Rice Prices Spike to Highest Level Since 2011

Date: Friday, June 12, 2020
Source: The Wall Street Journal

Surging demand from coronavirus lockdowns and global weather issues have dented rice availability

Rice futures spiked to their highest level in nearly nine years after the global pandemic boosted shoppers’ demand for the grain.

One measure of prices has soared 47% in the last two weeks to touch its highest level since November 2011, making rice one of the fastest-climbing major commodities in the recent market rally. Front-month rough rice futures on the CME traded as high as 23.565 cents per hundredweight Friday before giving up some of that gain in recent sessions. The front-month contract closed at 17.57 cents per cwt Tuesday.

The surge has been fueled by a spike in retail sales, with consumers stocking up on essentials during pandemic lockdowns. Through 13 weeks ending May 30, retail rice sales were up nearly 40% versus the same time last year, according to data from Nielsen.

That increase in demand met a lower-than-expected supply. Rice production in the U.S. in 2019 fell 17% to 184.7 million cwt—or roughly 18.5 billion pounds, according to data from the U.S. Department of Agriculture. That’s because record rainfall that hit the U.S. Corn Belt last spring also affected states such as Arkansas, Missouri, Mississippi, Louisiana and Texas, where most U.S. rice is grown.

“The same issues that plagued corn and soybean crops also affected rice,” said John Newton, chief economist with the American Farm Bureau Federation.

A much more hospitable spring planting season this year means that the price increase may prove temporary, said Mr. Newton. The USDA is forecasting U.S. rice production at 216.2 million cwt this year, essentially a full rebound.

“Until that new crop hits the market, you’ve got a tight supply,” said Mr. Newton.

Rice export prices have been climbing in Asia as well, even after major producers like India and Vietnam dropped their pandemic-related export bans on rice supplies. Drought conditions in Thailand have pushed export prices of Thai rice higher, with white glutinous rice costing $1,133 per metric ton, up 1.4% from last month, according to the Thai Rice Exporters Association.

The coming monsoon season in Southeast Asia—which usually begins in July and lasts until September—will likely create more disruption in Asian rice prices. This affects several of the world’s top producers, including India, Indonesia, Thailand and Vietnam. Accordingly, much of the demand reported by Thai exporters is coming from other nations in Asia and Africa.

“Monsoon season is only a month away and with supplies already tight due to high export demand and a rice crop that is in the middle of growing season in the U.S., U.S. mills and other mills around the world want to also ensure they have enough to meet demand,” said Josh Graves, a senior market strategist with Chicago-based futures broker RJO Futures.

In India—the second-largest producer of rice world-wide—outbreaks of Covid-19 have slowed export activity from the country’s ports and made cargo containers scarce. “Indian ports face a 50-60% shortage in cargo containers, which has resulted in a 32% increase in container freight costs,” says the USDA. “This has particularly hurt basmati rice exporters who have been unable to secure enough containers to ship their products.”

Even so, 2020 rice production is expected to top that of last year. The USDA projects that world-wide production of rice will rise 1.7% from 2019 to exceed 500 million metric tons—which would set a new record.

Meanwhile, agricultural traders are likely attempting to take advantage of short-term supply disruptions to cash in on normally sleepy rice futures, said Mr. Graves.

“The real driver of this could be a short squeeze and the real ‘emotional greed’ aspect of ‘missing out’ on another big commodity run that happens every so often,” he said.

 

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