking place in Eastern and South-Eastern Asia, which could somewhat counterbalance these gains.

As for non-food uses of rice, put together, they are predicted to decline by 3.8 percent year-on-year to 93.6 million tonnes, mostly due to an anticipated 10-percent cut in animal feed use to 19.9 million tonnes. Much of this reduction is expected to take place in China (mainland), where a good maize harvest and greater domestic availabilities of feed wheat could make domestically produced rice an unprofitable commercial feed alternative once again. This is even if ongoing efforts to diversify animal feed rations and the availability of attractively priced brokens from abroad may keep use of rice for feed in China (mainland) above pre-2020/21 levels. Feed use of rice is also seen easing in Thailand due to animal disease outbreaks, but should world grain prices remain high, it may continue to grow in most other Asian countries, in particular Japan and Viet Nam.

STOCKS

World stocks to edge down, but accumulations in China (mainland) and India to keep them sizeable

Preliminary prospects for the 2022/23 season point to world rice production falling short of utilization, which would require global closing stocks to be drawn down, albeit by a modest 0.8 million tonnes. This would put world rice inventories at 191.6 million tonnes, their second highest level on record, keeping the global stocks-to-use ratio above the abundant 36-percent mark for the fourth successive season.

Rice exporters are predicted to be behind much of the forecast contraction of global inventories amid expectations of lower production results in Argentina, Brazil, Myanmar, Pakistan, the Russian Federation, Thailand and the United States and upbeat exports, as in the case of Guyana and Uruguay. Nevertheless, a few exporting countries are seen ending their marketing seasons with larger rice reserves, including Australia, Cambodia, Viet Nam and, especially, India. Indeed, early indications from Indian official sources point to public domestic procurement during the 2022/23 fiscal year[2] potentially remaining close to 60.0 million tonnes, a level that would assist the government to meet planned expansions in public subsidised rice distributions during the ongoing and upcoming season by an abundant margin. This could result in overall Indian rice reserves rising by an additional 2.3 percent to reach 39.9 million tonnes. Combined with expected gains in Viet Nam, this increase could sustain a 0.5-percent expansion in aggregate stocks held by the major rice exporters[3] to 54.8 million tonnes. This may keep the group’s stock-to-disappearance ratio[4] at 28.2 percent, almost unchanged from the 28.3 percent anticipated for 2021/22.

The outlook is more buoyant for rice importers, especially for China (mainland), where inventories could edge up to 101.2 million tonnes, up from 100.6 million tonnes in 2021/22. If confirmed, this would mark the first expansion in Chinese rice stocks in four years and would be consistent with expectations of a record crop and reduced demand for non-food uses. Lower domestic demand is also anticipated to result in increased stocks in the Republic of Korea, while gains in the Islamic Republic of Iran would come in the wake of an import revival. The EU, Nigeria and Cote d’Ivoire are also seen expanding their reserves. By contrast, output shortfalls may require Colombia, Peru, Sri Lanka and the United Republic of Tanzania to draw from their reserves, while Bangladesh, Nepal and the Philippines are also seen reducing their inventories to more normal levels relative to the above-average volumes amassed in the previous season.

[1] These include uses of rice as seeds, non-food industrial uses, post-harvest losses and animal feed.

[2] India’s April-March fiscal year partly overlaps with the county’s October-September rice marketing year.

[3] India, Pakistan, Thailand, the United States of America and Viet Nam.

[4] This is defined as the sum of domestic utilization and exports.

OILCROPS, OILS AND MEALS[1]

PRICES[2]

In 2021/22, prices of oilseeds and derived products rallied to record highs

Following the upward trend observed in 2020/21 (October/September), international prices of oilseeds and derived products continued to rise into the 2021/22 season, reaching all-time highs in early 2022, largely due to a tightening supply outlook. In May 2022, FAO’s price indices for oilseeds, oilmeals and vegetable oils stood at near-record levels and were markedly above their respective values during the previous year.

The continued strength of FAO’s oilseeds price index mainly stemmed from higher soybean, rapeseed and sunflower seed quotations. International soybean prices embarked on an upward trajectory since late 2021 and climbed to historical highs in April 2022. On the supply side, production prospects in South America weakened considerably, owing to prolonged dry and hot conditions across major growing regions. From the demand perspective, favourable processing margins, particularly in the United States of America, prompted robust uptakes from the crushing industry, while soybean imports by China remained resilient amid rising world prices. International prices of rapeseed were buoyed by protracted global supply tightness, with production in Canada shrinking significantly due to protracted drought conditions. In the meantime, notwithstanding a bumper harvest in the Black Sea region, world sunflower seed prices received support from reserved farmer selling activities at the beginning of 2021/22 and rallied to record highs following the war in Ukraine.

With regard to oilmeals, FAO’s price index rose gradually in tandem with the oilseed index. The prospect of lower soybean production in Argentina and Brazil slashed soymeal supply prospects markedly, while the sunflower meal exports from Ukraine have come to a virtual halt since late February 2022, due to the logistical obstacles resulting from the war. Notably, a shortage of lysine supplies, a key ingredient in feed rations, also provided sporadic support to oilmeal prices.

Among the indices trailing the oilcrops complex, the vegetable oil index showed the strongest increase, with the year-to-date average standing more than 40 percent above its corresponding value of last year. While below-potential palm oil outputs in leading producing countries continued to underpin international prices, a series of restrictions on Indonesia’s palm oil exports brought additional uncertainty. Although the export ban was lifted on 23 May 2022, palm oil shipments from Indonesia remain subject to export permit requirement. Meanwhile, world sunflower oil quotations surged sharply, as a result of the disruptions to shipments from Ukraine, the world’s leading sunflower oil exporter. International prices of soy and rapeseed oils also increased, broadly sustained by firm global import demand and lingering tight global supplies, respectively. Volatile and higher crude oil prices also lent support to international vegetable oil values.

OILSEEDS

Global oilseed production seen contracting in 2021/22

Following a marked rebound in 2020/21, total oilseed production is expected to decline in 2021/22 to 604.2 million tonnes. The contraction is foreseen to be primarily driven by reduced yield outcomes that should more than offset an anticipated expansion in harvested areas. Specifically, reduced soybean and rapeseed outputs due to unfavourable weather conditions in major producing countries are expected to outweigh production gains in other oilseeds.

Global soybean production in 2021/22 is pegged at 348.8 million tonnes, down by more than 5 percent from last season’s record crop, largely tied to expectations of a sharply lower harvest in the Southern Hemisphere. Production in Argentina, Brazil and Paraguay are all anticipated to drop considerably from the previous season, as protracted dryness and high temperatures linked to back-to-back La Niña events dampened yield outcomes significantly. In the Northern Hemisphere, the aggregate production is expected to increase for the second consecutive season, mostly driven by continued growth in the United States of America, where the 2021/22 harvest is estimated to reach a record high of 120.7 million tonnes, facilitated by higher plantings and improved yields. Production in India is also seen growing year-on-year, underpinned by higher yield expectations despite a smaller harvested area. On the other hand, China’s soybean crop is set to decline after rising for seven years in a row, as plantings dropped sizeably with farmers switching to maize in response to higher returns.

World production of rapeseed in 2021/22 is also expected to drop from the previous season. The contraction would stem almost entirely from substantial production losses in Canada, with official statistics showing the national output falling to a 14-year low due to severe hot and dry weather conditions. By contrast, Australia is expected to harvest a bumper crop, thanks to sharply higher plantings and outstanding yields. Production in the European Union (EU) is also likely to recover, though marginally, sustained by gains in both harvested areas and productivity.[3]

Global production of sunflower seed is foreseen to fully recover from the reduced output registered in 2020/21, with the harvests of all leading producers set to increase markedly. While a sizeable area expansion should drive much of the production growth in the Russian Federation, higher yields are expected to underpin output increases in the EU and Ukraine.

OIL AND FATS[4]

World oils/fats production set to increase marginally in 2021/22

The foregoing crop forecasts, combined with an expectation of a higher palm oil output, are likely to translate into a world oils/fats production of 242.9 million tonnes, marginally above the 2020/21 level. With regard to individual oils, gains in palm, sunflower and, to a lesser extent, groundnut, palm kernel and copra oils are expected to more than offset an anticipated drop in soy and rapeseed oil outputs. Global production of palm oil is forecast to continue increasing moderately. In Indonesia, despite generally favourable weather conditions, production is expected to grow at a below-average rate, largely due to a slow expansion in mature area. In Malaysia, after declining for two consecutive seasons, palm oil output is forecast to recover in 2021/22, assuming an easing of migrant labour shortages facilitated by government measures. Global sunflower oil production is forecast to rebound, following a recovery of sunflower seed production in the Black Sea region, whereas expected reductions in world soy and rapeseed oil outputs are tied to marked production losses in South America and Canada, respectively.

Global supplies of oils/fats, which comprise 2020/21 carry-out stocks that fell to multiyear lows, are forecast to drop slightly year-on-year. Domestic availability is expected to rise in Australia, Indonesia, Malaysia, the Russian Federation and Ukraine, mainly thanks to rising production. By contrast, production shortfalls in Argentina, Brazil, and Canada are expected to result in lower supplies, while in the EU, domestic availability is expected to decline for the third consecutive season in 2021/22 due to successive contractions in carry-in stocks despite a foreseen marginal recovery in production.

Global oils/fats consumption likely to stagnate in 2021/22

Global oils/fats consumption in 2021/22 is expected to stagnate at the record level reached in the previous season due to rallying international vegetable oil prices amid the economic impacts of the COVID-19 pandemic.

Growth in the consumption of palm, soy, and groundnut oils is expected to be counterbalanced by reduced utilization of sunflower, rape, and other oils. In Asia, Indonesia is forecast to drive the large part of consumption growth, mostly offset by a lower uptake foreseen in India, due to demand rationing in response to record high prices, as well as in China, following regional lockdown measures to contain the spread of COVID-19. Elsewhere, utilization in the United States should continue to expand moderately, while consumption in Brazil and the EU will likely fall marginally in part due to reduced supplies.

While rising prices could take a toll on global consumption of vegetable oils for food uses, uptake from the biodiesel sector is also expected to be affected. In particular, lingering large spreads between mineral oil and vegetable oil prices would dampen the demand for discretionary blending at minimal levels. In the meantime, obligatory blending in several major biodiesel-producing countries would also stagnate. Specifically, in Indonesia, the biodiesel admixture mandate remains set at 30 percent as of mid-2022, with a further planned increase to 40 percent still pending, while the implementation of Malaysia’s biodiesel blending programme also faces delays. Moreover, in Brazil, the national blending target was lowered to 10 percent for 2022, instead of increasing gradually as originally planned. These setbacks are expected to be only partially compensated by the continued growth of the biodiesel sector in the United States, where production capacity is set to expand in the coming years.

Global inventories of oils/fats to fall to multiyear lows

With world production expected to fall short of utilization, global ending stocks of oils (including the oil contained in stored oilseeds) are forecast to decline further in 2021/22 to 30.5 million tonnes, the lowest level in this past decade. Commodity wise, inventory accumulations of palm and sunflower oils are expected to be more than offset by stock drawdowns in soy and rapeseed oils.

Among the major stockholders, inventories are forecast to drop in Argentina, Brazil, Canada, China, the EU, and the United States, whereas they are expected to increase in Indonesia and Malaysia. In Ukraine, carry-out inventories are anticipated to rise to multiyear highs, as a result of logistical damages and disruptions constraining export flows from the country.

Based on these forecasts, the global stocks-to-use ratio for oils/fats should decline for the fourth consecutive season, while the stocks-to-disappearance ratio for the major exporting countries would linger around multiyear low levels.5,6

Global oils/fats trade could contract for the second consecutive season

Following a modest decline in 2020/21, international trade in oils/fats is forecast to drop by a further 3.4 percent in 2021/22, reaching 128.2 million tonnes (including the oil contained in traded oilseeds). Global transactions in palm, soy, rapeseed and sunflower oils are all expected to contract year-on-year. While subdued global demand amid high costs could affect import purchases, reduced exportable supplies from the major exporting countries would also contribute to a second consecutive year of reduction in world oils/fats trade. Noticeably, the market share of palm oil is expected to remain at around 38 percent, confirming the oil’s leading position.

Import contractions are likely to be concentrated in Asia. A significant import decline is expected in China, where demand rationing due to higher prices has coincided with a weakening consumption outlook amid COVID-19-related lockdown measures. Meanwhile, notwithstanding lower import tariffs, rising costs weighed on India’s procurement of vegetable oils. Likewise, imports by the EU are also forecast to decline marginally.

On the export side, oils/fats shipments by Indonesia are expected to drop markedly, following a series of restrictive export measures by the government that aim to contain soaring domestic prices. In the meantime, exports by Argentina and Canada will likely be largely limited by lower production, while Ukraine’s exports are anticipated to be negatively affected by protracted logistical disruptions, due to the ongoing war. On the other hand, consignments from Australia, Brazil, and the United States are expected to increase.

MEALS AND CAKES[7]

Global meals/cakes production to decline in 2021/22

In line with the forecast modest contraction in world oilseed production, global production of meals/cakes in 2021/22 is expected to decline to 154.9 million tonnes (expressed in protein equivalent). As for individual meals, an anticipated decrease in soy and rapeseed meal production would only be partially compensated by higher outputs foreseen for sunflower and other meals.

Global meals/cakes supplies are forecast to decline by 4 percent from last season, mainly due to expected production declines, as in the case of Argentina, Brazil, and Canada. Meanwhile, in the EU and the United States, despite expectations of higher total meal production, reduced domestic supplies appear likely due to lower opening stocks. By contrast, domestic availabilities in China and India are forecast to expand for the second consecutive season.

Global meals/cakes consumption to decline marginally in 2021/22

After three consecutive seasons of subdued growth, global meals/cakes utilization is forecast to fall slightly in 2021/22, tied to expected declines in world supplies and the prospects of soft demand from the animal feed sector.

The slowdown in global meals/cakes consumption is expected to be largely driven by China. Although domestic hog inventories have recovered to their pre-African swine fever (ASF) levels in the country, the meal inclusion ratio in feed rations declined in response to poor hog profit margins. Similarly, the EU’s total meal consumption will likely decline modestly amid declining supplies, while oilmeal uses in the United States and a number of Southeast Asian countries are seen stagnating.

Global meals/cakes inventories to contract for the third successive season

With global utilization of meals/cakes forecast to surpass production, ending stocks (including the meal contained in seed stocks) are expected to contract in 2021/22, possibly declining to a nine-year low of 24.3 million tonnes (expressed in protein equivalent). Inventories of soy and rapeseed meal are anticipated to decline significantly, which would only be partially compensated by expected higher sunflower meal stocks.

Much of the inventory drawdown is expected to take place in China, where the release of national soybean stocks was deemed necessary following reduced imports amid poor crushing margins. In Argentina, Brazil and Canada, carry-out inventories are also forecast to fall considerably on sharply lower domestic production. Conversely, closing stocks in Ukraine are expected to accumulate to record levels, tied to difficulties in exporting oilmeals from the country.

Based on these forecasts, both the global stocks-to-use ratio and the stocks-to-disappearance ratio for the major exporters would decline for the third consecutive season to multiyear lows.[8]

Global meals/cakes trade likely to drop further in 2021/22

International trade in meals/cakes (including the meal contained in traded oilseeds) is forecast to contract for the second consecutive season in 2021/22, with transactions in soy, rapeseed and sunflower meals all expected to fall.

On the import side, the anticipated drop in global trade is likely to primarily come from China, mainly linked to subdued domestic demand from the hog sector. In addition, purchases by the EU and several Southeast Asian importing countries are also expected to contract, as a result of the rising world prices amid tightening global supplies.

As for exports, shipments from Argentina and Canada are forecast to drop due to lower domestic production, while exports by Ukraine and the Russian Federation will also likely contract, limited by, respectively, logistical constraints due to the war and the implementation of export quotas. By contrast, Brazil and the United States are anticipated to increase their exports year-on-year and, therefore, enlarge their market shares.

EARLY PRODUCTION OUTLOOK FOR 2022/23

With the 2021/22 season still ongoing, it is early to make concrete world supply and demand forecasts for 2022/23. At present, only limited information regarding the new crops is available for selected Northern Hemisphere countries, where sowing is currently under way. In the Southern Hemisphere, planting will only commence in the last quarter of 2022. With international oilseed prices hitting record highs, the total area planted could continue to expand, while yield levels are also expected to recover assuming normal growing conditions. As a result, global oilseed production in 2022/23 could possibly rebound to a new record high.

With regard to individual crops, global production of soybean, rapeseed, groundnut, cottonseed, palm kernel and copra could all increase year-on-year, whereas sunflower seed output could decline from the historical high seen in 2021/22. Global soybean production is forecast to increase to a record level in 2022/23. While area expansions are expected in the United States, amid attractive returns, and in China, thanks to supportive policy measures, a sharp rebound in productivity levels could underpin production gains in Argentina, Brazil and Paraguay. As for rapeseed, a recovery in global output could result from an anticipated production rebound in Canada, following pronounced losses in 2021/22, and larger harvests in China, India and the EU, largely driven by a further growth in plantings. Australia’s rapeseed production is likely to decline from an outstanding harvest gathered in the previous season, with yields assumed to revert to average levels. In the case of sunflower seed, global production is forecast to drop markedly year-on-year, primarily tied to expectations of a sharply lower output in Ukraine. While planting is anticipated to decline due to the protracted war that is affecting several major growing regions in the country, yields may also drop owing to insufficient inputs.

These highly tentative crop forecasts, together with prospects for a modest growth in palm oil output, could mean sizeable increases in the production of both vegetable oils and oilmeals. In the meantime, the global consumption of oilcrop products is also expected to resume growing moderately. With global oil and meal outputs anticipated to outpace their respective world consumption levels, a partial recovery in stock levels could be expected for both. Should such forecasts materialize, the global stocks-to-use ratios would recover somewhat from the multiyear lows expected for 2021/22, albeit remaining below the average levels seen in recent years. As usual, this outlook remains subject to a number of uncertainties, including, but not limited to, weather conditions in key growing regions, the war in Ukraine, developments related to the COVID-19 pandemic, national policy measures affecting global trade flows, developments in the energy markets, and the implementation of biodiesel admixture mandates.

[1] Almost the entire volume of oilcrops harvested worldwide is crushed to obtain oils and fats for human nutrition or industrial purposes, and to obtain cakes and meals that are used as feed ingredients. Therefore, rather than referring to oilseeds, the analysis of the market situation is mainly undertaken in terms of oils/fats and cakes/meals. Production data for oils and meals are derived from domestic production of the relevant oilseeds in a specific year, i.e. they do not reflect the outcome of actual oilseed crushing in a given country and period. Regarding oilseed trade, situations where oilseeds are produced in one country but crushed in another are reflected in national oil/meal consumption figures. It is important to note that data on trade in oils (meals) refer to the sum of trade in oils (meals) plus the oil (meal) equivalent of oilseeds traded. Similarly, stock figures for oils (meals) refer to the sum of oil (meal) stocks plus the oil (meal) equivalent of oilseed inventories.

[2] For details on prices and corresponding indices see statistical appendix, table 24.

[3] Please note that from the 2020/21 season onwards, the EU is defined as EU27 rather than EU28, to take account of Brexit.

[4] This section refers to oils of all origins, which – in addition to products derived from the oilcrops discussed under the section on oilseeds – include palm oil, marine oils and animal fats.

[5] Disappearance is defined as domestic utilization plus exports.

[6] The group of major exporting countries consists of Argentina, Brazil, Canada, Indonesia, Malaysia, Ukraine and the United States.

[7] This section refers to meals of all origins. In addition to the products derived from the oilcrops (as discussed under the section on oilseeds), fishmeal and meals of animal origin are included.

[8] The group of major exporting countries consists of Argentina, Brazil, Canada, India, Indonesia, Malaysia, Paraguay, the Russian Federation, Ukraine, the United States and Uruguay.

SUGAR

PRICES

International sugar prices remain high but begin to show signs of easing

Since the release of the last issue of the Food Outlook report in November 2021, international sugar prices, as measured by the International Sugar Agreement’s daily prices for raw sugar, have been relatively volatile. Quotations declined from US 19.4 cents per pound (USD 428.1 per tonne) in November 2021 to US 17.9 cents per pound (USD 393.8 per tonne) in February. After increasing in March and April, prices retreated again in May and averaged US 19.4 cents per pound (USD 428.4 per tonne). Despite recent declines, however, world sugar prices remained more than 10 percent above the already high levels of May 2021.

Favourable production prospects in major exporting countries, notably India and Thailand, eased global supply concerns and exerted downward pressure on world sugar prices. The slowdown in the global economic recovery also weighed on prices, as the sector is sensitive to economic performance and most demand comes from the food and beverages industries. Despite a gradual appreciation of the United States dollar against the currencies of key sugar exporting countries since May 2021, the Brazilian real appreciated against the United States dollar in early 2022 and prevented more pronounced declines in world sugar prices. Although higher crude oil prices tend to support sugar prices by encouraging a greater use of sugarcane for ethanol production, in Brazil, the world’s largest sugar producer, the increase was not fully transmitted to domestic prices.

The positive production outlook for the current season and early indications pointing to a further rebound in 2022/23, coupled with the projected contraction in the growth prospects of the global economy in 2022 and 2023, are likely to continue weighing on the sugar market. On the other hand, international sugar prices are largely influenced by movements in the Brazilian currency, which affect producer-selling decisions. In 2021 and early 2022, the Brazilian real appreciated against the US dollar, restraining exports and providing upward pressure on world sugar prices. In addition, an increase in ethanol prices in Brazil could divert more sugarcane into ethanol, although, current market conditions point to a higher profitability for millers when using sugarcane to produce sugar rather than ethanol.

PRODUCTION

World sugar production seen recovering in 2021/22

World sugar production in 2021/22 (October/September) is forecast at 174.6 million tonnes, up 5.1 million tonnes, or 3 percent, from the reduced level of 2020/21 and slightly above the preliminary forecast in the last issue of the Food Outlook report in November 2021. The anticipated upturn reflects expectations of production increases in India, Thailand and the European Union, more than offsetting significant declines foreseen in Brazil and China.

In South America, the latest indications point to a production decline in 2021/22, mainly due to reduced output in Brazil, the world’s largest producer and exporter of sugar. Unfavourable weather conditions and a shift to more profitable crops, particularly soybeans, triggered the decline in output. Production is forecast to fall to 34 million tonnes, 12 percent down from 2020/21. However, Brazil’s sugar output is also influenced by changes in the ethanol parity price – the price of raw sugar below which it becomes more profitable to produce ethanol instead of sugar. Based on current market conditions, the estimated parity price of US 15.1 cents per pound is below the current level of international raw sugar prices, indicating a higher profitability of producing sugar compared to ethanol. In the key producing area of São Paulo, from October 2021 to April 2022, 43 percent of the sugarcane harvest was used to produce sugar, the highest share recorded during the corresponding period in most recent years. The higher profitability of producing sugar should contribute to preventing a larger decline in sugar output. Elsewhere in South America, sugar production is also anticipated to decline in Argentina, while it is expected to remain relatively stable in Colombia, the region’s second largest producer.

In Central America and the Caribbean, 2021/22 sugar production in Mexico is forecast to increase for the second consecutive season, after the drought-reduced crop in 2019/20, due to improved crop yields. Similarly, in Guatemala, sugar output is expected to expand as a result of good weather conditions combined with the use of high-yielding sugarcane varieties. In Cuba, input shortages and logistical constraints are expected to negatively affect sugar production for the second consecutive year.

In Africa, total sugar production for 2021/22 is set to rise, mainly because of a bumper crop forecast in Egypt, the continent’s largest producer. The increase is mostly due to expected larger plantings of sugarbeet, supported by good procurement prices and government investments in the sector. An increase in outturn is also expected in South Africa, the region’s second largest producer, but this is pending an assessment of the crop damage caused by severe flooding in the key sugar-growing province of KwaZulu-Natal in mid-April.

In Asia, total sugar production is forecast to increase for the second consecutive season in 2021/22. Most of the increase stems from a bumper crop foreseen in India, while output is set to recover in Thailand. By contrast, a significant reduction is anticipated in China, due to unfavourable weather conditions and the shift to more profitable crops, notably maize. In India, the world’s second largest sugar producer, production is forecast to reach a record high of 35 million tonnes, 13 percent above its level in 2020/21. This is the result of higher crop yields as well as greater sugar recovery rates due to the use of better seed varieties and timely application of fertilizers, together with conducive weather conditions. In addition, the Fair and Remunerative Price[1] of sugarcane payable by sugar mills for the 2021/22 season was increased by 1.8 percent on an annual basis. In Thailand, the 2021/22 sugar output is set to rebound following two consecutive years of drought-reduced outputs, mainly on account of a recovery in crop yields due to good weather conditions. Output is also set to expand in Pakistan, as a result of larger plantings spurred by remunerative prices, and in Indonesia, as a result of good weather conditions and a slight expansion in area. By contrast, 2021/2022 production in Türkiye is anticipated to decrease from the bumper crop of last year due to a contraction in area and dry weather conditions.

In Europe, the latest forecast points to a production recovery from the near 20-percent fall recorded last year, mainly mirroring a rebound in the European Union. Latest official estimates for the European Union indicate a more than 10 percent increase in sugar output in 2021/22 after three years of falling production. The increase is underpinned by a sharp rebound in sugar beet yields in France, which suffered widespread damage from the Beet Yellow Virus (BYV) in 2020/21, combined with a slight increase in area. In the United Kingdom of Great Britain and Northern Ireland (United Kingdom), production in 2021/22 is anticipated to increase after last year’s drop, on account of expansion in plantings and a return to average yields. In the Russian Federation, production in 2021/22 is expected to partially recover from the sharp decline in 2020/21, following a growth in plantings and an increase in the average beet yield. Similarly, sugar production in Ukraine is set to increase for the first time in the past three years as a result of both higher plantings and crop yields, with the 2021/22 sugarbeet harvest completed late last year. Despite the difficult conditions in the country due to the war, planting of the 2022/23 crops is progressing across most regions, however, total area is expected to be lower than in 2021/22. As of late May 2022, approximately 182 thousand hectares of sugarbeet were sown, nearly 90 percent of the planned area and about 20 percent down the area sown in the corresponding period last year.

In the rest of the world, production in the United States of America (the United States) is forecast to grow for the second consecutive year, with an increase in sugarbeet output, stemming from higher yields, which more than offset a decline in the sugarcane outturn. In Australia, the 2021/22 sugar production is anticipated to remain stable year-on-year at 4.3 million tonnes.

UTILIZATION

Consumption rebound in 2021/22 revised lower

Global sugar consumption is forecast to reach 172.8 million tonnes in 2021/22, up 2.3 million tonnes or 1.3 percent from 2020/21. Although consumption is set to rebound for a second successive season in 2021/22, the growth is below the level predicted previously in November 2021. This, combined with a slight upward revision to global production, is forecast to result in a global sugar production surplus of 1.8 million tonnes in the current season. The downward revision in utilization mostly reflects the significant slowdown in global growth forecast in 2022, with the economic impacts of the war in Ukraine adding to the economic strains from the pandemic. According to the World Economic Outlook of the International Monetary Fund (IMF), growth in the global economy in 2022 is projected to slow from an estimated 4.9 percent in October to 3.6 percent in April 2022, which is 2.5 percentage points lower than in 2021. Economic growth has an effect on the derived demand for sugar, as the beverage and food processing sectors – which account for the bulk of aggregate sugar use – are positively influenced by favourable economic conditions.

India, the world’s largest sugar consumer, and African countries are expected to drive the global increase in sugar consumption in 2021/22. In China, the world’s second largest sugar consumer, a slowdown in economic growth, associated with new COVID-19-related containment measures and high sugar prices, could curb consumption in 2021/22. A significant downward revision to consumption in 2021/22 was also made for Europe due to the sharp year-on-year contraction anticipated in Ukraine and the Russian Federation because of the ongoing war. Overall, current high sugar prices are expected to limit further increases in sugar consumption in 2021/22. In Brazil, despite some weakening in early 2022, the domestic prices of sugar in April 2022 were 40 percent higher than a year ago after sharp increases in the second half of 2021. In the European Union, the average prices of sugar in the first quarter of 2022 were more than 10 percent higher than those registered in the corresponding period last year. Similarly, in the United States, domestic prices of refined sugar in April 2022 were 15 percent higher on a yearly basis. Given current prospects, global per capita sugar consumption is estimated at 22.0 kg, only 0.3 percent above the 2020/21 level.

Several elements of uncertainty further characterize the prospects for sugar consumption. Current forecasts depend on the future developments of the war in Ukraine and related escalation of sanctions on the Russian Federation, which could further deteriorate the global economic outlook. In addition, despite a general improvement in the epidemiological situation, the emergence of new COVID-19 variants, combined with new containment measures, may dampen global growth prospects. This is the case in China, where new movement restrictions were recently imposed following a surge in daily infections from the Omicron COVID-19 variant. The extent of overall global recovery also depends on the policy actions implemented at country levels to safeguard economic growth and to contain the surge in global inflation. Changes in crude oil prices, a key element for the profitability of sugar crop-based ethanol production, remain a major source of uncertainty for the sector, with possible impact on sugar availability for consumption. Finally, developments in world and domestic sugar prices, combined with movements in the value of currencies with respect to the United States dollar, will be key drivers to monitor, given their effects on the level of sugar consumption.

TRADE

World sugar trade to contract slightly in 2021/22

FAO’s forecast for world trade in sugar in 2021/22 (October/ September) is currently pegged at 59.0 million tonnes, 2 percent down from the previous season. The anticipated contraction is the result of reduced exportable supplies in key exporter Brazil, anticipated to more than offset foreseen greater shipments from India and Thailand.

Brazil’s exports in 2021/22 are forecast to decline by around 20 percent from the previous season’s record high, reflecting the expected significant decline in production. However, the country is seen to remain the world’s largest sugar exporter, accounting for over 40 percent of world exports in 2021/22. The bulk of Brazilian sugar sales is in raw form, which in the current season have been shipped mainly to China, Algeria, Nigeria, Morocco and Bangladesh. The final volume of Brazilian exports will depend on the quantity of sugarcane that is processed into ethanol, with current market conditions pointing to a higher profitability of producing sugar. In addition, currency movements will affect producer selling decisions. The Brazilian real appreciated in the first months of 2022, and any further appreciation against the United States dollar could affect the country’s competitiveness in the world sugar export market.

Following a rebound in production, Thailand’s exports are forecast to recover in 2021/22 after a sharp decline in the past two seasons and to more than double on a yearly basis. Nevertheless, the country is expected to remain the third largest sugar exporter in the world, after Brazil and India. Over 60 percent of Thailand’s exports are expected to be shipped in raw form to neighbouring countries, including Indonesia, South Korea, Cambodia and China. India is set to remain the world’s second largest sugar exporter for the second consecutive season, with sales likely reaching 9 million tonnes in 2021/22. Large exportable supplies are the result of abundant domestic availabilities, prompted by relatively profitable returns, despite the government’s decision to discontinue the export subsidy scheme for the current season, as well as logistical constraints, including high freight rates and container shortages.

Exports from Australia, the world’s fourth largest raw sugar exporter, are forecast to increase to 3.6 million tonnes in 2021/22. Over 80 percent of the sugar produced in Australia is exported, mostly in raw form. Australia’s traditional markets are South Korea, Indonesia and Japan, although in the current season, large volumes are also being exported to Bangladesh and Singapore. Exports by Guatemala and Mexico, the second and third largest sugar exporters in Latin America and the Caribbean, are expected to rebound significantly in 2021/22, reflecting larger domestic availabilities. Exports by the European Union are likely to increase by 15 percent year-on-year after declining in the past two seasons.

On the import side, purchases by Asian countries are forecast to decrease in 2021/22 by nearly 2 percent year-on-year mainly reflecting lower imports by China. Subdued demand amid high import costs and COVID-19-related import restrictions are anticipated to reduce purchases. In the first six months of the season, imports were nearly 30 percent below the volume imported during the corresponding period in 2020/21. Nevertheless, China is expected to maintain its position as the world’s largest sugar importer, followed by Indonesia, where imports are forecast to be broadly unchanged year-on-year, with higher domestic production meeting the growing domestic demand.

In Europe, imports by the European Union are forecast to exceed those of the previous season, on the back of higher demand, with Everything-but-Arms and Economic Partnership Agreement countries as the main import origins, followed by Brazil. Similarly, imports by the United Kingdom are expected to be larger than in the previous year. By contrast, imports by the Russian Federation and Ukraine are expected to decline markedly on a yearly basis, reflecting the drop in demand due to the war, higher domestic production and logistical constraints.

In the rest of the world, imports by the United States are set to decline for the second consecutive year, while imports by African countries are expected to continue to expand, driven by strong internal demand due to population and income growth.

[1] The Fair and Remunerative Price or FRP is the price declared by the government, which sugar mills and factories are required to pay to sugarcane farmers.

MEAT AND MEAT PRODUCTS

PRICES

Tight supplies from leading exporters strengthen international meat prices

Following nearly uninterrupted increases since October 2020, international meat prices[1] jumped to an all-time high in May 2022, lifting the index 13.6 percent above its value in May 2021. Tight export supplies from leading exporting countries stemmed from the challenging production environment were mainly behind this steep price increase. The bovine meat price sub-index reached an all-time high in April 2022, reflecting exceptionally tight slaughter cattle supplies in South America due to low inventories and significantly high herd rebuilding demand in Oceania. Meanwhile, poultry meat producers in leading exporting countries confronted sharply rising feed prices and dim growth prospects, mainly stemming from outbreaks of the Highly Pathogenic Avian Influenza (HPAI), including in parts of Asia, Europe and North America. Disruptions to poultry meat exports from Ukraine following the outbreak of the war in late February 2022 added more uncertainty to meat markets.

International pig meat prices also rose significantly, as African swine fever (ASF) outbreaks continued to constrain output growth in several leading exporting countries, including the European Union. In addition, squeezed profit margins due to increased animal feed prices led farmers in several large producing countries to reduce production. By contrast, China’s hog stocks and pig meat production continued to expand, leading to a faster-then-anticipated recovery in pig meat production, easing supply tightness and lowering domestic pig meat prices. Similarly, ovine meat exports from Oceania, the world’s largest exporter, remained limited due to buoyant flock rebuilding demand. Increased input costs, mainly for feed and energy, logistical hurdles and freight costs discouraged meat producers in many countries.

On the demand side, China remained the largest meat importer globally, accounting for nearly a quarter of global total meat imports, despite a recent decline in pig meat imports. Reflecting higher sales in the hospitality, restaurant and institutional (HRI) sector, owing to increasingly relaxed COVID-19-related restrictions, meat imports rose in several leading meat importing countries.

OVERALL PRODUCTION AND TRADE

World meat output to expand moderately in 2022

Global meat production is forecast to reach 361 million tonnes (carcass weight equivalent) in 2022, expanding by 1.4 percent, albeit at a slower pace than the 4.5 percent growth in 2021. The expansion is driven mainly by a steep growth in meat output in China and notable increases in Brazil, Australia and Viet Nam, foreseen to be partly offset by anticipated declines in the European Union, the United States of America (the United States), Canada, the Islamic Republic of Iran and Argentina. Concerning meat categories, pig meat production is expected to register the highest volume gain, followed by poultry, bovine, and ovine meats.

In China, overall meat production is forecast to expand by 4.4 percent to around 96 million tonnes. This expansion is foreseen to be driven mainly by an anticipated 8-percent growth in pig meat output, to 58 million tonnes, on account of a fast-paced rise in the hog inventory, exceeding the volume that existed before the widespread ASF outbreak in 2018. Brazil’s total meat output is forecast to expand by 3.3 percent to 30.6 million tonnes, underpinned by anticipated steep production gains in poultry meat, benefiting from an expected increase in global demand and, in bovine meat, due to increased cattle supplies and carcass weight. In Australia, bovine meat production is heading for recovery due to cattle availability at competitive prices, following a significantly high supply of cattle following the recent herd-rebuilding phase, supported by the dissipation of labour shortages in abattoirs and processing plants. Ovine meat production in Australia is also projected to expand, reflecting a recovery in sheep/goat stock following a flock-rebuilding phase. In Viet Nam, much of the expansion in meat output is anticipated to originate in the pig meat sector, driven by a recovery in hog inventory following the introduction of biosafety measures against the ASF virus.

In the European Union, pig meat output is projected to decline due to ASF outbreaks, rising input costs and disease-related export constraints. Bovine meat production is expected to decrease due to the limited availability of slaughter cattle. Rising input costs could lead to profit margin squeezes in the pig and bovine meat sectors, leading to some contractions in total meat output in the United States and Canada. Similarly, rising feed prices and their shortages are likely to reduce poultry meat production in the Islamic Republic of Iran. By contrast, the limited availability of slaughter cattle, amid herd inventory declines and rising production costs, is responsible for the foreseen output contractions in most countries, including Argentina.

Global meat trade likely to grow marginally

World trade in meat and meat products is forecast to reach 42 million tonnes (carcass weight equivalent) in 2022, expanding only slightly (+0.5 percent) from 2021 and registering the slowest pace of growth in the last seven years. Moderate import expansions anticipated in the United States, the United Kingdom of Great Britain and Northern Ireland (the United Kingdom), the Republic of Korea and Mexico are likely to offset steep declines foreseen in China, the Russian Federation, Saudi Arabia and Chile.

Although forecast to remain at close to 10 million tonnes, total meat imports by China are projected to fall by 780 000 tonnes, or 7.4 percent, reflecting likely increases in the domestic availability of bovine, ovine and pig meats and lower prices in domestic markets. In the Russian Federation, imports are expected to fall due to national production upturns in some sectors and a possible reduction in import demand amid the projected economic downturn, high inflation and depreciation of the national currency. In Saudi Arabia, poultry meat purchases will probably decline due to import restrictions imposed on several processing plants in exporting countries, only partially offset by expected growth in demand for bovine meat. By contrast, the United States is forecast to import 10 percent more meat products in 2022, compared to 2021, with bovine meat constituting the highest share, principally reflecting a lower level of national supply amid rising demand, especially in the restaurant sector. With a rebound in HRI sales and rising consumer demand, in some cases also prompted by better economic prospects, the United Kingdom, the Republic of Korea and Mexico are forecast to import more meat products in 2022.

On the export side, reflecting significantly low global import demand, coupled with reduced national availabilities, animal disease-induced import restrictions, less optimistic economic prospects, trade restrictions and disruptions to trade flows arising from the war in Ukraine, meat shipment volumes are forecast to fall significantly among several leading meat exporters, including Ukraine, the United States, the European Union, the Russian Federation, New Zealand and Canada.

POULTRY MEAT

Production to grow at a slow pace

Global poultry meat output is forecast to reach 139 million tonnes in 2022, growing at a slow pace of 0.8 percent, as anticipated increases in the Americas, Asia, Africa and Oceania are likely to be offset by declines foreseen in Europe. At the country level, Brazil, the Russian Federation, Türkiye, the United States and Mexico are likely to register significant volume gains; however, these will be offset by anticipated declines in China and the Islamic Republic of Iran.

A surge is expected in the global demand for supplies of meat from Brazil due to disruptions to meat exports from Ukraine, coupled with constraints to exports from other leading meat producers, mostly stemming from HPAI outbreaks and squeezed profit margins. Poultry meat production in the Russian Federation is likely to rebound from a two-year contraction, helped by the increased availability of coarse grains. High foreign demand, especially from the Middle East, is expected to sustain production expansion in Türkiye. Poultry meat production in the United States is likely to be fractionally higher in 2022, reflecting a possible increase in production efficiency to counter high feed grain prices, moderate demand growth due to rising retail prices, and the impact of HPAI outbreaks. Despite rising prices, expected increases in HRI sales and food processing sector demand may spur Mexico’s poultry meat production.

By contrast, China’s poultry meat production is forecast to drop, given the high probability of consumers switching back to pig meat – the preferred meat option for many consumers– with the sector’s ongoing production rebound. Meanwhile, shortages and high world prices of feed, and lower demand due to rising poultry meat prices, are likely to reduce output in the Islamic Republic of Iran.

Firm demand expected

Global poultry meat exports are forecast at 16.2 million tonnes, up 2.1 percent from 2021, driven by likely import expansions in Asia, which could be partially offset by a substantial drop foreseen in Europe. At the country level, the United Kingdom, Iraq, the United Arab Emirates, the United States, the European Union, Kazakhstan, and China are all expected to import more poultry meat in 2022 to meet growing domestic demand, mostly induced by rebounds in HRI activities and better economic prospects in some countries. By contrast, lower imports are forecast for the Russian Federation, due to a probable increase in national production, the recent depreciation of the national currency and rising poultry prices. Lower imports are also expected for Saudi Arabia, reflecting import bans imposed on processing plants in several exporting countries and the loss of exports from Ukraine, following the Russian invasion, which could be only partially compensated by increased imports from Thailand, benefiting from the removal of an 18-years import ban, in March 2022.

Regarding exports, much of the increased demand is expected to be met by Brazil, Türkiye, the European Union, the United Kingdom and Thailand. Brazil, Türkiye and Thailand could benefit from the demand gap left by Ukraine’s abrupt suspension of meat exports. Meanwhile, exports are likely to increase moderately from, as well as between, the European Union and the United Kingdom, benefiting from higher demand by some African countries and the possible relaxation of trade controls by the United Kingdom on imports from the European Union.

BOVINE MEAT

Growth among four large producers to sustain production expansion

World bovine meat production is forecast to expand by 1.0 percent in 2022, to 73 million tonnes, based on expectations of an expansion in Asia, South America, Oceania and Central America and the Caribbean, partly offset by contractions foreseen in Europe, North America, and Africa. High production gains are anticipated in Brazil, Australia, China and India, while contractions are likely in the European Union, the United States, Canada, Argentina and New Zealand.

In Brazil, an increase in cattle supplies and carcass weight, mainly in feedlots, is likely to result in higher output, especially on farms that use improved genetics and animal feed. However, the ongoing drought and rising input costs could reduce profit margins and limit production growth. Australia’s bovine meat production is increasing due to greater cattle availability at competitive prices, following a herd-rebuilding phase, and further supported by the dissipation of labour shortages in abattoirs and processing plants. In China, bovine meat production is on the rise, driven by increased slaughter weight, mainly on large-scale farms with intensive feeding and the increased availability of slaughter cattle. Robust growth in cattle numbers and carcass weight, especially in new breed varieties, and growing global demand should lift carabeef[2] meat output in India.

By contrast, the limited availability of slaughter cattle, amid herd inventory declines, and rising production costs are responsible for output contractions foreseen in many countries, including the European Union, the United States, Canada, Argentina and New Zealand.

Robust import demand expected

World bovine meat exports are forecast at 12.4 million tonnes, up 2.7 percent year-on-year. A significant import expansion is expected in Asia and North America, which will likely be partially offset by a lower level of imports anticipated in Europe. At the country level, bovine meat imports are likely to rise in China, the United States, the United Kingdom, Viet Nam and Malaysia, but will possibly fall in the Russian Federation, Chile and Japan.

Demand for bovine meat is growing in China, mainly among middle-class consumers, sustaining import expansion, although the pace of import growth is likely to be contained this year due to a less than optimistic projected economic outlook. The anticipated contraction in production amid rising demand, especially in the restaurant sector, is likely to spur bovine meat import demand in the United States and the United Kingdom. Recovering food services sales and rising consumer spending may boost imports by Viet Nam and Malaysia. By contrast, bovine meat imports may fall in the Russian Federation due to the depreciation of the country’s currency, and in Chile, on rising domestic production. Meanwhile, an anticipated recovery of HRI sales notwithstanding, reduced demand due to high retail prices and a shift to cheaper meats may slightly reduce Japan’s bovine meat imports.

Bovine meat exports by Brazil, Australia, India, Mexico, the European Union and the United Kingdom are expected to increase, whereas contractions are likely in Paraguay, Argentina, the United States, New Zealand, Uruguay and Canada. Greater availability and high international prices will likely lift exports from Brazil and Australia. India’s gaining market share in some countries in the Middle East and North Africa (MENA) region and East Asia should prompt higher shipments. Rising bovine meat production, mainly in feedlots, and somewhat muted domestic demand growth due to soaring prices may lead to larger shipments from Mexico. The United Kingdom also may increase shipments, mainly to the European Union, as trade relations improve.

By contrast, exports from the United States are forecast to contract, caused by lower production and strong domestic demand. Meanwhile, bovine meat exports from New Zealand are likely to fall from the 2021 record level due to multiple challenges, especially labour shortages, and in Paraguay, Argentina and Uruguay due to tight cattle supplies. Canada’s bovine meat exports may drop due to farm margin squeezes, decreasing feedlot supplies.

PIG MEAT

Output in China to exceed pre-ASF volumes

Following an 11.5 percent growth in 2021, global pig meat production is forecast to expand by 2.5 percent in 2022 to 125.6 million tonnes. The expansion is likely to be concentrated in Asia, but moderate increases are also likely in South America and Central America and the Caribbean. By contrast, output contractions are predicted in Europe and North America. The largest volume gain is expected in China, with slight increases foreseen in Viet Nam, Brazil, and Mexico, partially offset by substantial drops anticipated in the European Union, Thailand, the United States, Ukraine and Canada.

Pig meat production in China is forecast to expand by nearly 8 percent to 58 million tonnes, exceeding production levels before the widespread ASF outbreaks. Despite sporadic outbreaks, nominal output growth is likely in Viet Nam, facilitated by rising hog inventories, following years of effort to bring ASF under control. High internal and foreign demand sustain production expansions in Brazil, notwithstanding elevated production costs, which have negatively impacted the operating margins of many farms. Increased import demand and growing domestic consumption, driven by population growth and increased affordability of pig meat, have helped Mexico to increase its pig meat production, complemented by supply chain development with the United States.

By contrast, margin squeezes due to high feed prices have led to the slaughter of younger pigs in the European Union, resulting in lower carcass weight and output. ASF outbreaks in Thailand have caused hog stocks to shrink and farm-gate prices to fall, turning the production outlook negative. In the United States, low initial hog inventories and likely reduction in farrowing amid high feed prices could lead to tighter hog supplies in the remainder of the year, possibly lowering overall annual output. Pig meat production in Ukraine is forecast to decline by a minimum of 19 percent based on available information on the extent of damage to the farming infrastructure, labour shortages and lack of services due to the war. Canada’s production is likely to decline due to a possible reduction in carcass weight, despite a moderate rise in slaughtering numbers.

Rising production to depress imports

Global pig meat exports are forecast at 12.2 million tonnes in 2022, down 4.0 percent from 2021. The decrease is mostly driven by anticipated lower imports by China, Viet Nam and Chile but is partially offset by higher purchases by the United States, the United Kingdom, the Republic of Korea, Mexico, Japan, the Dominican Republic, the European Union and the Philippines.

Abundant domestic supplies and low domestic prices have made it difficult for imported pig meat to compete with local products, reducing import purchases by China. In Viet Nam, the likely domestic production growth amid subdued demand may discourage imports, although total annual pig meat imports in 2022 could still be close to 220 000 tonnes. Due to rising local production, Chile’s imports may fall by about 9 percent.

Underpinned by buoyant consumer demand and a probable decline in domestic production, the United States is expected to import more pig meat in 2022, primarily from Canada, the European Union and Mexico. Meanwhile, higher pig meat imports are forecast for the Republic of Korea on account of rising demand from the food services sector, and for the United Kingdom due to decreased national production. Driven by population growth, affordability and a menu of various products that restaurants usually offer, pig meat consumption is rising in Mexico, further spurring imports, especially from the United States. Similarly, Japan may import more pig meat, prompted by a resurgence in food services sales and high bovine meat prices. Pig meat imports by the Dominican Republic may also rise due to the impact of recent ASF outbreaks on national production. Imports by the Philippines are forecast to increase by around 3 percent to 341 000 tonnes, given the slower-than-anticipated recovery of the domestic pig herd from the ASF virus.

With regard to exports, significant contractions are anticipated for the European Union, the United States, the Russian Federation, Canada and Thailand. The European Union’s exports to some leading Asian destinations are foreseen down due to the non-recognition of official controls and eradication of animal diseases in regions (zones) affected when imposing import controls, except for China’s recognition of zoning in France. Constricted domestic supplies and high prices are likely to limit pig meat exports from the United States. Exports from the Russian Federation are likely to fall, given production recoveries in some of the largest export destinations such as Viet Nam and possible logistical challenges.

OVINE MEAT

Growth prospects up

Global ovine meat output is forecast to expand by 1.0 percent in 2022 to around 17 million tonnes, with Asia and Oceania likely leading the expansion, while slight production contractions are anticipated in Europe, South America, and North America. At the national level, Australia, Türkiye, China and the United Kingdom are projected to increase production, while noticeable contractions are anticipated in the Russian Federation, New Zealand and the European Union.

Ovine meat production is increasing in Australia, reflecting a recovery of the national sheep/goat flock. A production expansion is expected to rise in Türkiye due to high slaughter rates, partly brought-on by elevated prices. Ovine meat production in China continues to increase, helped by the entry of small-scale farmers attracted by the high prices. Significantly high carry-over livestock from 2021, the entry of new season lambs and higher ewe kill, induced by rising feed costs and meat prices, could increase ovine meat production in the United Kingdom. By contrast, ovine meat production may fall in the Russian Federation due to a likely reduction in affordability. In New Zealand, production may decrease due to a possible drop in lamb flock. A decline in the sheep flock, coupled with higher slaughter of younger animals leading to lower carcass weight, may cause ovine meat output to fall in the European Union.

Trade to expand amid easing supplies

World exports of ovine meat are forecast to increase in 2022 by 5.1 percent to 1.1 million tonnes, with around 80 percent of the increase originating in Oceania. Nearly 70 percent of the projected expansion in exports is likely to be destined for Asia, followed by North America and Europe. This year’s projected increase in trade reflects higher export availabilities from Australia, following flock rebuilding last year; the country is forecast to ship nearly 530 000 tonnes, 15.2 percent more than last year. High international prices and low global supplies will likely lead to slightly more shipments from the United Kingdom, South Africa, Türkiye and the European Union.

China is foreseen to purchase more ovine meat, mainly from Oceania, driven by the rapidly rising affluent population, rising incomes and urbanization, and increased food services sales. Expectations also point to substantially higher imports by the United States, Malaysia, and the United Arab Emirates. Following downturns in 2021, several other Middle Eastern countries are expected to register import rebounds, reflecting the easing of supply constraints in Oceania.

[1] As measured by the FAO Food Price Index.

[2] Meat derived from water buffaloes.

MILK AND MILK PRODUCTS

PRICES

Tight export supplies continue to support international dairy product prices

Except for three months from June to August in 2021, international prices of dairy products have been on an upward trend since mid-2020, as global import demand tended to exceed export supplies from leading exporting countries. Reflecting these changes, the FAO Dairy Price Index reached an eight-year high in April 2022 but retreated by 3.5 percent in May 2022, underpinned by a decline in global buying interest on market uncertainties stemming from the continued lockdown in China.

Despite the latest decline in global buying interest, global dairy import demand was buoyant for most of the recent months, with the highest volume destined for Asian markets, mainly China. Milk powders and whey constituted the bulk of the imports by China, driven by increased demand from consumers and the pig meat industry (as feed for piglets) and a rebound in the food services sector. However, recent port disruptions in China due to the lockdowns related to the spread of the COVID-19 omicron variant led to a decrease in imports, especially whole milk powder (WMP), weighing on international prices. Besides China, dairy imports have been rising faster in countries with insufficient national production capacity to supply the type and quality of dairy products required by the hospitality industry, supporting international dairy prices.

On the supply side, global dairy exports from leading exporters have been generally tight, reflecting lower milk deliveries in Western Europe and Oceania due to lower dairy cattle numbers, higher input costs, environmental regulations and labour shortages. Meanwhile, rebounds in food services sales in Western Europe increased the demand for dairy products, such as butter and cheese, further tightening export supplies. The deficit of sunflower oil and margarine – due to reduced supplies from Ukraine – also exerted upward pressure on international butter prices. Milk outputs are also tracked below historical seasonal levels in the United States of America (United States) and the United Kingdom of Great Britain and Northern Ireland (United Kingdom), reflecting the declines in dairy cattle numbers and producer margins, exacerbating global supply tightness.

MILK PRODUCTION

World milk output to expand, albeit at a slower pace

World milk production in 2022 is forecast to reach 937 million tonnes, rising by 1.0 percent year-on-year, which, if confirmed, would continue the slowdown in growth for the fifth consecutive year. This year’s production expansion is expected to be driven by Asia, North America and Central America and the Caribbean, partially offset by predicted declines in Europe, South America and Oceania, while in Africa, the output is anticipated to remain broadly stable.

Milk output in Asia in 2022 is pegged at 411.3 million tonnes, up nearly 3 percent from 2021, with much of the expansion seen originating in India, followed by China and Pakistan.[1] Milk production in India is forecast to expand by 3.2 percent to 217 million tonnes, driven by an expected increase in dairy herds, a moderate yield gain, and more efficient milk collection by dairy cooperatives. In China, milk output is expected to expand by 5.5 percent to 40 million tonnes in 2022, continuing the growth momentum that began with the launch of the national dairy revitalization strategy in 2018, sustained by rising efficiency across the entire dairy value chain. In Pakistan, increasing cattle numbers are expected to support milk output expansion, although shortages of feed and fodder, poor milk collection and processing continue to pose challenges to growth. Farm modernization, partly driven by government assistance, may spur milk output growth in Uzbekistan, Kazakhstan, Japan and Viet Nam. By contrast, milk output is anticipated to fall slightly in the Republic of Korea and the Syrian Arab Republic.

In North America, milk output is forecast at 112.7 million tonnes in 2022, a marginal increase year-on-year. The forecast reflects a marginal growth expected in the United States, as gains through yield improvements are likely to be partially counterbalanced by a possible rise in dairy cattle slaughter due to declining producer margins. Meanwhile, in Canada, an increase in milk prices, which was announced in November 2021, could potentially compensate for rising input costs, enabling milk output to expand moderately.

In Central America and the Caribbean, milk output is forecast at 19.0 million tonnes, up 1.6 percent year-on-year, reflecting an expected output increase in Mexico. Notwithstanding inflationary pressures, efforts to ensure high farmgate prices could mitigate the impacts of rising input costs, helping Mexico to sustain a production expansion. In El Salvador and the Dominican Republic, milk output may fall due to dry weather, causing pasture and fodder availability to deteriorate, while lower food crop incomes and reduced job opportunities could depress consumer purchasing power.

In Europe, following a 0.4 percent decline in 2021, milk output is forecast to fall by a further 0.5 percent in 2022, to 232.6 million tonnes, with significant contractions anticipated in Ukraine and the United Kingdom. However, these declines are expected to be partially compensated by modest but widespread output expansions, most notably in the European Union, the Russian Federation and Belarus. In the European Union, milk production is likely to remain largely stable in 2022, sustained by an anticipated milk yield increase, compensating for a probable decline in milk deliveries due to falling dairy herd numbers. In addition, rising feed, fertilizer and energy prices could decrease producer margins in the European Union, leading to increased culling of dairy cattle and reducing milk deliveries further. Milk output in the Russian Federation may expand, underpinned by high farmgate prices, state assistance and increased production on large-scale dairy farms. Farm management improvements, increased use of better-quality feed and solid demand from neighbouring countries, mainly the Russian Federation, may sustain production growth in Belarus. By contrast, reported farming infrastructure damages and disruptions to milk processing due to the war could reduce milk output by a minimum of 15 percent in Ukraine, lowering annual milk output to about 7 million tonnes. The shrinking dairy herd and rising input costs could reduce milk output in the United Kingdom by about 1 percent, to 15 million tonnes.

In South America, milk production is forecast to fall by 1.0 percent to 81.5 million tonnes, reflecting steep anticipated output drops in Colombia, Brazil, and Argentina; these could be moderated by likely expansions in Uruguay and Peru. Rising costs of feed, fertilizer and fuel are expected to present significant challenges in Colombia, Brazil and Argentina, where farmers may need to reduce their use of feed and, in some cases, resort to increased culling, reducing milk output. In addition, all southern cone countries experienced heat waves in late 2021 and early 2022, resulting in dry conditions and poor pasture quality, which has further lowered milk production potential in Brazil and Argentina. Despite parts of Uruguay and Paraguay also being affected by extreme heat waves this year, pasture conditions do not appear to have significantly deteriorated in these countries.

In Oceania, milk output is forecast at 30.5 million tonnes, down 1.5 percent year-on-year – the equivalent of 470 000 tonnes, reflecting likely output declines in Australia and New Zealand. Milk production in Australia continues to be constrained by the shrinking dairy herd and the shortage of skilled labour. In New Zealand, milk production is forecast to fall by 0.9 percent, following the recent trend of milk production tracking below its seasonal levels and the potential impact of rising feed and fertilizer prices on milk yields.

In Africa, milk output is forecast to reach 49.7 million tonnes in 2022, remaining largely stable, as anticipated increases in Algeria, Egypt and South Africa are likely to be offset by foreseen declines in Kenya, Sudan, Niger, Ethiopia, Somalia, Uganda and Morocco, among others. In Algeria, Egypt and South Africa, milk output may benefit from likely increases in coarse grain harvests and increased fodder availability. By contrast, milk output could contract in Niger and parts of Ethiopia, Somalia and Kenya due to fodder shortages, and Morocco, Sudan and Uganda due to erratic rainfalls or widespread droughts. Conflicts continue to limit milk production growth in pastoral production systems in sub-Saharan Africa.

INTERNATIONAL TRADE IN DAIRY PRODUCTS

Following a steep increase last year, the world dairy trade is expected to fall slightly in 2022

World trade in dairy products in 2022 is forecast at 88 million tonnes (milk equivalent), down 0.4 percent from a sharply elevated trading volume in 2021. The projected decline is attributable to expected lower imports by Ukraine, Sri Lanka, the Russian Federation, Nigeria, Brazil and Viet Nam, among others, due to conflicts, economic downturns and consumers’ low purchasing power. However, these declines are forecast to be counterbalanced by increased purchases by China and, to a lesser extent, Indonesia, Thailand and Mexico, with recoveries anticipated for the United Kingdom, Algeria, the Philippines, and Saudi Arabia, primarily due to rising consumer demand, which tends to exceed growth in national production. In China, the world’s largest dairy importer, imports are forecast to increase 1.2 percent to 20.9 million tonnes in 2022. However, this growth rate is much slower than the 22.2 percent registered in 2021, resulting from weaker SMP and cheese demand, linked to the expected domestic milk production increase, economic growth slowdown, and lockdown-related disruptions of food services.

New Zealand and Australia are predicted to record the most significant declines in exports among the major exporters, reflecting tight export availabilities. Lower shipments are also likely from Ukraine, Malaysia, the Russian Federation and Uruguay. These declines will likely be compensated by anticipated higher shipments from the European Union, the Islamic Republic of Iran, Türkiye, the United Kingdom and India.

Across the major dairy products, international trade in WMP is forecast to contract, while those of SMP, cheese and whey powder are anticipated to expand. Meanwhile, global butter trade is likely to remain stable. With these changes, milk powders should account for nearly 47 percent of global trade (in milk equivalents), with cheese, whey and butter accounting for 18 percent, 16 percent and 8 percent, respectively.

Whole milk powder

WMP trade to fall again in 2022

Global trade in WMP is forecast at 2.6 million tonnes in 2022, down by 4.9 percent from 2021; if confirmed, the downturn would occur for the second consecutive year. It reflects likely steep import curtailments by Sri Lanka, Nigeria and Brazil, caused by slower growth anticipated in the food services sector amid economic growth slowdowns, while inflationary pressure remains, eroding the purchasing power of consumers. By contrast, China, Indonesia and Saudi Arabia, among others, are likely to purchase more WMP. The world’s largest WMP importer, China, is predicted to buy nearly 2 percent more WMP in 2022, lifting its total volume to 944 000 tonnes, or 35 percent of global imports. The bulk of Chinese imports is likely to be supplied by New Zealand, partly facilitated by the free trade agreement that came into force on 7 April 2022, which eliminated duties on most of New Zealand’s dairy products. Indonesia and Saudi Arabia are also foreseen to import more WMP, reflecting high internal demand.

With the anticipated decline in global WMP trade, shipments from New Zealand, the European Union and Uruguay, among others, are forecast to fall. The decrease in New Zealand reflects tight milk production conditions in the country. In the European Union, the decline is due to the higher allocation of milk to other dairy products, mainly cheese, that have higher profit margins.

Skim milk powder

SMP trade to expand largely driven by Asian demand

The global SMP market trade in 2022 is forecast at 2.7 million tonnes, up 2.1 percent from 2021, resulting from a possible increase in purchases by Asia, mainly by Indonesia, Thailand and the Philippines, partially counterbalanced by anticipated decreases in China, Viet Nam, Yemen, Bangladesh and the Russian Federation, among others.

SMP imports by Indonesia, Thailand and the Philippines are likely to expand amid rising consumer demand. Algeria’s SMP imports are likely to recover after a slump in 2021. Limited domestic production, coupled with possible improvements to economic conditions and easing of COVID-19 restrictions, is anticipated to lift SMP imports by Mexico and Egypt. After a sharp rise in 2021, in China, SMP imports expect to decrease in 2022 by 3.3 percent, reflecting an ample supply availability from the past year and a slowdown in domestic demand due to higher import prices. Despite the import drop, China remains the largest SMP importer. In Viet Nam and Bangladesh, imports may decline in 2022 due to higher inflation, negatively affecting household expenditures. SMP imports by the Russian Federation are forecast to fall moderately in tandem with increasing domestic production.

Regarding exports, New Zealand, the Islamic Republic of Iran, the European Union, and Türkiye are expected to export more SMP due to likely increases in domestic production, given the profitability of allocating available milk to the butter-SMP production mix. By contrast, SMP exports from the United States and Australia are forecast to decline from their high export levels in 2021 but remain above the historical trend levels.

Butter

Butter trade foreseen to increase slightly in 2022

Global butter trade is forecast to increase marginally in 2022 to 1.0 million tonnes, driven primarily by anticipated higher exports from New Zealand, Türkiye, India and Saudi Arabia, offset by lower exports from Ukraine, the United States and the United Kingdom.

Butter exports from Ukraine may fall by nearly 50 percent, impacted heavily by the ongoing war. At the same time, shipments from the United States and the United Kingdom could fall significantly, mainly on limited milk production growth coupled with likely increases in internal demand. Notwithstanding milk production tracking below their seasonal averages, butter exports are forecast to expand in New Zealand, while those of the European Union remain chiefly stable, as processors allocate the available milk to produce the butter/SMP mix. Taking advantage of the tight supply situation and the sudden stop to exports from Ukraine, some countries with the capacity to increase production within short notice and having stocks, such as India, may expand exports in 2022, destined mainly to the Middle East and North African markets. Belarus, the world’s third largest butter exporter, could maintain current export volumes to the Russian Federation.

Notwithstanding soaring prices, butter imports by China may increase due to rising demand from the bakery and pastry products sector. Also, purchases by Canada, Indonesia, Mexico and Egypt could increase, reinforced by more significant growth in consumer demand compared to domestic production. Despite reeling under the twin crises of unemployment and the COVID-19 pandemic, partial economic recovery in Mexico is likely to lift butter imports but anticipated to remain below pre-pandemic levels. By contrast, notably low purchases are anticipated by the Russian Federation, Saudi Arabia, the United Kingdom and the Philippines due to high international prices and economic downturns. Depressed demand, due to soaring prices and lower incomes, is likely to discourage butter imports by the Russian Federation, although imports from Belarus will continue. In the United Kingdom, imports could decline, albeit slower than the previous year, reflecting the easing customs controls with the European Union.

Cheese

Global cheese trade to increase further in 2022

World cheese exports in 2022 are forecast at 3.6 million tonnes, up by 1.0 percent from 2021, driven by expected larger imports by the United Kingdom, Mexico, Saudi Arabia, the Republic of Korea, El Salvador, Canada and the United States. These increases are likely to be largely offset by significant import curtailments by the Russian Federation, Australia, the Philippines, China, Chile and Japan. The United Kingdom is heading towards a partial recovery in cheese imports, mainly from the European Union, mirroring the likely relaxation of customs control. Mexico may also import more cheese, reflecting the revival of the food processing sector. Similarly, the growing popularity cheese is expected to lift imports by Saudi Arabia. In China, cheese imports are anticipated to decrease moderately in 2022 due to the economic slowdown, COVID-19 restrictions and ongoing lockdowns disrupting the supply chain and lowering domestic demand. By contrast, the Russian Federation could import less cheese due to low consumer purchasing power, while currency fluctuation and higher prices may deter cheese purchases by the Philippines.

Notwithstanding constrained milk production, the European Union –the world’s largest cheese exporter–is forecast to increase exports as processors channel a high proportion of the available milk supplies to cheese production and rising global demand. Considering robust demand from Mexico, the United States may also export more cheese. The United Kingdom may increase cheese exports, especially to the European Union. By contrast, in New Zealand, cheese exports could decline moderately. Egypt may also decrease shipments due to limited export availabilities.

[1] Unless otherwise stated, countries are listed by the magnitude of the volume change.

FISH AND FISHERY PRODUCTS

DETERIORATING ECONOMIC CONDITIONS AND MOUNTING UNCERTAINTIES DAMPEN POST-PANDEMIC RECOVERY

The COVID-19 pandemic, which has caused massive economic and social upheaval, is now waning its influence on day-to-day life. This has had a significant effect on global markets for fisheries and aquaculture products. Businesses all along the supply chain have been able to resume operations as physical distancing measures are relaxed or removed, and logistical delays have eased somewhat. The reopening of the foodservice sector and recovery of tourism has provided a demand boost for many fish species, particularly those that are popular on restaurant menus. At the same time, the innovations in delivery, sales, marketing and products that arose from constraints imposed by the pandemic look set to remain important features of the market. The combination of old and new demand has pushed prices steeply upwards for many aquatic products.

While the hope that the worst of the pandemic is behind us has restored some confidence among both consumers and businesses, more recent developments are darkening the outlook and perpetuating market uncertainty. The war in Ukraine and the Russian Federation has had several negative impacts on the global economy, which have direct implications for seafood businesses. Prices for commodities, including food, have been climbing steeply and fueling rates of inflation that in many cases have not been seen for decades. Already elevated costs of inputs and freight have risen even higher and are squeezing margins, particularly for supply chain intermediaries such as processors. Extensive trade sanctions and boycotts of Russian products by many businesses have also necessitated a mass reorganization of trading relationships.

The most recent forecasts for global fish production in 2022 predict 1.5 percent growth, to 184.6 million tonnes. Total export revenue is projected to climb by 2.8 percent to USB 178.1 billion, while volumes are set to drop by 1.9 percent. These figures reflect both the ongoing recovery of the market and the issues that continue to challenge supply chain businesses.

SHRIMP

Shrimp industry stakeholders anticipate a ten percent rise in farmed shrimp production in 2022. While the reopening of the foodservice trade has boosted aggregate demand, the shrimp market outlook remains uncertain, particularly in Europe, due to both the war in Ukraine and the lingering effects of the pandemic. Challenges include the rising cost of fuel and high freight rates.

In Asia and Latin America, there are concerns over the possible weakening of demand from China (mainland) and Europe, which will likely put downward pressure on prices given the anticipated rise in Asian supplies. In South America, Argentine shrimp fishers have forecasted reduced catches in 2022, and processing activities could be disrupted for some time. In Ecuador, additional supplies will be available since exports to the Russian Federation are on hold. In the United States of America (United States), the market is well-supplied but consumption may suffer due to deteriorating economic conditions. In China (mainland), shrimp imports rose in the first quarter of the year, but the COVID-19 lockdowns in several large cities since late March have disrupted shipments.

TUNA

In early 2022, tuna catches in the Western and Central Pacific (WCP) were fluctuating between slow and moderate levels. Considering the supply situation, the demand by packers for frozen raw material is likely to increase in the coming months, with the shortage set to continue during the closure of fish aggregating devices in the WCP region from July to September. In the Atlantic Ocean, predicted increases in tuna catches will ease raw material shortages at local canneries.

Following generally lower imports in 2021, the demand for prepared tuna is likely to increase in some markets during the first half of 2022. However, the reaction of consumers to rising prices will be an important area of focus for the industry. For non-canned tuna, summer demand is expected to be positive in the US market and in Canada. However, in Europe, the war in Ukraine will obstruct the export of frozen fillets to the countries involved. In Japan, consumption will drop from June onwards following the spring festivals.

GROUNDFISH

Groundfish quotas have been mildly reduced in some major groundfish fisheries. Global cod supplies are expected to drop by some 50 000 tonnes to 1.45 million tonnes. Pollock supplies will also be reduced, with the quota allocation in Alaska reduced by 189 000 tonnes. The Russian pollock fishery is expected to expand production in 2022, but a large volume of Russian fish will not find its way to western markets because of trade sanctions. Western countries have also indicated that they will ban imports of Russian groundfish processed in China (mainland). However, Russian landings of cod in Northern Norway have continued largely uninterrupted.

Weakening economic conditions will affect demand to some extent, particularly in Europe, but elsewhere, demand continues to be good. The demand for whitefish in China (mainland) and other Asian markets is growing, with China (mainland) responding by importing pollock and cod from the Russian Federation. Volatile exchange rates, together with strong inflation in most markets, will likely result in challenges for some exporters and importers. Profitability in the processing sector may be reduced.

CEPHALOPODS

The cephalopod supply situation is still tight, but improving. Supplies of octopus will be somewhat constricted in 2022 because of limited landings in the major octopus fisheries. Squid landings in Argentina were very slow early in the year and cuttlefish catches have also been reduced. Container availability is still limited and freight costs are high.

On the market side, recovering tourist numbers are expected to translate into improved sales this summer, particularly in the Mediterranean region as consumers resume their consumption of more expensive products, including cephalopods. The nations affected by the war in Ukraine are not among the largest consumers of cephalopods, so the impact is less relative to other species. The home delivery trend that characterized the pandemic period is weakening somewhat but is expected to remain a feature of the market.

PANGASIUS

The more conservative stocking of pangasius during the pandemic will likely mean tighter supplies in the medium term. COVID-19 restrictions led to severe disruption for producers and processors, while the war in Ukraine has raised production costs considerably, especially for feed. Viet Nam will face reduced tariffs in both the European Union (EU) and the United States this year, where demand for pangasius is high in both consumer and restaurant markets. Pangasius prices are at record highs, but farmers still hesitate to increase their production. Inflation is an issue for producers, processors and retailers, while high freight rates, logistical challenges and a stronger currency have all caused difficulties for pangasius exporters. In China (mainland), heightened phytosanitary border controls are an additional challenge.

TILAPIA

Tilapia has weathered the pandemic particularly well, benefiting from its position as a cheaper, retail-sold seafood option. Despite an improving supply, the rapidly strengthening demand has sent prices soaring. Global tilapia production is forecast to increase by 3 percent in 2022, an improvement over 2021; this reflects the post-pandemic recovery and the resumption of normal business operations in most producing regions. However, strong demand combined with high freight costs and high input costs are expected to keep prices on the rise despite the increased supply. Brazilian production growth will likely continue to significantly outpace competing producers, both in terms of supply and export share, while China (mainland) will see its share continue to decline.

SEABASS AND SEABREAM

The production of both seabass and seabream is expected to increase by around 4 percent in 2022. EU import prices are rising steeply, particularly for seabass, due to a combination of strengthening demand and increasing costs of inputs, accelerated by the war in Ukraine. While inflation is high in Europe, it is rampant in top producer Türkiye, creating issues for producers. The post-pandemic reopening of Europe will continue to strengthen the market for seabass and seabream, but inflation is likely to have a negative impact. The pandemic saw more seabass and seabream funneled through retail markets as restaurant sales in Europe evaporated, but the foodservice sector has returned and is ramping up for the summer season, when demand for bass and bream is expected to rise.

SALMON

At the same time however, salmon occupies a uniquely resilient market segment in the fisheries and aquaculture sector with a diversified set of markets, sales channels and product ranges, allowing it to perform well throughout the pandemic. Now, with demand receiving an additional boost as economies reopen, and with costs rising steeply, prices for farmed Atlantic salmon reached 40-year highs in early 2022. These prices have translated into very high revenues for salmon farmers, and margins are good despite the cost inflation. Although some decline from current peak prices is expected, global supply growth this year (1–2 percent for Norwegian production and 4–6 percent for Chile) is unlikely to be sufficient to bring prices back to the levels observed in recent years, given the current buoyant market conditions. At the same time, however, the Ukraine war remains a significant source of uncertainty, which could contribute to further cost increases and the reshuffling of trade routes and trading relationships. Wild Pacific salmon catches, which were exceptionally strong last year, are expected to drop during this year’s summer season.

SMALL PELAGICS

The Russian Federation is a major producer of mackerel and herring, but its exports will be severely impacted by sanctions. As a result, the supply situation will be very limited in Western African markets, and it is likely that new trade patterns will emerge. At the same time, small pelagic imports by the Russian Federation and key Eastern European markets will also be severely limited.

In terms of production, the capelin fishery around Iceland was disappointing this year, and most of the catch was utilized for fishmeal and fish oil production. By contrast, the fishery in the Barents Sea performed well, with most of the catch directed to Asian markets. In Peru, there is growing interest in anchovies for human consumption, with the proportion used for human consumption growing significantly. High inflation rates may affect consumer spending, but since small pelagics are generally a low-cost item, they are somewhat shielded from the effects of inflation. Prices for mackerel have been increasing and are expected to continue to rise because of reduced supplies.

FISHMEAL AND FISH OIL

Peru’s anchoveta quota for the first season of 2022 is significantly higher compared with the same season in 2021, increasing from 2.5 million tonnes to 2.79 million tonnes in the North-central region, and from 409 000 tonnes to 486 500 tonnes in the South region. However, El Niño has led to bad weather and poor fishing for Peru’s fleet. Thus, just 32 percent of the 2022 quota has been filled, compared with 43 percent at the same time last year. Some cases of high juvenile catches have prompted fishing bans, adding to the disruption. Elsewhere, increases in United States and EU quotas for capelin and menhaden could mean a moderate growth in supply for both. In China (mainland), a fishing moratorium from 1 May until September 2022 has reduced domestic supplies. In China (mainland), the main importer of fishmeal for fish feed, increased border controls on food imports and the fisheries moratorium will likely contribute to accelerated growth in the domestic aquaculture sector.

CRAB

Many western countries have boycotted trade with the Russian Federation, and consequently supplies of crab will be very tight for some time. The snow crab fishery in the Bering Seas has been designated as overfished and the Alaska crab quota for 2022 was consequently cut by 88 percent, leading to a shortfall despite the higher Canadian quota. Supplies of Dungeness crab from the west coast of the United States have been very good, however. In general, consumers are keen to spend money on restaurant favourites, such as crab and lobster, despite worsening economic conditions and rising prices. King crab and snow crab are very popular in China (mainland), where demand is expected to rise. The Russian Federation will be diverting supplies to the Chinese (mainland) market.

BIVALVES

The bivalve supply from main European suppliers to Europe was poor last year, due to a cold summer in the north of the continent, which led to lower growth rates for mussels and oysters. It is too early to give a forecast for 2022, but the main producers in Europe are confident that supply will improve. The high inflation rates in Europe and the United States are impacting bivalve trade. Prices have increased by more than 20 percent since the beginning of 2022. This price hike can be explained primarily by high fuel costs, since intensive quantities of fuel are used in bivalve production. Bivalves remain popular among consumers and the reopening of restaurants in Europe after the COVID-19 pandemic has been generating additional demand, which is likely to peak over the summer tourist season.

LOBSTER

Supplies of lobster were very good in 2021 but will be tighter in 2022. In Maine, lobster fishers are now worried about warmer waters, which push the lobsters farther north to colder waters. The lobster trade has picked up considerably in line with the post-pandemic recovery despite concerns over inflation. The popularity of the spiny warmwater lobster is increasing, with the species now constituting 22 percent of the US market for lobster. The trade agreement between the EU and the United States has removed some tariffs on American lobsters in the EU, but American exporters are focusing on China (mainland) and it is Canada that is benefiting from improved demand in Europe

The war in Ukraine and the risks it poses for global food commodity markets

Contributed by:

Josef Schmidhuber

Shirley Mustafa

Bing Qiao

The current war in Ukraine is causing extensive loss of life, massive population displacement and significant food insecurity and malnutrition in the country. It is also damaging critical infrastructure and disrupting food supply chains and markets. Because the war is engaging two of the world’s most important agricultural commodity market players, its effects are being felt internationally. This Special Feature highlights the most significant risks that the war poses to world food markets.[1]

Market structure and trade profiles

The Russian Federation and Ukraine are among the most important producers of agricultural commodities in the world. In the cereal sector, their contribution to global production is especially significant for barley, wheat and maize. Between 2016/17 and 2020/21, the two countries together accounted for an average of 19, 14 and 4 percent of the global output of barley, wheat and maize, respectively (see Figure 1). In the oilseed complex, their contribution to the global production of sunflower seed was particularly important, with just over half of world output originating in the two countries during this period. Their average shares in global rapeseed and soybean production are comparatively more limited, standing at 6 and 2 percent, respectively.

The Russian Federation and Ukraine also play leading roles in supplying global markets with the aforementioned foodstuffs, contributing to high export concentration and thus exposing these markets to increased vulnerability to shocks and volatility. Figure 2 illustrates the important supply role that the countries play in international food trade[2]. For example, in the global wheat market, where the top seven exporters combined accounted for 89 percent of international trade in 2021, the Russian Federation was the second largest global wheat exporter that year, while Ukraine ranked as the sixth largest wheat supplier. In the sunflower oil sector, their substantial production bases of sunflower seed endowed them with a combined world export market share of close to 72 percent in 2021, making the two countries the two largest world sunflower oil exporters.

The high export concentration that characterizes food commodity markets is also prevalent in the fertilizer sector, where the Russian Federation plays a leading supplier role. In 2021, the Russian Federation ranked as the top exporter of nitrogen (N) fertilizers, the second leading supplier of potassic (K) fertilizers and the third for phosphorous (P) fertilizers (see Figure 2).

Many countries that are highly dependent on foodstuff and fertilizer imports rely on supplies from the Russian Federation and Ukraine, as shown in Figures 3 to 5. Many of these countries fall into the groups of Least Developed Countries (LDCs) and Low-Income and Food-Deficit Countries (LIFDCs). For example, Eritrea sourced almost the entirety of its wheat imports in 2021 from the Russian Federation (53 percent) and Ukraine (47 percent).

The wheat imports of many countries in North Africa and Western and Central Asia are highly concentrated towards supplies from the Russian Federation and Ukraine. Overall, more than 30 net importers of wheat depend on the two countries for over 30 percent of their annual wheat import needs.

As for fertilizers, Ukraine does not feature heavily as a prominent fertilizer exporter, with the exception of purchases by India. On the other hand, and although less than for wheat, global reliance on Russian N, P and K fertilizers is noteworthy. Some 15 net importers of fertilizers in Latin America, Europe and Asia have an import dependency of over 30 percent on Russian fertilizers, for all three types. Within these regions, Brazil, the European Union (EU) and India account for the lion’s share of Russian fertilizer exports in absolute terms, due to the larger area extensions they cultivate, but also higher fertilizer application levels. However, comparing fertilizer import levels with the amount of arable land to which fertilizer is applied (excluding pastures and meadows) reveals that many countries in Central and South America, Central Asia, and various non-EU members are much more dependent on Russian fertilizer imports than these larger agricultural market players (see Figure 5). Although Africa only accounts for 3–4 percent of global fertilizer consumption, many sub-Saharan countries are also heavily reliant on supplies from the Russian Federation.

Trade and logistical risks

The escalation of the war in late February came while Ukraine and the Russian Federation were in the midst of their 2021/22 marketing seasons. As such, it had immediate impacts on the countries’ capacity to execute existing export contracts and to enter into new ones for crops already off the ground. This has been particularly the case in Ukraine, where the war has led to the cessation of all commercial shipping operations (owing to the closure of Ukraine’s Black Sea ports), the temporary suspension of activities by private grain and crushing operators, damages to inland transport, storage and processing facilities and the introduction of licensing requirements or outright bans on exports of some commodities. From an export perspective, the loss of Ukraine’s maritime shipping capacity has been especially harmful; this normally handles close to 90 percent of the country’s offshore sales. Efforts to boost food exports using alternatives, such as rail and road transport, are ongoing, but the capacity of these alternatives to fully compensate for port closures are constrained by infrastructural damages, as well as limited railway car availability and conflicting rail gauges at borders with neighbouring countries.

Official statistics on Russian food exports since the onset of the war are not available. Yet, reports suggest that these have progressed, notwithstanding concerns that they could be considerably depressed by economic sanctions imposed on the country in response to the war. Although these sanctions do not directly target the Russian food and fertilizer sectors, these concerns are rooted in the possible indirect effects that the sanctions targeting the banking sector could have on Russian agricultural exports by constraining access to the financial services needed to complete international transactions. A number of multinational agribusiness companies have also withdrawn from their export-oriented operations in the country and, while Russian Black Sea ports continue to function, there are apprehensions regarding increases in insurance premiums for vessels destined to berth in the Black Sea. On the policy front, while Russian exports of wheat and other grains remain subject to the quotas and floating export taxes introduced prior to the war, Russian exports of various grains to members of the Eurasian Economic Union (EAEU) were prohibited in mid-March. Although this measure was rescinded soon after, in April, shipments of rapeseed and sunflower seeds were reportedly banned until August, with exports of sunflower oil and meal also made subject to quotas and licensing requirements until then.

In both countries, any prolonged interruption in supplying international markets will require greater reliance on storage facilities, especially silos. Under favourable conditions, grains can be stored for multiple seasons. However, the storability of raw oilseeds is usually shorter and oilseeds must be crushed shortly after harvesting in order to achieve the highest possible oil yields. In Ukraine, grain elevators and oil crushing facilities are spread across the country. However, they are larger and more highly concentrated near important transportation points and ports, increasing the risk of this infrastructure being damaged in the war. If modern oil crushing facilities are damaged, the excess capacity of smaller regional processing facilities could balance the losses. However, many of the smaller crushing facilities do not have the technology to switch between oilseeds.

Production risks

Much uncertainty still surrounds the war itself, its intensity, geographical scope and duration. Yet, it is clear that the war has already inflicted immense damage on Ukraine’s agricultural sector. This raises significant concerns regarding the country’s capacity to continue producing and exporting food going forward. Production prospects for the 2022/23 season in the country are already downcast because of war-induced constraints in accessing basic productive inputs, such as agricultural land, labour and fuel, combined with the presence of unexploded ordnance on farmland. Damage to infrastructure and disruptions to transport and markets could result in additional supply losses at the post-harvest stage, further to driving changes in cropping patterns that favour domestically-consumed foodstuffs, such as grains and potatoes, over export-oriented crops, such as oilseeds and derived products. The war has also caused massive population displacement and the abandonment of animals, which, importantly, undermines Ukraine’s capacity to control animal diseases. This is escalating the risk of disease proliferation, most notably of African swine fever (ASF), in Ukraine as well as in neighbouring countries.

Although no impacts on agricultural production appear imminent in the Russian Federation, international sanctions imposed on the country in response to the war could directly or indirectly inflict economic losses on Russian agriculture going forward. The incomes of Russian farmers risk being negatively impacted by the loss of export markets that could result from the sanctions. This could in turn drive farmers to curb their production of export-oriented crops. Moreover, although the Russian Federation is a net exporter of fertilizers, Russian agriculture is particularly dependent on imported seeds and pesticides, as depicted in Figure 6. In 2021, the Russian Federation purchased USD 872 million worth of herbicides, fungicides, insecticides and other pesticides, 58 percent of which came from the EU. Russian imports of -high-value- seeds (i.e. hybrid, genetically modified organisms (GMO) or certified seeds), amounted to another USD 409 million that year, with 68 percent originating in the EU. This high import dependency on the EU suggests that trade sanctions could take a hefty toll on Russian crop production. If such an eventuality materializes, the combined effects of lower seed and pesticide uses, such as reduction in plantings, yields and/or product quality, could affect the availability of many food crops, both for domestic use and, arguably, even more so for products destined for international markets.

Price risks

As relayed by the FAO Food Price Index, international food prices were already high before the war broke out. A host of factors contributed to their increase, including strong demand for food and animal feed; poor weather in key suppliers; uncertainties regarding export policies implemented by some major exporters; high internal transport and production costs (e.g. energy and fertilizers) in exporting countries; and disruptions to supply chains owing to COVID-19. The war has compounded the pressure on prices. It jolted export quotations of grain and vegetable oils to fresh peaks in March 2022, as concerns about shortfalls in Ukrainian and Russian exports arose at a time of tight supplies of grains (mostly wheat) in other major origins and of substitute vegetable oils, such as soy and palm oil. The prospect of high and protracted food prices also triggered the imposition of export restrictions on food products by numerous countries. Although quotations of some commodities have since lost their upward momentum, world food prices remain generally elevated.

This persistent overall price strength is being underpinned by the spillover effects of grain and vegetable oil price hikes being felt in other food sectors, together with weather uncertainties and persistently high input costs, especially for fuel and fertilizers. In countries that depend on imports to meet their consumption needs, the higher food costs caused by these disruptions imperil the food security of vulnerable consumers. This is particularly the case for groups that dedicate a larger share of their disposable incomes to food, since in order to cope with the food price hikes they reduce the quantity and/or quality of the food they consume. This leads to more hunger and malnutrition or to less money available for other necessities, such as health and education.

International benchmark prices for fertilizers also rose throughout 2021, with many quotations reaching all-time highs. The most notable increases were registered for nitrogen fertilizer. The end-of year prices of urea, a key nitrogen fertilizer, rose by more than three times since early 2021, with prices of phosphorous fertilizer rising in tandem over the same period. As for other commodity prices, these fertilizer price dynamics were determined by an interplay of supply and demand. On the demand side, the higher output (crop) prices registered in 2021 boosted the affordability of fertilizers, thereby pushing fertilizer prices upwards. On the supply side, high and volatile energy prices were also registered, especially for natural gas, which plays a pivotal role in the production of N fertilizer and the price of which underwent a sharp increase in 2021 due to a host of reasons, including weather-induced disruptions to renewable energy and coal production. Additional upward pressure stemmed from supply disruptions and high transportation costs following the imposition of export restrictions on fertilizers and sharp increases in bulk and container freight rates caused by the COVID-19 pandemic.

With the prospect of a likely trade embargo on exports from the Russian Federation or a self-imposed export restriction, the global fertilizer market has also seen prices pushed up by the war. For example, international quotations for urea (N), phosphate (P) and potassium (K) reached record highs in April 2022, especially potassium, which increased by over 150 percent since the beginning of the year. Generally, high fertilizer prices keep overall input prices elevated, resulting in lower affordability for farmers and ultimately lower use levels that is contingent on the level of output prices. However, the recent price increases for fertilizers were so pronounced that they exceeded the price increases for outputs by a considerable margin, as shown in Figure 7. The result was a sharp decline in the affordability[3] of fertilizers, particularly for agricultural products that have so far been spared by the otherwise widespread price increases. Lower levels of affordability in turn should almost inevitably result in lower input use and, as a consequence, lower yields and compromised quality (such as lower protein levels in milling wheat) in the next cropping season.

Energy risks

Agriculture absorbs high amounts of energy, both directly, through fuel, gas and electricity use, and indirectly, through the use of agrichemicals, such as pesticides, lubricants and fertilizers. Energy is also required to manufacture feed ingredients, such as by crushing oilseeds to produce oil meals and milling grains to manufacture feedstuffs (e.g. pellets, flours and compound materials). The Russian Federation is also a key player in the global energy market. Its shipments of coal, oil and gas account, respectively, for 18, 11 and 10 percent of global exports. Russian energy exports are particularly important for the EU, which sources, 46, 25 and 31 percent of its coal, oil and gas imports, respectively, from the Russian Federation.

Since N-fertilizer production relies on (natural) gas as its main source of fuel, prices of N-fertilizer, such as urea, normally track gas prices (see Figure 8). However, the close co-movement of gas and urea prices came to an abrupt halt in the fourth quarter of 2021 (Q4-2021), when prices for natural gas experienced a massive spike. The spike was so pronounced that the upgrading margins between gas and ammonia as well as gas and urea prices turned negative and urea plants were forced to shut down or reduce their output considerably. Since then, and further exacerbated by the war, prices for natural gas have remained very volatile and upgrading margins have shifted back-and-forth from positive into negative territory.

Recently, however, the swift and substantial increases in energy prices triggered by the war’s escalation in late February were followed by a notable relaxation in the European gas market during the second week of March 2022. Key quotations for natural gas declined by more than 50 percent from their peaks in just ten days, amid milder spring weather in Europe and rising liquefied natural gas imports by the EU. While this allowed the strength in urea prices to moderate, it is likely to re-establish positive upgrading margins for fertilizer producers. With gas prices still remaining at very high historical levels in Europe and the United States of America, there is limited scope for fertilizer prices to decline in 2022. Uncertainties also cloud the supply outlook for these commodities going forward, notably in EU members of Europe and Central Asia. On the one hand, high (natural) gas prices could make once-unprofitable investments in energy production, such as fracking installations in the United States, commercially viable, thus easing international fertilizer prices. At the same time, amid efforts to wean themselves off imported gas (especially from the Russian Federation), EU countries and companies could be inclined to shift from using natural gas for fertilizer production to using it for other outputs with higher marginal-value products. This could in turn have further implications for world fertilizer availability, as the EU is also among the leading global suppliers of fertilizers.

The sharp increase in energy prices that has accompanied the war could also impact agriculture through price linkages on the output side. After the last significant energy price hike in 2008, much of the use of agricultural feedstocks for the energy market was driven by biofuel policies, which, through mandates, tariff protection and/or price incentives enticed biofuel producers to use a certain and rather inflexible amount of feedstocks for the production of biofuels. Maize, sugar and oilseeds (vegetable oils) are the most common feedstocks, with ethanol and biodiesel the most popular biofuels. The mandated or incentivized quantities are largely independent of energy prices. However, since energy prices are on a sharp upward trajectory again, the use of agricultural feedstocks for biofuels can also evolve directly through energy prices. When energy prices rise, there is a threshold at which the production of biofuels from food crops, especially maize, sugar and oilseeds (vegetable oils) becomes competitive. Higher energy prices make more and larger quantities of agricultural feedstocks competitive for conversion into energy and, given the large size of the energy market relative to the food market, this feature could pull food prices up to their energy parity equivalents. The food price rise is capped again when agricultural feedstocks become so expensive that they can no longer compete in the energy market.

[1] Analyses of the impact of the war on food and agriculture that go beyond the topics covered by this Special Feature are examined in a series of FAO Briefing Notes, available at: https://www.fao.org/newsroom/briefing-notes/en. This feature draws from the briefing note titled “The importance of Ukraine and the Russian Federation for global agricultural markets and the risks associated with the current conflict”, which benefited from extensive inputs by various analysts from the FAO Markets and Trade Division, the Animal Production and Health Division, and the Office of Emergencies and Resilience.

[2] Processed products are excluded from these estimates.

[3] Affordability is defined here as the ratio of output to input prices.

High input prices protract high food prices, creating a double burden for import-dependent countries

Contributed by:

Josef Schmidhuber

Bing Qiao

Introduction and overview

The increasing cost of food is heightening concern and distress throughout the world. The FAO Food Price Index reached a record nominal high in March 2022, before marginally falling in April. Most of all, the rising cost of producing food, driven by soaring prices of fertilizers, energy and other inputs, gives much cause for alarm as it increases consumer prices, imperilling food security. From another perspective, the spike in the price of inputs raises questions about whether the world’s farmers can afford to buy them, to the extent that productivity and hence global food supply could be adversely affected in the 2022/23 season and beyond.

Generally, periods of high food prices are considered a boon for producers, especially in countries that supply the international market, raising the profitability of farmers. However, such periods tend to be short-lived when price incentives instigate a supply response, facilitated by continuous cropping seasons in the northern and southern hemispheres that bring food markets swiftly back into equilibrium. This has often been the case in the last two decades, but today, different forces are seemingly conspiring to protract the current crisis, casting doubt on whether supply responses can be both quick and sufficient.

Agricultural sectors are highly energy-intensive and largely depend on fossil fuels. Much of today’s turmoil dates to 2021, when energy prices began to surge, adding to producer costs. But higher energy prices have far more deleterious effects, raising the cost of key nitrogen fertilizers, which are primarily manufactured from natural gas and are by far the most important agricultural nutrient in raising crop yields. Prices of nitrogen, N, in the form of urea or ammonium nitrate, reached record highs by the end of 2021. This price momentum carried into 2022, and the international prices of other important mineral fertilizers, such as phosphate, P, and potash, K, have joined suit, reaching record peaks in April 2022. As the world’s largest fertilizer exporter, the Russian Federation began tightening supplies to international markets soon after its invasion of Ukraine through the introduction of export restrictions that will be extended through to the 2023/24 season.

The upshot is that with no let-up in the current war, the margins of global food producers (crops and livestock) are being squeezed, now and seemingly into the foreseeable future, by higher input costs. Not only energy and fertilizers for crops and pastures, but seeds, feeds and pesticides are becoming more costly than ever, to the extent that farmers may reduce input applications or switch to crops that are less input-intensive. This, by way of lowering productivity, is likely to suppress exports of key foodstuffs (particularly wheat, rice and maize) to the international market, and to put at risk countries that are heavily dependent on imports to meet their staple food needs.

This Special Feature examines the implications of higher input prices on countries that are forced to import them in large quantities owing to a lack of productive endowments. Nor are major exporting countries immune from higher input costs, which could limit their capacity to supply international markets. That being said, the overall objective of the feature is to assess the prospects of whether a global supply response is possible, and whether it will be sufficient and swift enough to restore equilibrium to food markets. The analysis is facilitated by the Global Input Price Index (GIPI) – a summary metric introduced in the November 2021 edition of the Food Outlook report – and the new compilation of agricultural input import bills.

The main findings from the analysis are as follows:

• An all-time high GIPI, underpinned by record energy and fertilizer prices, points to exceptionally low prices for farmers in real terms and limited incentives to step up production in 2023 (see Section 2).

• For farmers to step-up production, real prices have to rise. This can materialize either through further rising output prices (FFPI) or falling costs/input prices (GIPI) or, ideally, a combination of the two.

• Either record or high input prices fuelled sharp increases in agricultural input import bills in 2021 and price momentum is forecast to heighten bills further in 2022 (see Section 3).

• Increases in agricultural input import bills do not imply an increased inflow of inputs. The bills are being driven by price rises at the expense of greatly reduced imports of inputs. Again, this bodes ill for a much-needed positive production response in 2023.

The findings do not augur well for a market-led supply response that could conceivably rein in further increases in food prices for the 2022/23 season and possibly the next. To conclude, Section 4 summarizes an FAO initiative to provide immediate respite from the crisis, especially for countries that are most exposed.

High input costs come at a time of record food import bills

Agricultural inputs are instrumental for ensuring that global food supplies meet the needs of a rising population. These inputs include fertilizers (derived from fossil fuels or mined from the earth), energy (mostly fossil fuel derivatives) for mechanized cultivation and rudimentary processing of crops for basic consumption, feedstuffs for rearing livestock, pesticides, and seeds (clean or certified to ensure that crop can realize their full yield potential).

A focus on fertilizers

Nitrogen, arguably, is the most important nutrient for raising productivity in cereal crops. In the form of ammonium nitrate or urea, N is mainly derived from natural gas and hence is closely tied to the price of fossil fuel (see Figure 1). Prices of natural gas embarked on a rapid upsurge during early 2021 as countries reopened their economies with the easing of COVID-19 restrictions. When demand surged (mainly but not exclusively due to unusually high demand for electricity from gas-fired electricity plants), and natural gas suppliers failed to ramp-up production, prices for natural gas spiked in the second semester of 2021 and continued to remain at elevated levels in the first months of 2022. The invasion of Ukraine by the Russian Federation in February (the largest gas and fertilizer supplier in the world) put further pressure on prices, with N quotations mirroring the upward trend of natural gas.

Figure 2 shows the evolution of quotations for other primary nutrients, P and K, which have also reached multiyear highs in recent months. The upshot is that fertilizer prices, notwithstanding the costs of energy, pesticides, feeds and seeds, can significantly erode the margins of producers, making the commercial cultivation of some crops unprofitable, and causing farmers to switch to less input-intensive crops. This scenario is being reported in the United States of America, where plantings of soybean – a crop that does not require nitrogen – is expected to reach record levels in 2022/23, largely at the expense of maize, which is very N-intensive.

Developments in markets for other inputs

While analysts are paying a great deal of attention to the issue of fertilizers, these are not the only input required to produce crops. The dependence of agricultural sectors on fossil energy sources is increasing globally, either directly in the form of petroleum and petroleum derivatives (gasoline, diesel and lubricants), or indirectly through natural gas and coal to produce agrichemicals and ultimately electricity. In the case of the latter, electricity is the primary source required to manufacture feed ingredients, such as by crushing oilseeds to produce oil meals and milling grains to manufacture feedstuffs (e.g. pellets, flours and compound materials). When it comes to food processing, electricity also features heavily in the cost schedule. Electricity is used to mill cereals into flours, crush oilseeds into vegetable oils, produce processed meat and dairy products (e.g. milk powders) and dry, preserve and refrigerate many perishable foodstuffs. Higher energy prices also lead to higher transport, distribution and retail costs, which will again be reflected in elevated consumer food prices. Figure 3 shows the upward momentum in fossil fuel prices, yet another reason for higher food prices.

Feed and seed production require the same sort of inputs as crops (fertilizers and energy), which is apparent in the parallel upward trend of their quotations. While indicative prices of seeds are seemingly volatile, much has to do with the seasonal demand that arises during planting periods. By contrast, synthetic pesticides, which require fossil fuels in both their formulation and production to varying degrees, have not shared in the trend of rising input prices. Given their relative high unit cost per hectare, an underlying reason could be a trade-off with pesticides for other inputs that are considered more important for productivity and profitability.

It is by no means a coincidence that the price of food is on the rise, owing to higher costs of production and the prospect of supply scarcity due to lower input use. The war in Ukraine is contributing significantly to both drivers of higher prices – the ååRussian Federation has imposed export restrictions on fertilizer, while prospects of Ukrainian shipments of grains and sunflower oil are circumscribed by the destruction or blockade of its major Black Sea ports. A growing number of countries have started to shield themselves from the inflationary effects of higher food prices as well as to safeguard their own food security by instigating export restrictions or outright bans, compounding the upward trend in international food prices.

These factors limit the prospects for a substantial downturn in prices of internationally-traded foodstuffs. The benchmark indicator – the FAO Food Price Index (FFPI) – registered its highest monthly jump ever in March 2022, climbing by 13 percent from February to a record 160 points. In April 2022, the FFPI fell by 1 percent, but it remains at a critically high level. It must be stressed that, under normal circumstances, high food prices tend to accord high profit margins to farmers, motivating them to invest in productivity-raising initiatives that ultimately increase supply. However, these are not normal circumstances and a supply response to equilibrate markets can no longer be assured as long as fertilizers and other inputs remain too costly and scarce to procure (see Box 1). This situation is expected to pave the way to a largely price-driven record global food import bill of USD 1.8 trillion in 2022, surpassing last year’s all-time high by around 3 percent (see Market Indicators section).

Agricultural input import bills

Not every country can meet food requirements from its productive endowments, necessitating purchases from international markets. The same holds true for inputs. Agricultural input import bills can be constructed using the same methodology as for food input bills and are similarly highly relevant for measuring the global burden, as well as the burden for vulnerable country groups, of importing necessities. Arguably, imports of inputs are of more critical importance, since they can generate enormous savings by bolstering productive capacity. These savings are manifest in the reduced need to expend scarce foreign exchange reserves on food imports and in the macroeconomic benefits accruing from improved balance of payments positions.

Table 1 presents world agricultural input import bills and the same country groups listing for food imports, for the current year and preceding three years. In reporting on trade, countries are not required to document the activity sector for which the import/export is destined, hence feed inputs (mostly grain-based materials) are excluded since they can be used for direct human consumption as well as for livestock.

The world bill for imported agricultural inputs in 2022 is currently forecast as USD 348 billion, which would represent a 21 percent increase from 2021. In that year, international quotations for inputs, especially for energy and fertilizers, rose sharply, driving the global bill upwards by 58 percent from 2020. These two inputs constitute the lion’s share of the value of global trade in agri-inputs, accounting for, historically and currently, well over 80 percent of the world bill. Table 1 further shows that developing[1] regions are by far the largest importer of agricultural inputs, led by energy and fertilizers, and dwarfing the value of imported inputs in developed countries.

In developing regions, net food-importing developing countries (NFIDCs), many of which are in Africa (44 out of the 77 classified countries), saw a notable rise in their input bills in 2021. Again, energy and fertilizers dominated their import schedule, leading to a more than 50 percent increase in their total import bill from 2020 to 2022. In percentage terms, sub-Saharan Africa (SSA) saw an even sharper rise in the input bill, with a rise in excess of 60 percent between 2020 and 2022. This represents a double burden for these countries, with higher expenditures on both food and agricultural inputs.

To assess the factors driving higher input import bills – whether greater volume or a rise in prices or their interaction – a decomposition of changes (2022 over 2021) in import bills is presented in Table 2. At the global level, price effects dominate volume effects, meaning that the world is paying much more for agricultural inputs relative to any increase in imported quantities. In many cases, and of concern, countries are paying more in 2022 (green cells in the price column) but receiving less volume of agricultural inputs than they did in 2021 (red cells in the volume column), especially of energy and fertilizers.

Pesticides are an exception, especially in SSA, where volume effects invariably outweigh price effects, meaning that countries are getting more of the input for a lower price. A plausible explanation for the buck in trend is that the desert locust upsurge, which afflicted Eastern Africa and nearby regions, demanded huge amounts of pesticides, for which the FAO campaign provided assisted procurement in the form of price subsidies. No discernible global trend emerges for seeds, which constitute a minor cost in the import schedule of many countries.

The analysis in this section suggests that higher agricultural input import bills do not necessarily translate to higher domestic availability of inputs. On the contrary, this is clearly a fallacy since countries are generally paying more for fewer inputs.

How to address higher food import bills? FAO’s proposal for a Food Import Financing Facility (FIFF)

Rapidly rising costs of imported food could result in lower food availability and compromised access to food in poor and food import-dependent countries, eventually resulting in a further increase in hunger and malnutrition. It is therefore proposed to allow eligible countries to offset some of the extra costs to cope with rapidly rising food import bills. Such an intervention – known as a Food Import Financing Facility (FIFF) – would be particularly important for low-income countries in the context of a probable continuation of the current upward trend in global food prices.

As a first step, eligible countries would be limited to net food importers. Drilling-down, the intersection between net trade positions and income levels identifies the countries eligible for FIFF funding. The resulting list of beneficiary countries is finally ranked by the change in (realized) food imports per capita between 2020 and 2021. Based on their income and net food importing status, 61 countries would be eligible to tap into the FIFF, easing access to food for 1.77 billion people worldwide.

The final design for the practical implementation of the FIFF is likely to be determined by numerous factors that pertain to the nature and the conditionality of the Facility’s financing instruments. Conditionality could be designed as an ‘automatic stabilizer’ to contain the funding needs of the facility. For example, eligibility could be linked to a commitment to devote a certain percentage of public expenditure to promoting sustainable agricultural productivity to help ensure lower food import requirements in future and cap future funding needs. The FIFF would promote domestic food availability and provide food access and support to the livelihoods of rural communities.

Based on the current design, full compensation of the increase in the food import bill between 2020 and 2021 would require financing of a maximum USD 25.3 billion. While FAO has developed the proposal and can monitor its implementation, the actual funding, however, will be in the hands of an international finance organization, such as the International Monetary Fund (IMF).

[1] The aggregates for developed and developing regions have been maintained in this issue of Food Outlook for statistical purposes. Maintaining these particular groupings allows to provide comparable estimates of the size and composition of food import bills to those computed in last year’s edition of this report.

Statistical appendix tables

Appendix Table 1 (A & B): Cereal statistics

Appendix Table 2 (A & B): Wheat statistics

Appendix Table 3 (A & B): Coarse grains statistics

Appendix Table 4 (A & B): Maize statistics

Appendix Table 5 (A & B): Barley statistics

Appendix Table 6 (A & B): Sorghum statistics

Appendix Table 7 (A & B): Other Coarse grains statistics

Appendix Table 8 (A & B): Rice statistics

Appendix Table 9: Cereal supply and utilization in main exporting countries

Appendix Table 10: Total oilcrops statistics

Appendix Table 11: Total oils and fats statistics

Appendix Table 12: Total meals and cakes statistics

Appendix Table 13: Sugar statistics

Appendix Table 14: Total meat statistics

Appendix Table 15: Bovine meat statistics

Appendix Table 16: Ovine meat statistics

Appendix Table 17: Pigmeat statistics

Appendix Table 18: Poultry meat statistics

Appendix Table 19: Milk and milk products statistics

Appendix Table 20: Fish and fishery products statistics

Appendix Table 21: Selected international prices for wheat and coarse grains

Appendix Table 22: Wheat and maize futures prices

Appendix Table 23: Selected international prices for rice and price indices

Appendix Table 24: Selected international prices for oilcrop products and price indices

Appendix Table 25: Selected international prices for sugar and sugar price index

Appendix Table 26: Selected international prices for milk products and dairy price indices

Appendix Table 27: Selected international meat prices

Appendix Table 28: Selected international meat prices and FAO meat price index

Appendix Table 29: Fish price indices

Appendix Table 30: Selected international commodity prices

NOTES

GENERAL

• FAO estimates and forecasts are based on official and unofficial sources.

• Unless otherwise stated, all charts and tables refer to FAO data as source.

• Estimates of world imports and exports may not always match, mainly because shipments and deliveries do not necessarily occur in the same marketing year.

• Tonnes refer to metric tonnes.

• All totals are computed from unrounded data.

• Regional totals may include estimates for countries not listed. The countries shown in the tables were chosen based on their importance of either production or trade in each region.

• Estimates for China also include those for the Taiwan Province of China, Hong Kong SAR and Macao SAR, unless otherwise stated.

• Up to 2019/20 the European Union includes 28 member states. From 2020/21 the European Union includes 27 member states.

• ‘-‘ means nil or negligible.

• Cereals include wheat, rice and coarse grains. Coarse grains include maize, barley, sorghum, millet, rye, oats and NES (not elsewhere specified).

Production

• Cereals: Data refer to the calendar year in which the whole harvest or bulk of harvest takes place.

Utilization

• Cereals: Data are on individual country’s marketing year basis.

Trade

• Trade between European Union member states is excluded, unless otherwise stated.

• Wheat: Trade data include wheat flour in wheat grain equivalent. The time reference period is July/June, unless otherwise stated.

• Coarse grains: The time reference period is July/June, unless otherwise stated.

• Rice, dairy and meat products: The time reference period is January/ December.

• Oilseeds, oils/fats and meals: The time reference period is October/ September, unless otherwise stated.

Stocks

• Cereals: Data refer to carry-overs at the close of national crop seasons ending in the year shown.

Price indices

• The FAO price indices are calculated using the Laspeyres formula; the weights used are based on the average export value of each commodity for the 2014–2016 period.

COUNTRY CLASSIFICATION

In the presentation of statistical material, references are made to special country groupings: Low-Income Food-Deficit Countries (LIFDCs), Least Developed Countries (LDCs). The LIFDCs include 51 countries that are net importers of basic foodstuffs with per caput income below the level used by the World Bank to determine eligibility for International Development Aid (IDA). The LDCs group currently includes 47 countries with low income as well as weak human resources and low level of economic diversification. The list is reviewed every three years by the Economic and Social Council of the United Nations.

DISCLAIMER

The designations employed and the presentation of material in this publication do not imply the expression of any opinion whatsoever on the part of the Food and Agriculture Organization of the United Nations concerning the legal status of any country, territory, city or area or of its authorities or concerning the delimitation of its frontiers or boundaries.

Futures markets

Contributed by Alexis Poullain

PRICES

Futures prices for wheat, maize and soybeans shot to historical highs over the past 6 months as the war in Ukraine, export restrictions and various other protectionist measures, and worsening weather conditions in the United States of America and the European Union have reduced the prospect availability of global grain supplies. Maize and soybean futures prices soared to about USD 320 and USD 640 per tonne, respectively, just below their previous record in 2012. Wheat futures prices peaked at USD 495 per tonne on 7 March 2022, above the previous record high of 2008, and have stayed firm, trading at above USD 400 per tonne since then. Prices fell at the end of May on reports of a tentative establishment of a naval corridor allowing safe movement of Ukrainian grain through the Black Sea.

In external markets, West Texas Intermediate (WTI) oil price reached its highest level since 2014 at USD 110 per barrel since mid-May, while gas and diesel prices also reached record high levels, increasing fertilizer and transport costs, which in turn drove grain markets up. As a result, inflation soared, prompting US Federal Reserve to raise the interest rates. This inflation is driving up the United States dollar index, increasing commodity prices in foreign currencies and curbing demand from importing countries. A firm US dollar has likely prevented an even greater increase of grain prices. Concurrently, China has experienced a slowdown in food demand mostly because of renewed COVID-19 restrictions.

VOLUMES AND OPEN INTEREST

The environment of elevated prices and high volatility, coupled with unforeseeable geopolitical events, seems to have deterred market participants to step into futures markets, leading to muted trade volumes for CME soybeans, maize and wheat. Volumes from January to April 2022 decreased by about 11 percent for maize and soybeans and 13 percent for wheat, compared to the same period a year ago. High volatility made risk management more costly for commercials, given the record high margin calls. Conversely, the environment of high volatility and high margin calls pushed option trading up, as options offer less costly opportunities in terms of margin requirements than futures for traders to hedge their risks or place their investment strategies.

VOLATILITY

Historical volatility (based on 30 days of futures prices) reached a record high in March, as grain futures prices attained multiyear highs due to the war in Ukraine. Historical volatility declined thereafter, demonstrating a typical ’overshooting’ in the immediate market reaction to the unexpected geopolitical turmoil, but remained at historic high levels. Implied volatility (calculated by the level of option premiums on underlying futures contracts) declined after reaching record high levels in March; a sign that market participants anticipated a drop in the magnitude of price changes.

FORWARD CURVES

The forward curves of soybean and maize flipped from an upward to a downward sloping configuration (‘backwardation’), where prices are lower in succeeding delivery months than the nearby or spot months. Backwardation is a market signal that traders have priced a tight production-consumption balance. In wheat markets, the front-end part of the curve flattened after April, as fears of an immediate shortage of wheat diminished when India softened its stance on export restrictions.

Soybeans, maize and wheat all show a backwardation for far dated futures contracts, as market participants anticipate that the fundamental balance adjustment in the medium term might be constrained by logistics bottlenecks. Indeed, supply chains are under pressure, with fuel prices historically high and freight availabilities limited. In this environment of inflated prices due to scarce supplies, the market sends a signal for demand to be rationed in the short term and for additional supplies to come in over the longer run. Indeed, wheat prices seem to have already reached a level of “demand destruction”[1] as wheat now proves too expensive for feed use. On the supply side, high prices should bring low quality grain surpluses or those constrained by India’s export ban back to the market, as importers have gradually adjusted their requirement specifications or have entered into government-to-government (G2G) deals permitted as an exception to India’s export ban.

INVESTMENT FLOWS

Money managers have been bullish on all grain and oilseed futures since early March when they reversed their Chicago wheat short. Their net long position even reached a record high in April 2022 on combined soybeans, maize and wheat. Although their cumulative positions retreated slightly in May, they have retained a noticeable bullish stance on grain futures markets. In a context of rampant inflation, money managers and funds are likely to maintain a sizeable net long position in commodities as investors seek an inflation hedge. Commercial participants have maintained their perennial net short position to hedge against any price drop, although their open interest has decreased.

Both commercials and money managers will closely monitor planting progress for spring wheat and the early growing season for maize and soybeans in the United States over the next months, as well as crop rating developments in Western Europe and in the United States for winter wheat. In its May 2022 World Agricultural Supply and Demand Estimates (WASDE) report, the United States Department of Agriculture (USDA) projected lower ending stocks for maize, soybeans and wheat. Crop progress reports from the United States and Western Europe (especially France) indicate worsening conditions of winter crops on both sides of the Atlantic.

[1] A stage where high prices or limited supply trigger a response of sustained decline of demand.

Ocean freight rates

Contributed by the International Grains Council (IGC)

www.igc.int

OCEAN FREIGHT MARKET (NOV 2021 - MAY 2022)

The dry bulk freight complex witnessed two major fluctuations during the past six months: a drop in the first half of the period followed by a rebound. As a result, the Baltic Dry Index (BDI) – a benchmark indicator for dry bulk timecharter values – declined to a 13-month low by the end of January 2022, with seasonal factors exacerbated by worries about potentially slowing Chinese (mainland) demand for bulk commodities and coal export restrictions in Indonesia. Still, with a subsequent strong recovery, the Index has posted a net 17 percent rise since November 2021, with strength most pronounced in the Panamax and Supramax sectors, which are associated with the transportation of grains and oilseeds. Although moderately higher year-on-year, the BDI is just over half of its October 2021 13-year peak.

Escalating Black Sea tensions weighed on market sentiment during the period as disruptions on major routes prompted fears about the availability of some commodities, including grains, coal and fertilizer, as well as the associated demand for vessels. With operations at Ukraine’s deep seaports suspended since late February, and with chartering activity from the Russian Federation hampered by international sanctions and soaring freight insurance premiums, some buyers had to search for alternative suppliers, resulting in a notable increase in journey lengths and times, particularly in the Panamax sector. This included a shift in grains/oilseeds purchases from the Black Sea region to the Americas, as well as increased coal deliveries from Australia and South Africa to Europe.

Although China (mainland)’s latest lockdown measures to contain the spread of COVID-19 raised concerns about the demand for vessels in Asia, the impact on regional freight rates was bullish as restrictions impacted the country’s inland logistics and led to backlogs at ports, thereby contributing to reduced vessel turnaround rates and tighter tonnage availability.

Recent supply side developments have also supported freight prices, with industry sources indicating a 20 percent year-on-year lag in bulk carrier newbuilding deliveries in the first quarter of this year.

Total voyage costs on key grains and oilseeds routes (including marine fuel and other related expenses) also increased markedly over the period, with the IGC Grains and Oilseeds Freight Index (GOFI), a trade-weighted measure of freight values, up by 16 percent over the past six months. The GOFI’s relatively larger annual growth compared to the BDI was partly linked to a surge in bunker prices, which reached a record level in early March 2022 on the back of rallying crude oil prices. Gains across constituent GOFI origins were led by Australia, which featured extremely tight port logistics, as well as the United States of America and Brazil, amid sustained overseas demand for grains and oilseeds. However, underlying Black Sea values have been purely indicative in recent months owing to sharply reduced activity.

While prospects for the freight market are clouded by the risks posed by slower global economic growth, many analysts expect freight rates to remain at historically elevated levels in the near term due to potentially inflated fuel prices. At the same time, a shift to relatively longer shipping routes for some commodities should contribute to overall supply tightness in the dry bulk sector, which may also continue to experience congestion in some key areas. Furthermore, standards set by the International Maritime Organization to enhance efficiency and reduce greenhouse gas emissions, which are scheduled to take effect in November 2022, are expected to lead to increased ship retirement, while the envisaged additional costs of compliance could mean higher timecharter rates.

Elevated volatility was a remarkable market feature during the period under review, although some improvement has been noted in recent weeks, as levels receded to the lower end of the five-year range.

A modest 6 percent increase in average Capesize rates since last November masks sharp two-sided movements during the period. Weather-related logistical issues and port closures in China (mainland) buoyed the rates of the largest carriers in the fourth quarter of 2021, but a seasonal slowdown in activity saw segment earnings plummet towards the end of the year. With pressure on freight prices amplified by Indonesia’s move to suspend coal exports, the corresponding Baltic sub-Index slipped to a 1.5-year low by the end of January. While those restrictions were subsequently eased, additional support to prices in the following weeks stemmed from an upturn in Chinese (mainland) demand after the Lunar New Year holidays, including for iron ore. Although China (mainland)’s new COVID-19 restrictions, which were imposed in late March, slowed inland and port logistics, news that the country was on course to ease lockdowns in some areas has recently boosted freight market sentiment.

Although activity in the Black Sea fell sharply following the outbreak of hostilities in Ukraine in late February, the Capesize market has posted a sizable net increase since the turn of the year on brisk trading activity on other major routes, including for coal deliveries from Australia to Europe.

Movements in the Panamax market were especially volatile during the past six months, when average values rose by more than one-quarter. Similar to the Capesize market, early-2022 losses were linked to restricted coal business from Indonesia and generally subdued activity in Asia due to seasonal festivities. This was coupled with reduced enquiries in the US Gulf and South America, the latter region featuring increasing vessel line-ups in Brazil amid seasonally-rising soyabean exports and slow deliveries to ports. Nonetheless, subsequent net advances in segment earnings were underpinned by resumed dispatches out of Indonesia, coupled with improving sentiment in the Americas, Australia and the northern Pacific, as traders tried to replace disrupted Black Sea grans volumes.

More recent support to prices came from solid coal imports by India amid tight domestic supplies and widespread electricity outages. However, the government’s move to curb wheat exports due to deteriorating supply prospects proved to have the opposite effect, as a number of vessels was expected to relocate to the Atlantic following the decision, potentially exerting downward pressure on regional freight rates.

Timecharter assessments in the Supramax and Handysize markets demonstrated similar trends. With muted activity in Ukraine and the Russian Federation, the resulting relocation of tonnage from the Black Sea and the eastern Mediterranean to the northern Atlantic weighed on vessel earnings in the first quarter of 2022. However, that was countered by buoyant business and fleet shortages in Asia amid congestion at Chinese (mainland) ports, and, more recently, by fresh enquiries for bulk deliveries out of the US Gulf and South America, including grains/oilseeds-related movements.

Food import bills

Higher international food prices could lift global expenditures on imported food to USD 1.8 trillion in 2022, an all-time high but still a marked slowdown in growth from the previous year.

The world food import bill is forecast to reach another all-time high in 2022, surpassing USD 1.8 trillion, a near 3 percent increase, or USD 51 billion, from last year’s record level. But the expansion in international food purchases will moderate significantly, considering that the increase from 2020 to 2021 amounted to almost 18 percent. The anticipated slowdown in growth in 2022 reflects higher food prices, depreciating currencies vis-à-vis the US Dollar as well as rising freights, all of which are expected to weigh on the purchasing power of importers and subsequently on the quantity of food imports.

Overall, in 2022, developed regions are foreseen to account for 60 percent of world expenditures on imported food and over 90 percent of global growth. The bulk of the increase in the world food import bill is expected to be cost-driven, reflecting record food prices that come on the back of surging input prices. Imports by developing[1] regions are expected to become increasingly responsive to soaring prices. Their imports are forecast to come to a near standstill in 2022, with an overall bill rising by just 1 percent. Slower growth or outright contractions are foreseen in the most vulnerable countries, where consumer expenditures are highly sensitive to rising prices, owing to low incomes. While Net Food-Importing Developing Countries (NFIDCs) and sub-Saharan Africa (SSA) could experience an increase of 1.0 percent and 2.8 percent, respectively, in their food import bills, Least Developed Countries (LDCs) are anticipated to undergo a 5 percent contraction in their 2022 food import bill from last year.

Higher import bills do not translate to higher inflows for vulnerable countries.

Decomposing food import bills to ascertain the extent to which higher prices and volumes are behind changes in expenditures, at the global level reveals that the anticipated increase in the 2022 import bill is almost entirely on account of higher prices: USD 49 billion are due to higher international prices and merely USD 2 billion reflect higher volumes. The upshot is that higher import bills mainly reflect higher unit costs rather than higher volumes, with many regions set to face higher bills in return for lower volumes. Worryingly, this development is much more pronounced in economically vulnerable regions. Sub-Saharan Africa, for instance, is expected to spend USD 1.5 billion more on food imports, but could see a decline in volumes worth USD 0.9 billion. As for NFIDCs, with a forecast USD 1.3 billion in extra costs for importing food, volumes are anticipated to decline by a value of USD 2.2 billion. Similarly, LDCs are expected to see a contraction in their food import bill by USD 2.4 billion fully on account of lower volumes. These are alarming signs from a food security perspective, indicating that importers will find it difficult to finance rising international costs, potentially heralding an end of their resilience to higher prices.

Developed regions account for majority of the food import growth, while developing countries focus on imports of staple food items

From a food group perspective, existing differences across importing regions are likely to become more pronounced in 2022. While developed countries continue purchasing across the entire spectrum of food products, the budgets of developing regions will be increasingly concentrated on importing staple foods, with shrinking inflows of high value products such as meat, beverages and oilseeds (see Figure 1).

Continued purchases of high price, high quality foods by developed regions reflects their generally low price responsiveness of food demand. The profile of imported foodstuffs by developing regions, dominated by staples, signals a further deterioration of dietary diversity and quality.

Overall, the year 2022 may usher in an era of lower resilience to higher food prices, notably by the poorer regions of the developing world. This would also signal a departure from the remarkable resilience that many countries displayed throughout the COVID-19 pandemic in terms of sustaining food imports. In response to these developments, FAO has proposed a Food Import Financing Facility (FIFF), which would provide balance-of-payment support to low-income, highly food import-dependent countries to ease their access to international food markets (see also the Special Feature article in this issue of Food Outlook).

[1] The aggregates for developed and developing regions have been maintained in this issue of Food Outlook for statistical purposes. Maintaining these particular groupings allows to provide comparable estimates of the size and composition of food import bills to those computed in last year’s edition of this report.

FAO price indices[1]

The FAO Global Food Consumption Price Indices[2]

The FAO Global Food Consumption Price Indices (FGFCPIs) track monthly changes in the international prices of a basket of food commodities. The FGFCPIs include the five food commodity groups that comprise the FAO Food Price Index (FFPI) as well as oilseeds and fish among their components. Aside from their comparatively broader commodity coverage, the FGFCPIs differ from the FFPI in that they weigh the individual commodity groups that compose them by their respective contribution to average global caloric intake (Calorie-base FGFCPI), or to average protein uptake (Protein-base FGFCPI) during the 2014–2016 base period. These weights are derived from the FAO food balance sheets (http://www.fao.org/faostat/en/#data/FBS).

Excepting a temporary lapse in December 2021, the Calorie-base FGFCPI rose steadily between October 2021 and March 2022 and has stabilized at an all-time nominal high of close to 156 points since then. This trend positioned the April 2022 value of the index 28.7 percent above its – already elevated – level in April 2021. Few of the commodities encompassed by the Calorie-base FGFCPI have eluded significant upward gains over the past year. This has been most notably the case for rice quotations, which remained 4.7 percent below their year-earlier levels in April, and pig and ovine meat prices, which registered more moderate increases of around 6 percent, each. For all other commodities, year-to-year price gains have been substantial, ranging from a minimum of 18.9 percent (for poultry meat) to up to 57.3 percent (for wheat). The 34.8 point year-to-year rise in the value of the Calorie-base FGFCPI registered through April 2022 reflects these nearly across-the-board increases, although given its proportionally-higher contribution to global calorie intake and the greater price hikes the commodity has registered, wheat has accounted for much of the increase.

Wheat quotations have also spearheaded recent increases in the Protein-base FGFCPI, underscoring the dual importance of the commodity as a global source of energy and protein. Since September 2021, the Protein-base FGFCPI has generally followed the path of its sister indices (the Calorie-base FGFCPI and the FAO Food Price Index). It only discernably departed from them in April 2022, when increases in meat, dairy and fish prices tended to overshadow the loss of upward momentum in grain and oilcrop prices. This resulted in the Protein-base FGFCPI reaching an average of 147.9 points in April 2022, which was 28.0 percent above its level a year-earlier and represented a fresh nominal peak.

The FAO Food Price Index[3]

The FAO Food Price Index (FFPI) (FFPI) averaged 157.4 points in May 2022, down 0.9 points (0.6 percent) from April, marking the second consecutive monthly decline, though still 29.2 points (22.8 percent) above its value in the corresponding month last year. The drop in May was led by declines in the vegetable oil and dairy price indices, while the sugar price index also fell to a lesser extent. Meanwhile, cereal and meat price indices increased.

The FAO Cereal Price Index averaged 173.4 points in May, up 3.7 points (2.2 percent) from April and as much as 39.7 points (29.7 percent) above its May 2021 value. International wheat prices rose for a fourth consecutive month, up 5.6 percent in May, to average 56.2 percent above their value last year and only 11 percent below the record high reached in March 2008. The steep increase in wheat prices was in response to an export ban imposed by India amidst concerns over crop conditions in several leading exporting countries, as well as reduced production prospects in Ukraine because of the war. By contrast, international coarse grain prices declined by 2.1 percent in May but remained 18.1 percent above their value a year ago. Slightly improved crop conditions in the United States of America, seasonal supplies in Argentina and the imminent start of Brazil’s main maize harvest led maize prices to decline by 3.0 percent; however, they remained 12.9 percent above their level of May 2021. Similarly, international sorghum prices also fell in May, declining by 3.1 percent, while spillover from the strength in wheat markets and concerns over crop conditions in the European Union boosted barley prices by 1.9 percent. International rice prices increased for the fifth successive month in May. Quotations strengthened in all the major market segments, but monthly increases were least pronounced (2.6 percent) for the most widely traded Indica varieties, amid ample supplies, especially in India.

The FAO Vegetable Oil Price Index averaged 229.3 points in May, down 8.3 points (3.5 percent) month-on-month, yet remaining markedly above its year-earlier level. The monthly decline mainly reflects lower prices across palm, sunflower, soy, and rapeseed oils. International palm oil prices weakened moderately in May. Apart from demand rationing, the removal of Indonesia’s short-lived export ban on palm oil exerted additional downward pressure on prices, although a further price drop was contained by lingering uncertainties over the country’s export prospects. Meanwhile, world price quotations for sunflower oil fell from recent record highs, with stocks continuing to accumulate in Ukraine owing to logistical bottlenecks. International soy and rapeseed oil prices also declined somewhat in May, chiefly weighed by sluggish import demand in view of elevated costs in recent months.

The FAO Dairy Price Index averaged 141.6 points in May, down 5.1 points (3.5 percent) from April, marking the first decline after eight consecutive monthly increases, but still 20.5 points (16.9 percent) higher than its level in May of last year. World prices of all milk products fell, with milk powders declining the most, underpinned by lower buying interests on market uncertainties stemming from the continued lockdown in China, despite the persistent global supply tightness. Butter prices also dropped significantly due to weaker import demand in tandem with some improvements to supplies from Oceania and limited internal sales in Europe. Meanwhile, robust retail sales and high demand from restaurants ahead of the summer holidays in the Northern Hemisphere prevented cheese prices from falling significantly, despite weakened global import demand.

The FAO Meat Price Index[4] averaged 122.0 points in May, up 0.6 points (0.5 percent) from April, setting a new all-time high, driven by a steep rise in world poultry meat prices, more than offsetting declines in pig and ovine meat values. In May, poultry meat prices rose, reflecting the continued supply chain disruptions in Ukraine and recent cases of avian influenza amid a surge in demand in Europe and the Middle East. Meanwhile, international bovine meat prices remained stable, as increased supplies from Brazil and Oceania were adequate to meet persistently high global demand. By contrast, world pig meat prices fell on high export availabilities, especially in Western Europe, amid lacklustre internal demand and expectations for releasing pig meat from the EU Commission’s Private Storage Aid scheme.

The FAO Sugar Price Index averaged 120.3 points in May, down 1.3 points (1.1 percent) from April, marking the first decline after sharp increases registered in the previous two months. The recent monthly decline in international sugar price quotations was triggered by limited global import demand and good global availability prospects, mostly stemming from a bumper crop in India. The weakening of the Brazilian Real against the US dollar and lower ethanol prices resulted in further downward pressure on world sugar prices. However, uncertainties over the current season’s outturn in Brazil, the world’s largest sugar exporter, prevented more substantial price declines.

[1] All changes referred to in this section, in absolute or percentage terms, are calculated based on unrounded figures.

[2] The FAO Global Food Consumption Price Indices are published twice a year in Food Outlook.

[3] The FAO food price index and its sub-indices are updated on a monthly basis and are available on: http://www.fao.org/worldfoodsituation

[4] Unlike for other commodity groups, most prices utilized in the calculation of the FAO Meat Price Index are not available when the FAO Food Price Index is computed and published; therefore, the value of the Meat Price Index for the most recent months is derived from a mixture of projected and observed prices. This can, at times, require significant revisions in the final value of the FAO Meat Price Index which could in turn influence the value of the FAO Food Price Index.