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Record Rice Crop May Let India End Export Ban, Capping Cost

Record Rice Crop May Let India End Export Ban, Capping Cost
A worker scoops rice at a mill in Mandya, India. Photographer: Namas Bhojani/Bloomberg

Rice production in India, the second-largest grower, may climb as much as 7 percent to a record as normal monsoon rains spur planting, likely helping the country ease export curbs and potentially limiting global food costs.

Output of monsoon-sown rice may advance to 86 million metric tons in the 2011-2012 season starting June 1 from 80.4 million tons this year, said Tarsem Saini, president of the Federation of All India Rice Millers Association, in a phone interview from the Indian city of Patiala yesterday.

A record harvest may prompt India to scrap a ban on shipments, increasing world supplies and capping food costs the United Nations says reached a record in February. Rice, the staple for half the world, surged to a record $25.07 per 100 pounds in Chicago in 2008 after nations including India, China and Vietnam curbed shipments, spurring unrest from Haiti to Egypt. Futures gained 30 percent in the past year.

“The key has always been the weather, and if you have a record crop, the government will re-initiate exports and you’ve got more on the market,” Jonathan Barratt, managing director at Commodity Broking Services Pty., said by phone from Sydney today.

Prices may drop as much as 14 percent to $13 per 100 pounds in the third quarter as the market responds to crop progress in India, said Barratt. July-delivery rough-rice contract fell as much as 1.3 percent to $14.995 per 100 pounds on the Chicago Board of Trade, before trading at $15.17 at 5:43 p.m. in Mumbai.

‘Comfortable’ Supplies

India banned exports of all grains except the costlier basmati variety to cool prices and bolster supplies in April 2008. The government allowed overseas sales of 150,000 tons at a minimum price of $850 a ton as a one-off transaction in February. State reserves totaled 27.8 million tons May 1, more than double the level five years ago, said Food Corp. of India.

The country has “comfortable” domestic supplies of rice, wheat and sugar and should allow exports, Farm Minister Sharad Pawar said on April 20. The government has delayed lifting the ban while it builds stockpiles to run programs giving subsidized grain to the poor in years of shortages. The country may give cash instead in future, Food Minister K.V. Thomas said on May 25.

“With huge stocks, far in excess of requirements, the government may allow a limited quantity for exports,” said D.P. Singh, president of the All India Grains Exporters Association. “They should allow at least 5 million tons,” he said. Global trade is about 31 million tons, estimates the U.S. Department of Agriculture. There is no proposal at the moment to end the ban, said N.C. Joshi, spokesman at the Food Ministry.

Just Enough

The global harvest this year will likely be just enough to meet demand, leaving little cushion for any losses from drought in China or monsoon problems in India, Robert Zeigler, director-general of the International Rice Research Institute, said on May 19. Output may be 450 million to 460 million tons in 2011-2012, while demand is forecast at 450 million tons, he said.

Zeigler’s forecast compares with the May 11 outlook from the USDA, which estimated the harvest at 457.858 million tons in 2011-2012, trailing demand at 458.73 million tons.

India aims to harvest 87 million tons of monsoon-sown rice and 15 million tons of the winter variety, according to the farm ministry. Farmers plant the crop twice a year. The country produced a record 84.9 million tons in 2008-2009.

“Production will definitely rise” if there is a normal monsoon, said Saini, whose group represents about 40,000 rice millers. “The government has no space to store its rice.”

Early Monsoon

The monsoon, which brings more than 70 percent of the country’s rainfall, reached the mainland in southern Indian states of Kerala and Tamil Nadu states May 29, two days earlier than forecast, aiding the sowing of rice, soybeans and cotton.

A good monsoon alone won’t increase the harvest because farmers make planting decisions based on prices of various competing crops, Saini said. The government will need to raise the minimum price it guarantees to farmers, he said.

The government sets the minimum prices of agricultural crops to protect farmers from distress sales and is the country’s biggest buyer of rice and wheat.

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