After enjoying a rally in the latter half of 2010, rice prices seem to have been receding back.
However, lately, the trend seems to have resumed the northward journey, with the FAOs rice price update till June 2011 showing prices to be reverting upwards.
A strong reason for the resumption of the rally in international rice prices in the past month was the anticipation over the victory of Yingluck Shinawatra, whose party had pledged to raise minimum rice prices for farmers in Thailand upon victory.
Though the Thai premier has not specified the quantity of rice her government will purchase from farmers, the likelihood of her victory had market pundits talking. "If this measure is taken, world prices will definitely increase as Thailand represents one-third of world trade and cannot be ignored," Bloomberg quoted a Singapore-based broker.
Now that Shinawatra has won the Thai elections, concerns over global rice prices also increased, especially bearing in mind Thailands one-third share in global rice trade. A Bloomberg survey of rice millers, exporters and traders conducted earlier this week forecast rice prices to jump 56 percent by the end of the year.
Further, the recent revival of price rises in corn and wheat may also have helped prop up international rice prices lately due to a lagged spillover effect, though the USDAs recent report on a bearish outlook of grain crops may mitigate this effect in the coming days.
As the global rice market anticipates a bull-run, even local prices, especially of the cheap variety of Pakistani rice, have shown a rising trend in recent months.
But the shoot up in rice prices for June 2011 is particularly marked. At $454 per ton in June, local prices are above the average prices in FY10 and FY11, and also above the FY11 peak reached at $431 per ton in December 2010.
Local traders and exporters attribute the rise in prices to a decrease in rice stocks locally as the end of the season approaches. "Harvests will now begin around September, and until then there are likely to be bullish spectacles in rice prices in coming few months," said a rice exporter on conditions of anonymity.
The Basmati variety, however, continued on a southward trajectory, with international FAO Pak Basmati prices showing a decline from $1025 per ton in May to $938 in June. This is plausibly attributed to relatively muted demand from the Middle East - an important market for Basmati - for the variety, according to an exporter.
Overall, as far as the Irri variety is concerned, prices are likely to stay on the higher side in the coming few months, even though a better rice output of around 6.5 million tons - which was less than 5 million tons in FY11 - is expected for FY12. Better output expectations are likely to help lower rice prices further in FY12, particularly post-September.
However, bullish forecasts of international rice prices may keep up the pressure on prices of local exports, helping to sustain the export side of the current account balance to some extent in the coming fiscal year.