Commodity Trading on the International Market- Global rice sector claims surge in prices certain to continue |14 December 2007

Speculative buying based on strong export demand saw the March rough rice futures contract at the Cbot reach $13.45 per hundredweight - 5¢ per hundredweight above the previous high on monthly continuous charts.

Rice has been rising steadily in price for some time. As a staple food of an expanding section of the global population, most notably in India and China, rice production has struggled to keep up with demand, and reserves are at their lowest for years.

The strong demand for US exports, to which the record price has been widely attributed, is due to this and severely depleted competition.

Number one contender for the top rice exporter crown, Vietnam, bowed out of the competition after weather hit its crop, leading to an export quota in order to satisfy domestic demand and an effective ban on exports from mid-November. Vietnam will not return to the contest until the next crop begins to come through in March.

India failed to step up the mark after a poor crop prompted restrictions which effectively limit exports to high quality basmati rice. 

Minor players have also experienced problems. For example, after two years of drought, Australia formally informed Taiwan that it will not be able to participate in rice tenders.

The situation means rice is avoiding its traditional lull at this time of year. While most market watchers believe the price will go higher, just how high varies significantly. 

Recent developments have placed the onus on Thailand. Vichai Scripraset, president of the Thai Rice Exporters' Association, told The Public Ledger he believes prices might double from their current levels.

He said that Thai long grain white rice 100% B-grade, for instance, is fetching less than $400 a tonne f.o.b Bangkok, while a biofuel crop would fetch $600 a tonne. “Food for human consumption is less important tham fuel for the engine,” he lamented. 

Mr Scripraset believes something has to happen quickly, saying: "The market mechanism will have to change the situation, so that food for humans is more important than fuel."

 He predicted that a similar scenario to the oil crisis of the early 1970s will unfold and, although rice prices are yet to fully emulate crude oil's steady rise towards the $100-abarrel level, rice prices will ultimately rise proportionately. Mr Scripraset forecasted a price of $1,000 a tonne for Thai rice – the equivalent of double current levels. He said this upward trend would apply to global prices. 

In Thailand, the government compounded the problem by setting rice prices paid to farmers too high when wooing the rural vote. The resulting stockpiles have since been auctioned off to take advantage of rising prices.

Mr Scripraset said that stocks had fallen to the region of 2m tonnes from 5m to 6m tonnes. This has suppressed price rises, but once the reserves are gone, prices are likely to shoot up.
David Coia, vice president for communications at the USA Rice Federation, believed any further increases in US rice prices would be more modest but hoped that the grain would remain strong in price to enable it to compete for land and clean water against other crops.

Ben Savage of UK broker Jackson predicted price rises would be limnited by the ability of some of the top importers, particularly in Africa, to pay much more. There were already problems with existing prices and the rising cost of freight.
From The Public Ledger (www.public-ledger.com)

Fuel Prices

As at 13th December 2007

Petrol (Bennzin)        R 5.02     a litre cif

Diesel                     R 5.45    a litre cif