Rice Run Prompts Curbs to Rival Credit Market Seizure|
By Marianne Stigset and Tony Dreibus
(Bloomberg) -- From Cairo to New Delhi to Shanghai,
the run on rice is threatening to disrupt worldwide food supplies
as much as the scarcity of confidence on Wall Street earlier this
year roiled credit markets.
China, Egypt, Vietnam and India, representing more than a
third of global rice exports, curbed sales this year, and
Indonesia says it may do the same. Investigators in the
Philippines, the world's biggest importer, raided warehouses last
month to crack down on hoarding. The World Bank in Washington
says 33 nations from Mexico to Yemen may face ``social unrest''
after food and energy costs increased for six straight years.
Rice, the staple food for half the world, rose 2.4 percent
to a record $21 per 100 pounds in Chicago today, double the price
a year ago and a fivefold increase from 2001. It may reach $22 by
November, said Dennis DeLaughter, owner of Progressive Farm
Marketing in Edna, Texas.
``Rice will gain substantially over the next two years,''
said Roland Jansen, chief executive officer of Pfaffikon,
Switzerland-based Mother Earth Investments AG, which holds 4
percent of its $100 million funds in the grain. Governments will
likely maintain curbs on exports ``because those countries want
to be able to continue to feed their own populations,'' he said.
The upheaval parallels turmoil in global capital markets
that seized up nine months ago when subprime mortgages collapsed.
The difference between what it costs the U.S. government to
borrow and the rate banks charge each other for three month loans
ended last week at 1.36 percentage points. A year ago the gap was
0.33 percentage point.
Driving Up Prices
``Just like in the credit markets back in the first quarter
of this year where people were not lending money to each other,
they're not giving rice to each other,'' David Darst, chief
investment strategist at Morgan Stanley Global Wealth Management,
said in a Bloomberg Television interview in New York.
Rice growing nations are driving up prices for producers
that want to sell abroad. The Vietnam Food Association said April
2 it asked members to stop signing export contracts through June,
following China, which imposed a 5 percent tax on exports as of
Jan. 1. Egypt banned rice shipments through October.
Prices ``are not coming back to the levels we came from,''
said Mamadou Ciss, head of Singapore-based rice broker Hermes
Investments Pte Ltd. Vietnam's 5 percent broken-grain rice may be
40 percent higher within three months, he said.
Record grain prices are stoking inflation. Wholesale costs
in India rose 7 percent in the week ended March 22, the fastest
pace in more than three years, underscoring the threat from
rising food costs, the Ministry of Commerce and Industry in New
Delhi said April 4.
The increase may boost profits for suppliers. Padiberas
Nasional Bhd. rose the most in seven years in Kuala Lumpur stock
exchange trading last week. The company is Malaysia's only
licensed rice supplier.
Goldman Sachs Group Inc. forecasts that all agricultural
commodities it covers will rise during the next six months,
except for sugar. Global cereal demand will expand 2.6 percent
this year, 1.6 percentage points above the 10-year average,
according to the Food and Agriculture Organization in Rome.
The UBS Bloomberg Constant Maturity Commodity Index of 26
raw materials gained for six consecutive years and advanced 15
percent this year.
``We have some very serious problems developing globally for
food and energy,'' said Greg Smith, executive director of Global
Commodities Ltd. in Adelaide, Australia, which manages $350
World rice stockpiles are at their lowest levels since the
1980s, and the United Nations forecasts that exports will drop
3.5 percent this year.
Demand will increase 0.6 percent this year to 422.5 million
tons, while production will rise about 1 percent to 422.9 million
tons, the U.S. Department of Agriculture said March 11.
Rice yields globally expanded more than 40 percent from 1980
to 2000, according to data compiled by the USDA. They've
increased only about 5 percent since then, the data show.
Stockpiles will fall to 75.2 million tons, about half of where
they were at the start of the decade, the USDA said.
There have been no significant advances in rice-seed
technology in at least four decades, said Mehdi Chaouky, a
London-based agricultural analyst with Diapason Commodities
Management SA, which oversees $8 billion.
The so-called Green Revolution in the 1960s and 1970s
introduced better seeds, technology and irrigation and chemical
fertilizers to farming. That improved yields and buoyed food
production, according to the FAO.
Some analysts say buyers in Thailand and Vietnam are
hoarding grain and may release it in coming weeks, causing prices
to drop. Another risk for speculators is that the increase will
lead farmers to grow more crops. Wheat rose to a record $13.495 a
bushel in February before dropping as much as 34 percent in the
next five weeks, partly on expectations for more planting.
``There are lessons to be learned from what happened in the
wheat market,'' said Darren Cooper, a senior economist with the
International Grains Council in London. ``The market will adjust,
and moving forward we will see some restrictions on demand.''
For now, governments are limiting exports to ensure they
have enough food at home. Vietnam, the third-biggest rice
exporter after Thailand and India, will reduce shipments 11
percent this year to 4 million tons, Prime Minister Nguyen Tan
Dung said March 30.
``Bread is losing its place as the main staple food and rice
is replacing it, and this created the problem,'' Ali Sharaf
Eldin, chairman of Egypt's Chamber of Grains, said in an April 1
Investigators in Manila caught profiteers last month who
were repackaging 20,000 fifty-kilogram bags of rice from
subsidized government supplies for sale as higher-grade grain,
according to Ric Diaz, an official at the National Bureau of
The Philippines' state-run National Food Authority allows
suppliers to sell at a subsidized price of 18.50 pesos (44.23
cents) a kilogram in low-income areas. People in the warehouse
north of Manila were preparing to market the rice as a variety
that sells for at least 35 pesos, Diaz said in a March 31
Drought is hurting plantings in China, where an estimated
19.4 million hectares (48 million acres) of arable land had been
affected by March 26, according to Xinhua, the state news agency.
Consumer prices in China, the world's fastest-growing economy,
soared 8.7 percent in February, the most in 11 years.
``A constant price rise of rice can't be viewed as
sustainable,'' said Abah Ofon, a commodities analyst with
Standard Chartered Plc in Dubai. ``As with any staple commodity,
there's a risk of social tension when prices begin to rise.''
Original article: Bloomberg
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