Wednesday June 21, 2006

World grain stocks fall to 57 days of consumption

energybulletin.net -> earth-policy.org :

This year's world grain harvest is projected to fall short of consumption by 61 million tons, marking the sixth time in the last seven years that production has failed to satisfy demand. As a result of these shortfalls, world carryover stocks at the end of this crop year are projected to drop to 57 days of consumption, the shortest buffer since the 56-day-low in 1972 that triggered a doubling of grain prices.

World carryover stocks of grain, the amount in the bin when the next harvest begins, are the most basic measure of food security. Whenever stocks drop below 60 days of consumption, prices begin to rise. The U.S. Department of Agriculture (USDA) projected that this year's wheat prices will be up by 14% and corn prices up by 22% over last year's. This assumes normal weather during the summer growing season. But if this year's harvest is sharply reduced by heat or drought, they could far exceed the projected rises. With carryover stocks of grain at the lowest level in 34 years, the world may soon be facing high grain and oil prices at the same time. For the scores of low-income countries that import both oil and grain, this prospect is a sobering one.

Each year the world's farmers must try to feed an additional 70 million people, good weather or bad. This growth is concentrated in the Indian subcontinent and sub-Saharan Africa, which is where most of the world's hungry people live. Growth in world grain demand, traditionally driven by population growth and rising incomes, is also now being driven by the fast growing demand for grain-based fuel ethanol for cars. Roughly 60% of the world grain harvest is consumed as food, 36% as feed, and 3% as fuel. While the use of grain for food and feed grows by roughly 1% per year, that used for fuel is growing by over 20% per year.

Farmers are facing a record growth in the demand for grain at a time when the backlog of technology to raise grain yields is shrinking, when underground water reserves are being depleted, and when rising temperatures threaten to shrink future harvests. As a result the world grain market may become a seller's market, one where higher grain prices, like high oil prices, are an integral part of the economic landscape.

(2006-06-21 23:05:25 SGT) [Env] Permalink

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