An Outlook For The Rice Price 2010-2011
and BeyondMilo Hamilton
FirstgrainOctober 11, 2010
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The Rice Price 2010-2011
About the Presenter
October 2010
• Milo Hamilton is co-founder of Firstgrain, a global rice market advisory service (est. 2000)
• Bought rice for Uncle Ben’s Inc. for 18 years• Clients include: farmers, millers, traders,
government agencies, rice buyers• Helped start and develop US rice futures• Relates all markets to the rice market
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The Rice Price 2010-2011
October 2010
"The precious things are not pearls and jade
but the five grains, of which rice is first.”
-Chinese saying
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The Rice Price 2010-2011
Outline
October 2010
• Short-term rice price outlook and driving factors• Longer term price outlook with status quo• Problems with the rice market• Obstacles to change• Solutions to obstacles
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The Rice Price 2010-2011
Short-Term:Price Drivers in next six months
October 2010
• The loss of wheat and coarse grain production• Weather and Climate factors:
– 2009 Monsoon and El Nino rice loses– 2010 flooding and droughts– US Rice production loses in 2010
• Convergence or divergence of paddy prices• Price objectives of US rice futures
– With rise in Asian prices– Without rise in Asian prices
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The Rice Price 2010-2011
October 2010
$0
$100
$200
$300
$400
$500
$600World LG Rough Rice Prices (USD/MT)
US Rough Futures Brazil Thailand Vietnam India China
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The Rice Price 2010-2011
October 2010
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The Rice Price 2010-2011
Long Term Outlook: Status Quo
October 2010
• Huge budget requirements for input subsidies• Serious depletion of groundwater assets• Inflation-adjusted rice prices (could) return to
spiked highs of 1916, 1946, 1973, not just 2008 prices
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The Rice Price 2010-2011
Long Term Outlook: Status Quo
October 2010
• Despite 2008, food grain prices are relatively flat• Rice is cheap to crude oil• Water is not priced• Rice price volatile to wheat, due to thinness of
world rice trade?
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The Rice Price 2010-2011
October 2010
$0
$20
$40
$60
$80
$100
$120
$140
$160Nominal Prices
Milled Rice (USD/cwt) FOB MillCrude (USD/barrel)
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The Rice Price 2010-2011
October 2010
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$0
$500
$1,000
$1,500
$2,000
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$3,000
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Real Prices (in 2008 Dollars)
"Milled Rice (USD/MT) FOB Mill"
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The Rice Price 2010-2011
October 2010
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-$100
-$50
$0
$50
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$150Rice Minus Wheat (USD/MT)
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The Rice Price 2010-2011
The Problem with the Rice Price
October 2010
• Some want it very low• Some want it high• Some want it “fair” or “just right”• Current obstacles can send the rice price very
high
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The Rice Price 2010-2011
Obstacles to Change
October 2010
• Government manufactured rice prices– Giving away water– Inputs cheap or free– GMO ban– Shutting down price discovery– Keep farmers in the dark– Self-sufficiency at all costs– Rejecting world trade as partial solution
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The Rice Price 2010-2011
Cost of Water
October 2010
"Egypt cut by almost half the amount of land it
used to sow rice in 2010 versus the previous year,
saving the country 5-6 billion cubic metres of
water, the official state news agency MENA said
on Thursday.”
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The Rice Price 2010-2011
Cost of Water (continued)
October 2010
“The amount of land on which rice was grown was
reduced to 1.2 million feddans (1.2 million acres)
from 2.2 million last year, MENA said, citing the
Water Resources and Irrigation Minister Mohamed
Nasreddin Allam.”
This implies one million acres = six billion cubic
meters of water - Reuters story, 19 August 2010
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The Rice Price 2010-2011
October 2010
“In times of change, the future belongs to the
learner, while the learned find beautiful ways to
cope with a world that no longer exists.”
-Erick Hoffer
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The Rice Price 2010-2011
Solutions to Obstacles
October 2010
1. Let rice trade freely
2. Pursue food security through direct subsidies to the poor
3. Turn bottom of the food pyramid into informed business people– With mobile information technology
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The Rice Price 2010-2011
Solution 1: Freely Traded Rice
October 2010
• Reject trade disruption– Embargoes, export bans undermine trust
• Support rice futures markets – Price discovery– Merchandizing mechanism– Reduced risk of default– Global milled futures contract in Singapore?
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The Rice Price 2010-2011
Solution 2: Redefine Food Security
October 2010
• Food security does not equal self-sufficiency!– Self-Sufficiency: Eat what you grow, grow what you eat
• Vulnerable to crop failure
– Food Security: Purchasing power to buy food• Requires robust international market
• Replace input subsidies with targeted cash transfers to the poor– Gives poor the capability to feed themselves
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The Rice Price 2010-2011
Solution 3: Empower the Farmer
October 2010
• Example: Reuters Market Light (RML)• Sends market and agronomic information to
farmers via text message in India today – 300,000 subscriptions– 60,000 active accounts– 1.5 million farmers accessing RML information
• Every individual is a market force
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The Rice Price 2010-2011
Reuters Market Light
October 2010
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The Rice Price 2010-2011
October 2010
“If you farm as a way of life, it could be a very expensive business.
But if you farm as a business, it can be a very rewarding way of life.”
-Merrill Oster
No Farmers,No Food
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