Rice prices to shoot up as drought, cyclones hit output
November 17, 2009
By Supunnabul Suwannakij and Luzi Ann Javier
Rice prices have nowhere to go but up as drought in India and cyclones in the Philippines cripple harvests, according to the top importer-exporter of the grain.
Rice prices might double to $1 000 (about R7 500) a ton as dry El Nino weather hit output and the Philippines and India boosted imports, said Sarunyu Jeamsinkul of Asia Golden Rice in Thailand, the largest rice exporting nation.
Prices would not peak until March, said Rex Estoperez of the National Food Authority of the Philippines, the biggest importer. The agency issued a record tender for 600 000 tons last week and yesterday called for bids for the same volume on December 8 to secure supplies before prices rise.
Global rice supplies were likely to be tighter than last year, when food shortages sparked riots from Haiti to Egypt, said Jeremy Zwinger, the president of The Rice Trader, a consulting firm in California. Escalating food prices threaten to spark unrest in developing nations while raising costs for brewer Anheuser-Busch, the biggest US rice buyer, and cereal maker Kellogg.
Grain strain
"The demand-supply situation will be extremely tight with India coming in the market," said Mamadou Ciss, a rice broker and the chief executive at Hermes Investments in Singapore.
The Thai benchmark export price would likely rise at least 20 percent to between $650 and $700 a ton in the next three to five months. "The market can even touch $2 000 a ton in the middle of 2010," Ciss said.
The Thai price may soar to last year's record of $1 038 a ton, according to the highest estimate in a survey last week of 10 importers, exporters and analysts in the Vietnam, Thailand, India, Singapore and Pakistan. The median estimate was $700 and the lowest $600, compared with $542 yesterday.
On the Chicago Board of Trade prices of long-grain rough rice have jumped 35 percent from this year's low of $11.195 per 100 pounds ($ö a ton) on March 16. Futures reached a record $25.07 in April last year as concern about supply shortages urged India and Vietnam to cut exports. The contract was at $15.035 yesterday evening in Singapore.
India may become a net importer for the first time in two decades. The nation's weakest monsoon since 1972 will cut domestic output 15 percent to 84 million tons in the marketing year that began last month, according to the UN Food & Agriculture Organisation (FAO). Consumption will be 89 million tons, according to Concepcion Calpe, an economist at the FAO.
The Philippines is accelerating imports for next year's supplies after two storms destroyed about 1.3 million tons of rice. The state-run National Food Authority planned to buy 1.45 million tons by December, including the scheduled purchases of 1.2 million tons in two record tenders next month, Romeo Jimenez, the director at the food buyer, said yesterday.
Rice's looming rally contrasts with sagging prices for other agricultural commodities.
"There is a strong possibility we'll see a rice crisis next year as India faces drought, and Indonesia may feel the pinch of El Ni241o weather," Asia Golden Rice's Sarunyu said this month. Prices might top $1 000 a ton should the Thai government maintain its stockpiles rather than export them.
An El Ni241o weather pattern is brewing, with sea surface temperatures 1186C above average across the central and east-central equatorial Pacific in the month to November 7, a recent report by the US Climate Prediction Centre showed.
Food summit
The FAO is holding a world summit on food security this week. Food prices in 31 poor countries remained "stubbornly high", the organisation's Jacques Diouf said recently, and more than 1 billion people suffered from hunger.
The FAO food price index gained for a third month to 158 last month. The index peaked at 213.5 points in June 2008 before plunging to 139 in February amid the downturn.
Rice output had lagged demand in four of the past eight years and rising consumption was expected to erode global stockpiles by 41 percent to 85.9 million tons in the 2009/10 marketing year, down from a record 146.7 million tons in 2001/02, said the US Department of Agriculture (USDA).
"If we start having problems, weather problems... the price of rice is going to skyrocket in the next decade," Jim Rogers of Rogers Holdings said last month. "When it happens I don't know. But I know that the fundamentals are ripe."
Farmers struggle to squeeze more crops from each acre while demand increases with the world population. Limited growth in yields was "a major reason for the imbalance between long-term demand and supply", said the International Rice Research Institute. Average annual yield growth slowed to 1.4 percent from 1990 to 2005, down from 2.14 percent in the previous two decades.
In March last year, global food prices soared 57 percent from a year earlier, the UN said. Forty people died in riots in Cameroon and seven died in Haiti in violence over food shortages. The FAO reported food-related violence in Burkina Faso, Egypt, Indonesia, Ivory Coast, Mauritania, Mozambique and Senegal. In the US, stores limited bulk rice sales.
Global rice harvests would drop 2.3 percent to 448.6 million tons in the 2009/10 year from 459 million a year earlier because of the crop losses in India and the Philippines and cyclones, landslides, flooding and earthquakes that reduced production in Japan, Nepal, Pakistan and Taiwan, the FAO said.
Rice fields in the western hemisphere also suffered.
Wheat substitute
The US crop had been "severely damaged" in the Mississippi River Delta, while drought cut plantings in South America's largest producing region, the Mercosur, said Dwight Roberts of the US Rice Producers Association in Houston.
"It doesn't take a genius to see we are in a real tight situation," Roberts said.
As production suffers, demand will rise 1.2 percent to 451.3 million tons from a year earlier, according to the FAO.
The potential for lost production to send prices to records would be limited by a record wheat harvest and ample rice stockpiles, Calpe said.
Kellogg declined to comment on its rice use. Last year, after grain prices leapt to records, the maker of Rice Krispies announced at least three price increases for US breakfast cereals.
"While commodity costs have fallen as we expected, we're still seeing overall cost of goods inflation versus last year," chief executive David Mackay said last month.
Thai rice inventories of as much as 6 million tons, triple the 2 million tons of last year, were "a huge amount, if you took into account that total trade is 30 million tons", Calpe said. "I'm pretty sure they will have to release them soon."
World wheat stockpiles rose 36 percent to 165 million tons this year from last year. Consumers can turn to bread and wheat when rice prices jump.
"Do not extend what we saw in 2008 to the situation we have now," Calpe said. "If in the 2010 season we again face problems, then we will worry."
Sales to India and the Philippines would determine how high prices went, said economist Samarendu Mohanty of the International Rice Research Institute.
Record imports
The Philippines held its first tender for supplies a month earlier than usual and may boost imports 30 percent to a record 2.6 million tons, the USDA forecasts.
India's reserves, normally 20 percent of its consumption, were plunging as output fell faster than demand, said The Rice Trader's Zwinger.
The Indian harvest would drop 16 percent, shrinking stockpiles to 9.9 million tons by October 2010 from 17 million a year earlier. The country might buy as much as 3 million tons abroad next year, becoming a net importer for the first time in 21 years, Mohanty said.
"If India imports 3 million tons, they'd become the world's biggest importer," said economist Mark Welch of Texas A&M University in College Station. "Three million tons disrupts natural trade as they normally don't import any."
Three state-owned traders issued tenders for 30 000 tons last month. The response to offers has not been announced, with one potential buyer, MMTC, saying last week it would not buy rice at "high prices".
"A country like India, or China... they can absolutely not rely on a very thin market" for imports, Calpe said. "They are market makers. If they come to the market to buy, they will see prices sky-rocket." - Bloomberg
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