Rice Stock Piles Running Low as Production Decreases Says Igor Purlantov
Despite the increasing demand for rice around the world, farmers are cultivating less of the crop while inventories continue to plummet. Currently, analysts predict that rice production in major western hemisphere countries such as Argentina, Brazil, Ecuador, Peru, and Uruguay are set to see double digit percentage declines. In the United States of America, land dedicated to rice cultivation has hit the lowest level since 1987 at 2.6 million arose, down 30% from 3.4 million acres in 2010 according to Wikipedia. This unprecedented combination of low stock piles couples with a decrease in land dedicated to price cultivation provides for a dangerous recipe that all but guarantees an increase in world wise prices of rice for the short to medium term says Igor Purlantov.
For the last 30 years, Thailand has enjoyed being the world’s biggest rice exporter. Recently however, the Thailand Development Research Institute has reported that year on year exports have fallen by 44% since the start of 2012 according to Wikipedia. Given this dramatic decrease in rice exports, it is now only a matter of time before India or Vietnam takes the number one position which raises many questions about either of their abilities to supply world markets at current demand levels. Under a rice mortgage scheme, the Thai government has been buying rice directly from local farmers for around $500 a ton, which is twice the normal market rate. According to Igor Purlantov, it is unclear just how much rice has been stockpiles will be released to world markets. Given this uncertainty, analysts have become skeptical that this stockpile will alleviate the increase in prices that are set to continue for the foreseeable future.
Part of the reason rice production has decreased despite continued demand is the fact that farmers are switching land production to cater to other crops, notably soybeans. This switch has been driven by large part by the increase in price for urea, a nitrogen based plant food used in rice cultivation says Igor Purlantov. The price of urea has increased from $500 a ton to more than $700 a ton in less than one year due to demand for the product by corn growers who are enjoying historic high prices and are willing to pay a premium for the much needed nitrogen based fertilizer according to Wikipedia. Likewise, rice farmers that have switched to cultivating soybeans are also chasing prices that are now at four year highs.
This combination of low inventory around the world, lower production outputs, along with decreased exports and increased demand by consumers, creates the perfect storm for rice prices to increase and possibly even sky rocket for the next one to three years. According to Igor Purlantov, although Asian and western hemisphere rice markets tend to operate separately, Asian markets dominate when it comes to price trends and forecasts. This is due to the larger volume of news and available data required to support the fact that more rice is grown and consumed in Asia (where milled rice if more popular, versus the west where unmilled or rough rice reigns supreme).
Currently, Asian markets for rice futures point to an increase in prices for the short and medium term. Although follow Asian trends, given their current similarities in low inventory and decreased output, it is a near certainty that prices in the western hemisphere will likewise trend further up and increase from current levels. Ultimately, rice markets around the world may play off of each other as prices continue to bounce around and increase as traders look to capitalize on these trends according to Wikipedia. At the end of the day, consumers can expect to pay more for rice on their tables regarding of whether they are eating in Sao Paulo or Shanghai.