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.

Global Food Shortages?

'Each month is gay, each season nice, when eating chicken soup with rice.' -Maurice Sendak

The April edition of Scientific America asks the question, Could Food Shortages Bring Down Civilization? The author states:

For many years I have studied global agricultural, population, environmental and economic trends and their interactions. ... Yet I have resisted the idea that food shortages could bring down not only individual governments but also our global civilization. I can no longer ignore that risk. ... As demand for food rises faster than supplies are growing, the resulting food-price inflation puts severe stress on the governments of countries already teetering on the edge of chaos. Unable to buy grain or grow their own, hungry people take to the streets.

In the past century, spikes in grain prices were event driven and temporary. For example, in 1972 the Soviets quietly cornered the world wheat market before the rest of the world learned about their poor harvest. Wheat prices doubled that year but returned to normal with the next harvest. Other event-driven price increases included drought in the Soviet Union, a monsoon failure in India, and crop-shrinking heat in the U.S. Corn Belt.

But Scientific American believes the price increase in grains from 2007 and 2008 are different. These are caused by trends that are not likely to change:

• Ongoing addition of more than 70 million new people a year to feed. Yield gains in the 60s and 70s were amazing (+2% annually) but the "Green Revolution" has run its course. Global crop yields are now increasing at 1% a year while population grows at 1.2%.
• More money in China & India is allowing people to move up the food chain from a grain diet to a meat diet. It takes more grain to raise cows or pigs or chickens then to feed people directly.
• Massive diversion of grain to ethanol-fuel distilleries. The price for lower US fuel costs is more expensive global grain costs.
• Irrigation, which consumes 70 percent of the world’s freshwater, in many countries is now pumping water out of underground sources faster than rainfall can recharge them. Half of India’s traditional hand-dug wells and millions of shallower tube wells have already dried up.
• Topsoil is eroding faster than new soil forms on perhaps a third of the world’s cropland. The UN predicts that the African nation of "Lesotho faces a catastrophic future; crop production is declining and could cease altogether over large tracts of the country if steps are not taken to reverse soil erosion, degradation and the decline in soil fertility.”

Bottom Line
We don't see much said in the news but there is a growing global panic over food shortages.
- In 2007 leading wheat-exporting countries such as Russia and Argentina limited or banned their exports. Vietnam, the world’s second-biggest rice exporter, stopped exporting for several months.
- In response, nations like the Philippines are signing multi-year contracts for rice from Vietnam to ensure delivery.
-In Thailand villagers must guard their rice fields at night with loaded shotguns from “rice rustlers”.
-In Pakistan an armed soldier escorts each grain truck.
-In the first half of 2008, 83 trucks carrying grain in Sudan were hijacked before reaching the Darfur relief camps.