Bloomberg News

Rice May Drop as FAO’s Calpe Predicts Abundant World Supply

June 17, 2011

(Adds global stockpile forecast in seventh paragraph.)

June 17 (Bloomberg) -- Global rice prices may decline as increased harvests in the biggest producers exceed demand and boost stockpiles, according to the United Nations’ Food & Agriculture Organization.

“World rice supplies appear to be abundant and more than sufficient to meet world demand,” Concepcion Calpe, a senior economist at the U.N. agency known as the FAO, said in e-mailed comments, without giving figures. Global output may climb 1.8 percent to 463.8 million metric tons in 2010-2011, beating demand of 459.6 million tons, according to projections in the FAO’s June Food Outlook report.

At stake is the cost of the staple for half the world, a key source of nourishment for the poorest who spend more than half their incomes on food. Lower prices would help curb global food costs that surged to a record in February and ease the challenge for central bankers, under pressure to raise interest rates to combat accelerating inflation.

“There is still plenty of rice knocking around,” Darren Cooper, a senior economist at the International Grains Council, said in a telephone interview yesterday. The London-based agency promotes global food security and transparency in grain markets.

Rough-rice futures in Chicago have climbed 27 percent over the past year, lagging behind corn, which has surged 73 percent, and wheat, up 48 percent. Rice’s underperformance may be “separating us from a food crisis.” Abdolreza Abbassian, a senior economist at the FAO, said in March.

Barratt’s Call

Increased supplies may extend rice’s 15 percent slump from this year’s high, cutting the price to $12 per 100 pounds over the next month and a half, said Jonathan Barratt, managing director at Commodity Broking Services Pty., who correctly called last year’s gain to $15. The July-delivery contract was at $13.88 on the Chicago Board of Trade at 8:49 a.m. in London after losing 0.9 percent.

The “pressure for prices to decline may persist in the coming months, barring any major supply shock,” Calpe said. India, the second-largest grower, is set for “an excellent season,” while output in China, the biggest producer, may be “slightly higher” even after drought, Calpe said. Global stockpiles may gain 3.3 percent to 136.7 million tons in 2010- 2011, according to the Food Outlook report.

The FAO’s World Food Price Index climbed 37 percent over the past year on harvest disruptions and increased demand. The increase helped drive 44 million more people into extreme poverty, according to a World Bank estimate. Record global food costs squeeze the poor hardest as they can spend more than half of their incomes feeding themselves, according to a Feb. 15 estimate from World Bank President Robert Zoellick.

Global Regulation

The food-price surge is boosting inflation, spurring central banks from China to India and Brazil to raise interest rates, potentially curbing consumer spending and slowing economic growth. Agricultural futures markets need global regulation because price swings are damaging producers and consumers, French President Nicolas Sarkozy said in June.

To be sure, any change in rice policies in Thailand and Vietnam may push prices higher, Calpe said. The biggest and second-largest shippers represent about half of the global trade in rice and both may have bigger harvests this year, according to government projections.

In Thailand, Yingluck Shinawatra’s Pheu Thai party plans to reinstate a policy introduced by her brother, fugitive former leader Thaksin Shinawatra, to buy unmilled rice at 15,000 baht ($490) per ton if it wins polls set for July 3.

Exporters’ Costs

That would raise costs for exporters and boost the price of shipments to about $750 per ton, according to a survey of eight millers and traders. Benchmark 100 percent grade B Thai rice was set this week at $527.

The key factor “in the next six months is what happens in Thailand post the election,” said Cooper at the International Grains Council. The Thai opposition party’s proposal “could take quite a bit of supply off the market which would obviously benefit exporters in Vietnam.”

The main Thai harvest in 2011-2012, which represents 70 percent of total output, may gain 4.6 percent to a two-year high of 23.2 million tons in the year starting October, according to the farm ministry. This year’s secondary crop, harvested through to next month, may climb 6.3 percent to a record 9.42 million tons, the Office of Agricultural Economics, a forecaster under the farm ministry, said on its website on April 21.

Vietnam may stockpile 1 million tons of the summer-autumn crop under a Vietnam Food Association plan to prevent a fall in prices when output from the harvest peaks in mid-July, Diep Kinh Tan, a deputy minister of agriculture, said by phone on June 15. Current holdings total about 1.2 million tons.

Vietnam’s unmilled production is forecast to increase 2.3 percent to 40.8 million tons in 2011, according to a report from the Ministry of Agriculture and Rural Development in May. Exports this year may be as much as 7.4 million tons, the agricultural ministry said on April 8.

“Vietnam stockpiling and Thailand’s high support price policies would both tend to lift export prices,” Calpe said.

--With assistance from Supunnabul Suwannakij in Bangkok, Nguyen Dieu Tu Uyen and Nicholas Heath in Hanoi. Editors: Jake Lloyd-Smith, Jarrett Banks

To contact the reporters on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net; Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net Nicholas Heath in Hanoi at nheath2@bloomberg.net

To contact the editor responsible for this story: James Poole in Singapore at jpoole4@bloomberg.net


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