The smallest increase in rice stockpiles in five years means global grain inventories will extend a decline that already drove food costs to a record.
Combined global stores of wheat, corn and rice will drop 2.5 percent to a four-year low as farmers fail to keep pace with demand, the U.S. Department of Agriculture estimates. Rice prices will rise more than 20 percent by December as inventories expand 1.1 percent, compared with a 29 percent gain in the past four years, a Bloomberg survey of 13 millers and traders showed.
While wheat and corn prices as much as doubled last year, rice retreated as the United Nations’ global food-inflation index jumped 25 percent. Rice advanced 15 percent since May, potentially worsening the lives of the 1.1 billion the World Bank says live on less than $1 a day. Wheat fell 20 percent since the middle of February on prospects for a bigger crop.
“World rice prices had been far more stable than other cereals,” said Concepcion Calpe, a senior economist at the UN Food and Agriculture Organization in Rome. “Now this is changing and rice is rallying, the international situation is likely to worsen. Wheat may become the stabilizing foodstuff.”
Thailand, the biggest shipper, is bringing back a policy of buying rice from farmers at above-market prices for storage. Exports from Vietnam, the second-largest, may drop 6.9 percent, according to the FAO. Farmers in the U.S., the third-biggest shipper, will harvest 20 percent less after planting more corn and wheat in response to rising prices, the government says.
In Japan, radiation from a crippled nuclear plant may have tainted rice, potentially boosting imports. China may buy 600,000 tons, 55 percent more than a year earlier, after drought and rain damaged crops. Bangladesh may purchase 1.5 million tons, 850,000 more than in 2010, the FAO estimates.
Indonesia will ship in rice for a second consecutive year to bolster stockpiles, Trade Minister Mari Pangestu said July 13. Imports may almost double to 2.2 million tons this year, from 1.15 million last year, the USDA said Aug. 11.
The export price of Thai rice, the benchmark grade in Asia, will reach $700 a metric ton by the end of December from $567 now, according to the median estimate in the Bloomberg survey. That would be the highest since October 2008, a year when increasing food prices spurred riots from Haiti to Egypt.
Though USDA forecasts show there will be no global shortage of rice, with production of 456.2 million tons and demand for 455.2 million tons, about 925 million people went hungry last year, the second-highest figure on record, the UN estimates.
The organization’s index of 55 food commodities climbed 39 percent in the past year to 233.8 in June, just below the record 237.7 reached in February. The next update is in September. Rough-rice futures advanced 1.8 percent to $17.44 per 100 pounds by 8:52 a.m. in Chicago, the first gain in three days.
The USDA cut its estimates on Aug. 11 for the U.S. corn harvest by 4.1 percent and the spring-wheat crop by 5.2 percent. The U.S., the world’s largest agricultural exporter, endured the hottest July since 1955 in parts of the Midwest, the main growing region.
While combined grain inventories are dropping for a second consecutive year, they will still be 27 percent higher than in 2007. Rice prices reached a record $1,038 the following year, 48 percent more than the $700 anticipated in the Bloomberg survey. Wheat would have to climb 84 percent to match its record of $13.495 a bushel in 2008 and corn 12 percent to reach its peak of $7.9925 a bushel, set that year.
Global wheat harvests will increase 3.7 percent in the 2011-2012 season, the most in three years, the USDA estimates, potentially helping fulfill Calpe’s prediction that the grain may damp food prices. Wheat slumped as U.S. farmers planted more acres and crops in Europe survived the driest growing season in three decades.
The Standard & Poor’s GSCI Agriculture Index of eight commodities fell 11 percent since the beginning of March, while the MSCI All-Country World Index of equities lost 13 percent. Treasuries returned 6.8 percent, a Bank of America Merrill Lynch index shows.
Increased exports are also curbing grain prices. Russia, once the world’s second-largest wheat shipper, lifted an almost year-long ban in July and Ukraine eased limits on sales. Australia, the third-biggest wheat supplier, expects farmers to reap their second-highest harvest ever from October, the government estimates.
Some countries may substitute wheat for rice should prices extend their rally. That switch may happen once Thai export prices breach $600, said Badrul Hasan, the director for procurement at the Bangladesh Directorate General of Food, which imports grains for the government.
Governments worldwide are trying to cool consumer prices, in part driven by commodity costs. Even after tumbling since March, the S&P GSCI Agriculture Index is 33 percent higher than a year ago and food inflation in China, the engine of economic growth, reached a three-year high of 14.8 percent in July.
Costlier rice may contribute to faster inflation in countries dependent on imports because there are few alternatives should the biggest exporters curb sales or have less to ship. Only 7 percent of the rice that’s grown is exported, compared with about 20 percent for wheat and 11 percent for corn, U.S. government data show.
Thai exports, representing more than 30 percent of the world’s total, may drop about half after the government pledged to pay farmers above-market prices for supplies to boost incomes, Chookiat Ophaswongse, honorary president of the Thai Rice Exporters Association, said July 27. The last time a similar policy was implemented in 2008 and 2009, prices rose to a record.
“It’s not like there’s a shortage in Asia,” said Milo Hamilton, a former buyer for Uncle Ben’s, the rice unit of McLean, Virginia-based food and candy maker Mars Inc. “There’s more and more political intervention in the market to provide farmers higher prices. It’s not a supply and demand issue.”
U.S. rice production will slump 20 percent to 6.04 million tons this harvest, the steepest decline since 1984, the USDA estimates. Exports will drop 12 percent, draining stockpiles by the end of the season to a three-year low, the data show.
Vietnam will export 6.7 million tons in the year from November from 7.2 million tons a year earlier, the FAO said in a report in July.
In Japan, inventories may drop to a four-year low by the middle of 2012 after the earthquake and tsunami in March curbed harvests, the government said July 27. It ordered 17 prefectures to test rice samples for radiation before the harvest, which begins this month. The meltdown at the Fukushima Dai-Ichi power plant north of Tokyo was the worst atomic energy disaster since Chernobyl a quarter century ago.
“There’s an amazing number of factors like 2007-2008 in play,” said Jeremy Zwinger, chief executive officer of The Rice Trader, a weekly industry report based in California. “The situation has an explosive level of volatility.”
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