New Rice Price Spike

“Without rice, even the cleverest housewife cannot cook” - Chinese Proverb

In March to May 2008, there was a “super-spike” in the global price of rice. Droughts in major producing countries like Australia created a shortfall of rice that resulted in panic buying and stockpiling. The price of rice returned to normal once everyone realized that there was still enough rice to meet global demand, i.e. no storage.

Fast forward to this year and the return of the spike. The weather this year was terrible for rice. India had its driest monsoon season in four decades and has halted all rice exports except for high quality basmati. India will eat all the rice it produces. A series of typhoons destroyed crops in the Philippines so that country is going on a buying spree. Other rice countries experienced droughts because of El Niño. Global rice stockpiles are at their lowest since 1976. “It feels a little like early 2008,” said Frederic Neumann, an economist at HSBC in Hong Kong. “Prices can quickly escalate if jittery consumers and public officials see supply risks looming, even if these are more perceived than real.”

Rice traders are divided on what to do. The world’s largest rice buyer, the Philippines, is buying now for 2010 but others are waiting for the spike of 2009 to fall like it did last year. However 2009-2010 might be worse than last year. According to the US Department of Agriculture, global rice output will fall to 432 metric tons in 2009-10 while demand is estimated at 437 metric tons. A small gap but a true shortage.

Bottom Line

If you can buy rice cheaply for food storage, do so. Otherwise wait until 2010-2011 for this new “spike” to hopefully fall.