Ah, rice. Once the definitive accompanying side dish. The “maybe” I will “maybe” I won’t food group. The muted complement to one’s organically-farmed chicken Thai green curry.
Not for much longer, say Standard Chartered. Quoting the International Rice Research Institute, they say the credit crunch will soon see the foodstuff become a relative delicacy in many global households. They write:
…demand for rice will increase as the global recession forces lower-income households to eat more rice in place of more expensive protein, and this could squeeze prices higher. This is supported by USDA data, which shows rice demand growing by 5mt this season, much higher than the 4mt increase in supply.
Unsurprisingly, while rough rice prices have fallen along with other soft commodities, their fall hasn’t been quite as dramatic.
The trend in CBOT rice prices since June is notable. The market staged a V-shaped rally between August and September, as other soft commodity prices plummeted. In fact, RR futures dropped only 5% q/q in Q3-08, at the height of the commodity downturn, even as soft commodities (measured by the DJ Agricultural index) fell over 35% q/q.
Standard Chartered sees two possible scenarios unfolding though. One, where added demand sees consuming countries panicking over stocks again. It reminds India still has an export ban in place. While the chances of the likes of Thailand and Vietnam following suit are slim, the reaction of smaller exporters will be worth monitoring, the bank says.
The second scenario sees the credit crunch curtailing supplies due to farm financing pressures. They explain:
There are increasing signs that the credit crunch could affect agricultural supplies next season (2009/10), with milling capacity, pre-season financing and poor profit margins likely to affect planting intentions in Asia, particularly for smaller holdings and independent farmers. Should supply drop without an accompanying fall in demand, the effect would be bullish for prices over the next crop cycle.
While these are all longer-term bullish signals, they do warn, however, not to load up on rice just yet. In fact, for the short-term, the bank says there is further room for prices to fall on an account of the current global grain surplus. Although, that is specifically the case for Asian rice prices – they are less bearish on CBOT rice futures, which they see bottoming in Q4.
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