World global cereal supply, which includes both production and carryover stocks, is projected to remain nearly unchanged, even though world cereal production is forecast to decline by 3.4% to 2,208 million tonne (including rice on a milled basis) in 2009. And since the world cereal utilisation or consumption is forecast to expand at a much slower rate than in 2008-09, the cereal stocks by the end of the season in 2010 may decline only marginally.

These statistics provided in the most recent issue of Crop Prospects and Food Situation, published by the Food and Agriculture Organisation (FAO), goes on to note that this year?s reduction in grain production is partly a result of a return to trend yields after strong productivity gains last year, but also comes from a reduction in overall plantings (mostly wheat) after last year?s exceptional level. Farmers in several countries have been discouraged by the prospect of reduced returns relative to the previous year?s exceptionally high levels because of current lower grain prices and persisting high-input costs.

In the low-income food-deficit countries, prospects for the 2009 cereal crops are generally favourable and the aggregate production is forecast to increase for the second consecutive year. However, the outlook is uncertain in parts of Western and Eastern Africa, as well as in Asia, reflecting an erratic start of the rainy season. Countries with unfavourable prospects for current crops include Ethiopia, Kenya, Nigeria, Somalia and Sudan in Africa, India and Afghanistan in Asia, Argentina in Latin America, and Moldova in Europe.

Most of the reductions forecast are on account of lower wheat and coarse grains output, but the global rice crop may register a marginal increase. FAO?s latest forecast of global wheat production in 2009 stands at 655 million tonne, which is around 4% lower than the last year?s record but still well above the average of the past five years. The bulk of the decrease is expected among the world?s top producing countries, in particular those in Eastern Europe and in the US. A recovery is forecast in countries where last year?s wheat crop was plagued by dry weather.

The forecast for world output of coarse grains in 2009 stands at 1,093 million tonne, which is 4.3% down from last year?s level. Africa is the only region where coarse grain output is projected to increase. Aggregate coarse cereal output in Asia should remain virtually unchanged from last year?s level but throughout the other regions, a smaller crop is expected on account of drought or lower planted area.

Assuming a normal rainfall pattern in Asia in the coming months, world rice production in 2009 is forecast to increase to 689 million tonne (460 million tonne, milled equivalent). The small increase expected in 2009 reflects less attractive prospects for producer returns, which would impact planting and crop management decisions.

World cereal utilisation in 2009-10 is forecast to grow by 0.7% from the previous season to 2,217 million tonne. The below-average expansion anticipated in total cereal utilisation reflects a slowdown in animal feed and industrial sector growth, while consumption of cereals for food is forecast to keep up with the growth in world population.

Projections indicate that the end-of-season cereal stocks for the crop year closing in 2010 will be 517 million tonne. This would be slightly below the previous forecast and 1.3% below their relatively high opening levels. This downward adjustment mainly reflects the lowering of the FAO?s forecasts for global rice production in 2009, following poorer monsoon rain forecasts in India, and hence lower rice stocks. Among the major cereals, world wheat and rice inventories are forecast to increase but coarse grains are expected to decline, mainly in the US reflecting the anticipated decline in this year?s production in this country. In spite of this adjustment, the global cereal stock-to-utilisation ratio is likely to remain stable at just over 23%. The expectation of a second successive year of good crops has already resulted in declines in international prices of major cereals to well below their peaks in 2008.

But an analysis of data contained in the database as of early July 2009 shows that domestic prices in developing countries remain high and in some cases are still at record levels. Of the 780 domestic price quotations (nominal, in local currencies) for all food commodities included in the database, the most recent quotation is either same or higher than in the pre-food price crisis period of 24 months.

In Sub-Saharan Africa, in more than 80% of all the local price series analysed in 27 countries, latest prices are more than 25% higher than 24 months earlier. In Asia, Latin America and the Caribbean, prices are monitored in a total of 31 countries and according to cereal type, 40-80% of the prices remain at least 25% higher than in the pre-food crisis period.

In contrast with trends in domestic food prices, international cereal export prices, in spite of some fluctuations in recent months, are either lower or marginally higher than in 2007. Sorghum and wheat export prices are 10% and 9% lower than 18 months earlier and between 47% and 53% below 2008 peak levels. Rice export prices, while having fallen from their 2008 peak levels by 39%, were still 75% above the pre-food-crisis level by July, reflecting government interventions in some major rice exporting countries.

The FAO report also notes that world cereal trade in 2009-10 is forecast to fall to about 257 million tonne, down 5% from the estimated trade volume of 2008-09, driven by a cut in global wheat imports. However, the world trade in rice is forecast to increase marginally in 2009 while that of coarse grains is expected to remain unchanged.

Several countries have new policies to encourage grain exports and support 2009 food grain production. In view of the expected bumper crops and sufficient cereal supply in 2009-10, China has eliminated export taxes on some grains, including wheat (3%), rice (3%), and soybeans (5%). The government of India has reportedly allowed export of 6,50,000 tonne of wheat. The government is planning to ease non-basmati rice exports if there is a rice surplus after meeting the requirements of the country?s safety net programme.