World rice production in 2009-10 should reach 448.5 million tonnes (milled basis), up 1% from 2008-09 output of 443.9 million, according to a recent forecast by the U.S. Department of Agriculture (USDA), marking the fifth consecutive year of record high global rice production.
Global 2009-10 disappearance also should hit a record high, but the total, forecast at 443.4 million tonnes, will fall just short of production, enabling global stocks to increase for the third straight year. At a projected 95 million tonnes, 2009-10 ending stocks should reach their highest level in seven years, with the ending stocks-to-use ratio standing at 21.6%, the highest since 25.5% in 2002-03.
Some countries, such as Brazil, have developed improved technologies to raise yields even as plantings have declined, but analysts attribute most of the recent global production increases to expanded area. The USDA put world rice plantings in the 2009-10 season at 157.2 million hectares, the highest on record. Increased plantings are based in part on the extraordinary circumstances that have enveloped rice in the past two years. Fears of shortages amid a steep decline in supplies, along with investment dollars pouring into commodity markets, drove rice prices to astounding highs in mid-2008.
High prices and renewed governmental efforts to promote rice selfsufficiency encouraged farmers to ramp up production where possible. And the results should lead to changes in rice trade patterns for 2009-10. For example, rice imports for South Asia and Southeast Asia, major regions for imports, are projected to fall this season by 15.5% from 2008-09 to 4.5 million tonnes, the lowest since 2003-04. Production increases in the Philippines, Bangladesh and Indonesia — the largest Asian importers in recent years — account for much of the regional drop.
But changed trade patterns aren’t the only legacy of the 2008 price spike. Even though prices have dropped sharply from the highs amid growing supplies and a calming in global financial markets, the rice market remains surprisingly volatile.
This volatility is particularly evident in the recent relative performances of Thai and U.S. rice prices. Historically, the benchmark U.S. rice grade tends to trade at a premium to the benchmark Thai rice grade. From 1990 through 2007, the average of the price spread (U.S. versus Thai prices) was $81 a tonne, premium U.S. rice, according to the USDA. Thai rice seldom moved to a premium over U.S. rice and never by more than $10 in the 17-year period.
But in the past year, the spread has changed directions several times, and during that same period the Thai rice premium over U.S. rice has reached as much as $113 a tonne. Since January, Thai rice prices have remained consistently higher than U.S. prices, with the premium averaging $52 a tonne.
This price behavior results from another side effect of the rice market’s supply-demand imbalance. Not only have some governments renewed their focus on expanding output, they also have adopted various interventions schemes. USDA analysts note that inconsistent applications of these programs have only added to market uncertainty. Export bans have been stringent at times and porous at others, while domestic programs pulled supplies from the international market, only to release them later, sometimes in huge quantities.
"Unable to predict the availability of supplies, traders often react to rumors and fear, rather than supply and demand factors," USDA said. "This uncertainty destabilizes the market and causes price volatility."
A case in point is Thailand, which helps explain the "abnormal" U.S.-Thai rice price relationship. In recent months, the Thai government has issued tenders to sell some of its intervention stocks to private traders for export, but at the same time it plans to expand by 1.5 million tonnes its procurement target for the second-harvest crop.