A new vision for agriculture
momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.
It brings together, managers from the agricultural world and important people from external perspectives,
such as health, development, strategy and defense. Its objective is to promote regulation
of agricultural markets by creating new evaluation tools, such as economic models and indicators,
and by drawing up proposals for an agricultural and international food policy.
Focus on issues

World grain production: Records to confirm that population growth will not be enough to balance markets

Frédéric Courleux, Anh Lai

January 2, 2017

Following the northern hemisphere, the south now confirms a global production record for the 2016/2017 crop. As the latest figures to be reported, the Australian harvests are proving that the scope of world grain production increases must not be underestimated. Non-cultivated farmland reserves are considerable, and higher yields in places where they are low are also a significant potential for production expansion. Aside from France, a part of Western Europe and Morocco, the year 2016 will be marked by a series of production records. While Australia––which is far from being the world’s breadbasket as it is sometimes claimed––was not to be outdone this year, it is mostly Russia and Ukraine that have experienced remarkable developments over the past few years.

Production on the rise

The International Grain Council (IGC) estimates that, for the fourth consecutive year, the grain production (excluding rice
1) should be above the symbolic high of two billion tons, and reach 2.084 billion tons2 according to the latest forecasts. The demand figures, which are more difficult to estimate, are mostly as important (2.056 billion tons), leaving a 29 million-ton differential to increase the ending stocks that would cross the 500-million-ton threshold for the first time (504 million tons).

Since the 2007/2008 harvest that was featured by a severe food crisis, we have seen a 23% rise in world grain production. Moreover, it is stated that this increase is due to gain in yields rather than grain areas since the FAO indicates that grain farmland only grew by 4.1% between 2005 and 2014. Rising yields partly results from increases in corn production, whose per-hectare yields are generally higher than for other grains.

World grain production, consumption and stocks
World grain production, consumption (LHS) and stocks (RHS)
IGC data, Momagri formatting

Growing stocks

It has been observed that that only two out of the past 10 crop years were showing a deficit––in 2010/2011 and 2012/2013. And since the 2012/2013 crop, which was marked by a severe drought in the United States, the ending stocks have soared by 50% to 504 million tons from 336 million tons. We should in addition point out that the ending stocks are not necessarily public stocks. The estimated breakdown of ending stocks reveals the quite substantial weight of China and, to a lesser extent of the United States, both actually representing the two key producing nations. In fact, the Middle Kingdom accounts for 40% of grain ending reserves (excluding rice).

Breakdown of 2016/2017 grain stocks in key stockpiling countries
Breakdown of 2016/2017 grain stocks in key stockpiling countries (in million tons)
IGC data, Momagri formatting

Upward revised outlook throughout the crop year

Forecasting production over a crop year is a difficult task. Should we know a significant share of seeded areas in early spring, when first previsions are issued, we cannot, however, at that stage really make any yield assumption other than that concerning average yields. As a result, we must wait for the last weeks preceding harvest time to get precise knowledge of any yield potential. As shown in the graph below, which is based on the nine IGC monthly reports published in 2016, we see that the forecasts were systematically revised upward as good harvests were anticipated.

IGC 2016 grain forecasts for 2016/17 harvest
IGC 2016 grain
3 forecasts for 2016/17 harvest
IGC data, Momagri formatting

Key learnings

The lower grain prices in international markets reported since their highest 2012 values have not been associated with a lower production, far from it. The past decade proves once again one of agriculture’s burdensome characteristics––the asymmetry of supply responses to price variations. High-price phases tend to stimulate production as they help restart a producers’ investment cycle. Drawing on available farmland and/or on productivity reserves, such stimulation quickly leads to reversals of circumstances. Yet in that new context of lower prices, producers do not want to cut down production, since they would lose more––or everything––by lowering production. The fixed costs are already committed and broadly irrecoverable––that is to say one loses even more in reselling them. It is in this way that cycles are initiated with durations, varying across crops, susceptible to last 15 to 25 years if public authorities do not intervene to rebalance markets.

In terms of price developments between a cycle’s peaks and troughs, a second lesson can be learned. While prices in an integrated market should theoretically correspond to marginal production costs––i.e. the production cost of the least competitive producer but still adequate to meet demand––the price fluctuations are showing that the reality of international markets is totally different. With the exception of tension times, prices are more guided by the production costs incurred by the most competitive producers. And this even if the most competitive prices alone were not capable to meet demand. This is another feature of international grain markets, which are rather clearing markets for national surpluses, between more or less isolated blocks of international price fluctuations. The integration of national markets remains quite low. The international grain trade (310 million tons) that is required to ensure food security, only concerns 16.5% of the total grain production in 2017.

Lastly, while the ending stock level has registered a significant upswing since 2012 (+50%) that explains the reported price shrinkage, this development needs to be put in perspective. Compared to the yearly production, the ending stock levels remains quite low. In 2012/13, the stock/production ratio was 18.5% against 24.2% in 2016/17. Assessed in terms of production days (and thus close to consumption), it is as if, with a 67-day reserve, the general feeling is one of shortage, while with an 88-day reserve, a feeling of abundance is taking over people’s minds. There again, we see that grain markets are more international than global.

All in all, a review of grain results remains an always crucial task to understand the need to revamp the foundations of a better coordination of national agricultural policies. The outlook for population growth, the “9 billion mouths to feed by 2050”, is not a sufficient driver to offset the nature of agricultural supply. This requires regulation measures for better market functioning.

1 Most of the time, rice is detached from other grains due to its low replacement ability in terms of use, and also because rice production is highly concentrated in Southeast Asia, and closely regulated by public guidelines.
2 http://www.igc.int/downloads/gmrsummary/gmrsummf.pdf
3 All grains excluding rice

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Paris, 14 December 2018