Rice prices have retreated from the stratospheric heights seen earlier this year, but they still stand at historically lofty levels. And even though prospects are promising for record harvests and larger stocks, the market remains highly sensitive to any signs of potential supply disruptions.

In its July supply/demand report, the U.S. Department of Agriculture (USDA) projected 2008-09 world rice production at a record 431.7 million tonnes, milled basis, up 3.7 million from 2007-08. Global consumption for 2008-09 was forecast at a record 428.25 million tonnes, up 3 million from the previous season.

With the increase in output exceeding the increase in consumption, albeit by only about 700,000 tonnes, world stocks at the end of 2008-09 should increase by about 4.4% to 81.97 million tonnes. That situation would mark the fourth straight year of rising carryovers and would bring ending stocks to the highest level since the 2002-03 season’s ending stocks of 103.3 million tonnes.

Among the world’s five major exporters — Thailand, Vietnam, the United States, India and Pakistan — only Vietnam is expected to bring in a smaller harvest in 2008-09, at 23.7 million tonnes versus 23.92 million in 2007-08. In aggregate, 2008-09 production in the five exporting countries is projected to increase slightly to 150.66 million tonnes from 149.91 million in the previous season.

Most of the world’s major consuming and importing nations, including Indonesia, the Philippines, Brazil and Nigeria, also are forecast to enjoy year-on-year increases in production in 2008-09, the USDA said. In China, the world’s largest rice producer and consumer, record production should outpace use, resulting in a 2.1-milliontonne increase in ending stocks, to 39.85 million tonnes.

Larger harvests among the big rice users should reduce import needs, the USDA predicts, and world rice trade is expected to decline. In 2008-09, global rice exports are forecast at 27.7 million tonnes, the lowest level since 27.4 million tonnes were shipped in 2003-04.

If the supply/demand projections are realized, the world endingstocks-to-use ratio would stand at 19.2%, up from 18.6% in 2007-08 and the second consecutive year of an increase in that figure. The last season the ratio was above 19% was 2003-04, at 19.7%.

The likelihood of adequate supplies and larger surpluses typically would put downward pressure on prices. And indeed, rice prices as of late July had fallen some 20% from their May peak for the benchmark Thai grade and nearly 34% for Vietnamese varieties.

The pressure came not only from improving rice supply prospects, but also from macroeconomic factors affecting commodities as a whole. A stabilization and slight rebound in the weak U.S. dollar, efforts by many governments to stem domestic inflationary trends, declining crude oil prices and U.S. legislative threats to rein in "excessive" speculation tended to push down prices But even with their sharp declines, rice prices are more than double the levels seen at the same time last year. Reports persist of panic buying and hoarding in some markets, even though supply shortages are presumably non-existent.

The market also remains uncertain about potential government actions that would influence availabilities. For example, India and Vietnam both implemented rice export bans earlier this year, scaring importers and prompting them to bid up supplies in a thin market, which then stirred even more fear and panic.

Although the Vietnamese government lifted its export ban in June, it announced in late July new duties of up to $176 a tonne on rice exports, depending on grade, an action that sparked an immediate rebound in Asian prices and again fanned supply fears. Most analysts think that high prices and volatility will persist until the market can regain some confidence in the amount and availability of supplies.

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