World production and consumption expected to decline in 1991/92 – coarse grain outlook affected by events in Soviet Union – U.S. Dept. of Agriculture, Economic Research Service report
Global production of coarse grains is forecast to drop 4 percent in 1991/92 to 801.5 million tons. Because of larger carryin stocks than the previous year, total world supplies are forecast to fall only 2 percent. Global consumption is forecast to decline nearly 2 percent to 809 million tons, the lowest in 3 years. A decline in use in the USSR is expected to outweigh a slight increase in consumption in the rest of the world.
With global consumption likely to outpace production, world ending stocks are projected to fall 5 percent to 128 million tons in 1991/92. The resulting ratio of ending stocks to use of 15.8 percent indicates a relatively tight supply situation. While the projected level of stocks is low by historical standards, it would still be above the recent low of 124 million tons in 1989/90.
Widespread Economic and
Political Change Confuse
Grain production, consumption, and trade patterns are undergoing substantial changes in many countries, whether the result of specific agricultural policy reforms or as a byproduct of other changes. Some events, such as those in the Soviet Union, are having an immediate effect on the world grain market while others will have more impact over the next few years.
Of foremost importance for the 1991/92 outlook is the rapid transformation – and possible breakup – of the Soviet Union. The Soviet shift away from a centrally planned economy may have many potential benefits over the long run, but the immediate consequences include a decline in economic growth, an apparent drop in grain consumption, and problems financing imports. While a drop in Soviet production is largely weather-related this year, a reduction in procurements of domestic grain goes beyond declining production, with few economic incentives to deliver to the State. Although available domestic supplies are down sharply, financial constraints will limit the USSR’s ability to import.
Eastern Europe is also undergoing radical shifts in economic and political structures. As the countries in the region move toward market economies, economic growth also has faltered. Cuts in subsidies and higher prices are contributing to a slump in domestic demand. Large exportable surpluses of grain have developed in some East European countries this year, reflecting good harvests as well as lagging consumption. Finding cash markets for potential exports will be difficult, and most trade will likely be barter. In addition, some exports may move under trilateral deals financed by the EC.
A number of other countries have started significant policy reforms. In Mexico and Argentina, changes in macroeconomic policies are beginning to bolster growth prospects, in large part by lowering high inflation, making investment more attractive, and reducing government involvement in the overall economy. For Mexico, improved economic growth would suggest higher import demand for agricultural goods. However, government farm policies have also dramatically increased price supports for corn growers, contributing to larger corn crops and lower imports. In Argentina, there are signs of more radical agricultural reforms, including privatization of grain marketing and transportation, that will boost plantings and enhance the country’s export competitiveness.
The EC continues to discuss reform of its Common Agricultural Policy (CAP). Only relatively minor adjustments for grains have been announced so far, such as a new 1-year set-aside scheme aimed at reducing harvests in 1992. This program, which supplements an existing 5-year program, is expected to have only a minor impact on reducing grain output (and surplus supplies). However, the possibility of more fundamental reforms to EC policies appears less remote than in earlier years, prompted by the forecast of record ending grain stocks in 1991/92 and growing budgetary outlays. In addition, Germany recently announced it would support a significant reduction in subsidized EC grain exports. The EC’s consideration of reforms also keeps alive the possibility of a GATT agreement.
Foreign Production Highlights
Foreign coarse grain output is forecast at 582.8 million tons in 1991/92, down more than 20 million tons from the previous year’s record. Although substantial declines are forecast in barley, rye, and oats, foreign corn production is forecast to increase 4 percent to a record 288 million tons.
The single biggest change is expected in the Soviet Union, generally the largest foreign producer, whose coarse grain crop is forecast at 85.5 million tons, a decline of nearly 28 million tons from 1990/91, when it had an excellent harvest. Most of the drop in Soviet production is due to lower yields because of less favorable growing conditions. Area is expected to drop only slightly, while average coarse grain yields are forecast down by about a quarter from the year before. Soviet wheat production is also forecast to be down sharply.
The total Soviet grain crop is forecast at 175 million tons, compared with 235 million in 1990/91. Some Soviet reports indicate that the crop may be even lower. However, because of extensive changes, the reports may not be comparable to previous years.
Conversely, Eastern Europe is forecast to register an 18-percent rise in coarse grain output, as improved growing conditions boosted yields. Nearly all of this forecast increase of more than 9 million tons is expected in corn, making it the region’s largest outturn since 1987/88. Yugoslavia is experiencing the largest gain, with production nearly doubling, followed by Hungary. Corn is a major crop in Eastern Europe, second only to wheat. However, output is quite erratic, reflecting susceptibility to summer heat and dryness at critical times in the main growing areas in the Balkan states.
In the EC, higher corn production similarly accounts for virtually all of a forecast 4-million-ton rise in coarse grain output. Most of this gain is in France, the major producer, which recovered from drought, with smaller gains by Greece, Spain, and Italy. EC barley is forecast virtually unchanged.
In Mexico, a second consecutive record corn crop is expected. However, this will be more than offset by a reduction in sorghum, and total coarse grain output is forecast to fall about 2 percent. Mexico’s corn acreage has risen significantly in the last 2 years because of the incentive of high guaranteed prices to farmers, although this has pulled some area out of sorghum. Coupled with favorable weather, the jump in corn plantings has led to bumper corn crops in both 1990/91 and 1991/92.
South American Crop Prospects
Planting of the main 1991/92 coarse grain crops in Argentina and Brazil is nearing completion. Farmers in Argentina are responding positively to more stable economic conditions and policy reforms by the government and are expected to increase area planted to coarse grains. However, assuming average yields, production will decline in 1991/92, with corn forecast at 7.2 million tons and sorghum at 2.3 million tons, both down 8 percent. Excellent growing conditions led to record yields of both corn and sorghum in 1990/91.
Inflation is down dramatically in Argentina, encouraging farmers to invest more and increase input use. Increased investment is also being supported by heightened availability and affordability of credit as interest rates have dropped. Policies that include the elimination of export taxes and streamlining of the marketing system could stimulate an increase in total crop area in Argentina in the next few years, given the abundance of available land. In recent years, farmers have shifted much land out of coarse grains into oilseeds.
Corn production in Brazil is expected to rebound about 11 percent in 1991/92, assuming a recovery from poor weather. The availability of credit appears adequate to support corn area similar to last year, while only a small gain in soybean area is expected.
Foreign Consumption To Decline
Foreign use of coarse grains in 1991/92 is forecast to fall 2.5 percent to 628 million tons, the lowest since 1986/87. Most of the decline stems from a prospective drop in Soviet use. Aggregate use by other foreign countries is expected to increase almost 1 percent in 1991/92.
Soviet consumption of coarse grains is projected to fall about 20 million tons in 1991/92, following a 4-million-ton reduction the previous year. Most of the decline will be in livestock feed. Because of tight wheat supplies, the Soviets will not be able to make up the shortfall by feeding more wheat. Thus, reductions in livestock inventories in coming months will largely hinge on the amount of feed grain imports. As of July 1, 1991, the USSR reported cattle numbers down nearly 5 percent from a year earlier, hogs down about 10 percent, sheep and goats down 9 percent, and poultry about equal. Depending on slaughter decisions, the production of meat and livestock products could also fall.
Much of the dramatic drop in Soviet use expected this year stems from the smaller crop. In the past, the Soviets tended to import more to cushion the impact of a short crop. However, the Soviets will not be able to do this in 1991/92 because of financial constraints. In addition, distribution of domestic grain supplies continues to worsen. The share of grain procured by the Central Government is reportedly down. Many of the Soviet republics have banned the export of grain from their farms to other republics. As the old system begins to crumble, new market structures have yet developed to replace it.
Excluding the Soviet Union, overall foreign use is projected to grow nearly 1 percent in 1991/92, and includes a forecast rise in consumption in the EC and Eastern Europe, both large users. Slight increases are likely in both regions as corn production and availability recover from drought reductions in the previous year. However, without CAP reform, the longer trend in EC coarse grain use remains firmly downward. East European use is also moving downward as consumers and producers adjust to reforms. The longrun trend is less clear because of more erratic production patterns and the different pace of market reforms in the various countries in the region.
Among other major foreign consumers, the forecast reflects stagnant or falling demand. For example, Japan’s feeding of coarse grains has largely leveled out with a rise in meat imports under increased market liberalization. In South Korea, feeding of wheat will continue high in 1991/92, after a sharp expansion in 1990/91, depressing coarse grain use.
PHOTO : Figure 18 Argentina Coarse Grains Area and Production
PHOTO : Figure 19 Eastern Europe Corn Production and Consumption
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