Wednesday, March 12, 2008

Is the World Running Out of Rice?

At the outset I must stress that I have an active financial involvement in the Chicago rice market (the futures are traded in the Mansfield Trading Room at the Chicago Board of Trade) and I have a futures position in rice. Additionaly this post is in no way an endorsement of any trading positions that could be taken in agricultural cash, futures or option markes. Btw, the Mansfield Room is named after Eddie Mansfield who manned the entrance to the trading floors from the 1920s until I think, the early 1990s.

The Philippines has run out of their food staple, rice, and they are frantically trying to source it from around the world. They are not having the success that they need to have, the Filipino government bought rice in Manila Monday at prices that were up 30% to 50% from January and they could only get about half of what they wanted. They came to the US yesterday and bought one fifth of what they bought Monday. They are in trouble, if you have friends or family in the Philippines send them packages of food staples, they might need them. The shortages in the Philippines are attributable to a drought last year in their Luzon province and a multiple year drought in Australia.

To those local problems you can add relatively tight supplies in the world's largest exporter Thailand, flooding and pest problems in the second largest exporter, Vietnam (they even shut off letting new export contracts for a time late last year), below average crops in India, the Middle East and northern Africa, the virtual loss of Bangladesh added to burgeoning demand and you have problems in the world of rice.

China is the bull in the china shop so to speak and it is nigh impossible to figure out their agricultural situation, making their traders seem supernatural at times. In my career I have come to accept the fact that China is so large that entire areas of that country can have weather problems and they will still make a crop. The past few years have been different as they have waded more aggressively into the world's rice market, especially the high end varieties. As the Chinese people grow wealthier they want better food and one of the popular foods these days has been "fragrant" or Basmati rice. The fragrant rice varieties are truly wonderful tasting and smelling thus they command a large price premium to more pedestrian varieties. An American variety of fragrant rice is Texmati, sometimes referred to as "popcorn rice" for the smell it makes while being cooked. Basmati is the only rice variety that India will currently allow for export and the Indian government has actually been sporadically patrolling their borders for smugglers with 50 pound sacks of rice, now that is extreme. The rice world has also seen a boom in demand from growing economies in the Middle East and Africa.
The CBOT web site is here.

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Blogger Publia said...

This is a very interesting post.

Rice smuggling and flour smuggling in Asia; are cheap, fungible, staple commodities the new gold?

My sarcastic dog has of late been enjoying Basmati rice with his food. He puts up his head, sniffing curiously while it is cooking. Meanwhile, as the price of rice continues to soar, I keep buying it in bigger sizes.

11:49 AM  
Blogger El Rider said...

I am sure that the sarcastic dog is a very happy dog!

6:55 PM  

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