For wheat the USDA has already made significant adjustments to the base line, production trend, projection. US, Russian, Ukraine and Indian production has been reduced by 24Mt from last May's projection for last year. This has more than offset what are out of necessity largely trend line projections elsewhere. The USDA’s 600Mt world production forecast is 20Mt below the actual production estimate for last year and 15Mt below their initial forecast for last year (Table 1).

With lower carry-over stocks, projected supplies will be further reduced. But the USDA has only lowered forecast consumption by about 1Mt with adjustments in consumption in third world countries tending to reflect domestic supply prospects. The consequence of this is a forecast for a fairly dramatic fall in stocks over the coming year to 128Mt. This is the lowest level in absolute terms since 1981 and in relative terms, ie the stocks-use-ratio, is probably the lowest ever recorded. The latter measure may not, however, be totally relevant as the private grain trade has become more effective in managing stocks. Against this almost 40% of stocks are projected to be held by the EU and China which probably reflects concerns over access.

It is also relevant to note that the USDA three years ago made projections of supplies as tight as this, but subsequent developments including above average crops turned the supply situation around. A world wheat carry-over forecast in May 2003 at 123Mt for the 2003/04 crop was progressively revised to an estimated carry-over of 150Mt a year later as wheat crops that year turned out larger than forecast.

In a global context a substantial majority of coarse grains is spring sown. Hence, May forecasts of production are largely based on sowing intentions, planting conditions with some economic assessment on likely sowing patterns. The USDA forecasts 2006/07 production at 964Mt, 4Mt less than its current estimate of last year's production but 10Mt more than it was forecasting a year ago. The projected lower US output is more than offset by small increases widely dispersed around the world.

Paradoxically the USDA is projecting a large increase in US consumption of coarse grains which significantly alters the complexion of the market. The USDA is projecting global coarse grain use at 1,004Mt compared with its current estimate for last year of 977Mt and it’s forecast a year ago of 967Mt. Comparable figures for US use are 254Mt forecast for the coming year, 241Mt estimated for this year and 236Mt forecast for this year last May. Main source of this added use is fuel ethanol production. The USDA is projecting US maize consumption for fuel ethanol production at 54.6Mt, 14Mt more than this year’s estimated use. With global consumption of coarse forecast to exceed production by 40Mt, carry-over stocks are projected to decrease by almost 25% to 131Mt.

The third component of the USDA's total grain assessment is rice. While record rice production of 417Mt is significant, representing over 20% of this total, rice rarely has an impact on overall international grain markets. This is probably because only a small percentage of rice is traded internationally with most of rice consumed very close to where it is grown. With record rice production forecast, consumption is also projected to be a record.

USDA limits its May forecast for oilseeds to supply, leaving its initial assessment of demand prospects until June. It forecasts 2006/07 global oilseed production at 390Mt, down very slightly from last year, but none-the-less the first decline in annual output since 1995/96 (Graph 2). The projection suggests that lower US output will be partially offset by limited increases elsewhere in the world. Supplies next season will continue to increase, to 455Mt, as carryover is projected to increase by 10Mt this year, almost entirely the result of increased soyabean carry-over in the US.

David Walker 001 780 434 7615