MAY 25, 2009
By IAN BERRY
The Wall Street Journal
CHICAGO -- A year after prices soared to record levels amid panic over supply shortages, rice appears to be plentiful and the market is in the midst of a prolonged slump.
The stalled global economy, large Asian crops and a move by governments to loosen their grip on stocks have conspired to keep prices under pressure for months, analysts said.
Friday, nearby July Chicago Board of Trade rice futures fell seven cents to settle at $12.055 a hundredweight, down from $15.63 on the first trading day of 2009. On April 24, 2008, the nearby contract hit a high of $24.85.
Although the market has had brief rallies and remained range-bound at times, the trend has been lower since the start of the year.
"The markets can collapse, they can rise, but they can also just sort of grind down," said Milo Hamilton, co-founder of advisory firm firstgrain.com. "And that's what we've been seeing."
[Indonesia rice photo] Associated Press
A Balinese woman bundles rice before drying those during a harvest in Jati Luwih, Bali, Indonesia.
Rice's performance is in contrast to other grain markets. It also is a departure from last year when fears of shortages sparked food riots internationally.
Looming over the market are large supplies in some Asian countries, which, unlike last year, are willing to part with some of it. Thailand is expected to unload some of its stocks into the market, with the U.S. Department of Agriculture projecting 2009-10 exports of 8.5 million metric tons after the country was a net importer in 2008-09. India is expected to end its export ban, as well as its ban on rice-futures trading.
Some countries, such as Indonesia and Bangladesh, are expected to curb imports.
The USDA projected world rice production for 2009-10 at a record 448.1 million tons, up 4.5 million from the current year.
"Large crops are projected for most of Asia, including record crops in Bangladesh, Cambodia, India, Indonesia, the Philippines, and Thailand; and a near-record in Burma and Vietnam," the report said.
The seeds for the current bear market were sown during last year's bull market, some analysts said.
Mark Creed, president and chief executive of brokerage Creed Rice Co., said growers "undoubtedly responded to high prices" and planted more rice. Governments also intervened to encourage growers to plant more rice and pursue higher yields, he said.
He said would-be buyers have been "constipated" with high-priced stocks purchased last year.
"There's no question that what happened last year was extremely detrimental to the overall process of the market," Mr. Creed said.
Analysts mostly agree that there was no shortage of rice last year; the problem was that some countries decided to ban exports. Now, Thailand and India are expected to slowly release supplies.
"They're sitting on it; they're still not selling it much yet, but eventually they're going to have to," said Jack Scoville, vice president of brokerage Price Futures Group.
In the face of large supplies and a market that shows no signs of returning to last year's highs, buyers have largely retreated to the sidelines, analysts said.
"Basically, people are buying hand to mouth," firstgrain.com's Mr. Hamilton said. "When you have those large supplies in countries, there's always an opportunity for the buyer to think he can get a better price some time."
Analysts disagree as to how bearish the current market is, and how long prices will continue to drag. Some said the market needs a surprise buyer, which they said seems unlikely.
Mr. Creed said the most obvious way the market could get a jolt is from a natural disaster. He said large supplies could loom over the market through the first half of 2010, although he said that others don't think prices will suffer for that long.
The market's swoon has been driven by supply, he said, and a disruption of supply is how it could rebound. He said, for example, that a reduction in the Indian crop from 100 million tons to 80 million tons, perhaps because of an unusual monsoon season, could change the market's outlook in short order.
Jeremy Zwinger, president and CEO of the Rice Trader, a trade publication, said the long-term supply situation isn't as bearish as it seems to some. Stocks-to-use ratios still are low, he said, and supplies are a product of strong crops.
"You don't have record world crops every year forever," Mr. Zwinger said. "You need to have a record crop every year to be able to keep up with the population increase. If you dropped down to the [production] level of five years ago today, you'd have massive issues."
He said the biggest factor in the market's climb last year and its plunge this year hasn't been supply and demand, but the dollar. It was weaker last year and has rebounded, but Mr. Zwinger and others expect it to plunge again. That will make prices higher, he said.
The stalled global economy, large Asian crops and a move by governments to loosen their grip on stocks have conspired to keep prices under pressure for months, analysts said.
Friday, nearby July Chicago Board of Trade rice futures fell seven cents to settle at $12.055 a hundredweight, down from $15.63 on the first trading day of 2009. On April 24, 2008, the nearby contract hit a high of $24.85.
Although the market has had brief rallies and remained range-bound at times, the trend has been lower since the start of the year.
"The markets can collapse, they can rise, but they can also just sort of grind down," said Milo Hamilton, co-founder of advisory firm firstgrain.com. "And that's what we've been seeing."
[Indonesia rice photo] Associated Press
A Balinese woman bundles rice before drying those during a harvest in Jati Luwih, Bali, Indonesia.
Rice's performance is in contrast to other grain markets. It also is a departure from last year when fears of shortages sparked food riots internationally.
Looming over the market are large supplies in some Asian countries, which, unlike last year, are willing to part with some of it. Thailand is expected to unload some of its stocks into the market, with the U.S. Department of Agriculture projecting 2009-10 exports of 8.5 million metric tons after the country was a net importer in 2008-09. India is expected to end its export ban, as well as its ban on rice-futures trading.
Some countries, such as Indonesia and Bangladesh, are expected to curb imports.
The USDA projected world rice production for 2009-10 at a record 448.1 million tons, up 4.5 million from the current year.
"Large crops are projected for most of Asia, including record crops in Bangladesh, Cambodia, India, Indonesia, the Philippines, and Thailand; and a near-record in Burma and Vietnam," the report said.
The seeds for the current bear market were sown during last year's bull market, some analysts said.
Mark Creed, president and chief executive of brokerage Creed Rice Co., said growers "undoubtedly responded to high prices" and planted more rice. Governments also intervened to encourage growers to plant more rice and pursue higher yields, he said.
He said would-be buyers have been "constipated" with high-priced stocks purchased last year.
"There's no question that what happened last year was extremely detrimental to the overall process of the market," Mr. Creed said.
Analysts mostly agree that there was no shortage of rice last year; the problem was that some countries decided to ban exports. Now, Thailand and India are expected to slowly release supplies.
"They're sitting on it; they're still not selling it much yet, but eventually they're going to have to," said Jack Scoville, vice president of brokerage Price Futures Group.
In the face of large supplies and a market that shows no signs of returning to last year's highs, buyers have largely retreated to the sidelines, analysts said.
"Basically, people are buying hand to mouth," firstgrain.com's Mr. Hamilton said. "When you have those large supplies in countries, there's always an opportunity for the buyer to think he can get a better price some time."
Analysts disagree as to how bearish the current market is, and how long prices will continue to drag. Some said the market needs a surprise buyer, which they said seems unlikely.
Mr. Creed said the most obvious way the market could get a jolt is from a natural disaster. He said large supplies could loom over the market through the first half of 2010, although he said that others don't think prices will suffer for that long.
The market's swoon has been driven by supply, he said, and a disruption of supply is how it could rebound. He said, for example, that a reduction in the Indian crop from 100 million tons to 80 million tons, perhaps because of an unusual monsoon season, could change the market's outlook in short order.
Jeremy Zwinger, president and CEO of the Rice Trader, a trade publication, said the long-term supply situation isn't as bearish as it seems to some. Stocks-to-use ratios still are low, he said, and supplies are a product of strong crops.
"You don't have record world crops every year forever," Mr. Zwinger said. "You need to have a record crop every year to be able to keep up with the population increase. If you dropped down to the [production] level of five years ago today, you'd have massive issues."
He said the biggest factor in the market's climb last year and its plunge this year hasn't been supply and demand, but the dollar. It was weaker last year and has rebounded, but Mr. Zwinger and others expect it to plunge again. That will make prices higher, he said.
3 comments:
Oversupply and low price will discourage farmers to produce rice, and usually caused shortage the next terms. Rice shortage should be predicted in 2010 or 2011.
Spike in oil price and demand for bio fuel will aslo boost rice demand.
Cambodia should grab this chance next year!
i told you, nothing is stronger than the human determination or human mind or intention, etc... it's all in the head, my dear! we don't have to all go with the belief as much as we allow the freedom of religious beliefs, etc... but we, as a country, don'lt have to go with the some traditional belief. we can change our mind and go with the opposite direction to make it happen or make it fail completely. please be smart and study hard in college. thank you and god bless cambodia.
everybody in asia eats rice, so rice is good business. please think about it.
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