Adding momentum to the rally are short sellers buying up shares to close out their positions – a process known as short covering or buying to cover – Sharma said.
India alone accounts for 40 per cent of the world’s rice exports. Around 30 per cent of its shipments – or 12 per cent of total global trade – are affected by last month’s ban, barring exceptions Delhi has allowed to address other nations’ food-security concerns.
Singapore urges India to exempt it from non-basmati rice export ban
Singapore urges India to exempt it from non-basmati rice export ban
“Nearly 12 per cent is a significant potential shortfall from the norm,” said Paul Hughes, chief agricultural economist and director of research at S&P Global Commodity Insights, who said world rice prices had “adjusted abruptly higher” as a result.
“Whether there will be shortages is yet to be seen, but a ban of this nature increases the risk,” he said.
So far, wholesalers have mostly been able to dig into their stockpiles to maintain supplies, but several nations are taking preventive measures in case of future shocks.
Last weekend, Vietnam’s Prime Minister Pham Minh Chinh ordered authorities to ensure national food security by balancing grain supplies for local use and exports, citing speculative traders who had been buying up supplies via massive purchases.
Others including the United Arab Emirates responded to India’s move by temporarily banning the export and re-export of rice.
Thailand, meanwhile, has expressed optimism about capturing a larger slice of the export market from India.
‘The void left by India’
The recent price spike is likely to bring immediate gains for large rice mills, middle men and exporters, but pain for consumers and smallholder farmers.
The Thai Rice Exporters Association expects exports to surge by as much as 20 per cent as Thailand looks to send around 8 million tonnes of the grain to world markets this year, scooping up the deficit left by India.
But across the country’s rice-growing heartlands – where a kilogram of rice currently goes for around 11 baht (30 US cents) – farmers are bracing for an unwelcome shock after years of depressed prices.
“In fact some families have sold all of their rice stocks and new harvest already and need to buy rice themselves to eat – so a price rise hurts them. The only people who gain will be the rice millers with large stocks.”
Farmers are also expecting harvests to take a hit from the looming drought, he added.
The key rice-growing areas of central Thailand could experience a drop in rainfall of up to 40 per cent this year, according to the weather office. National rice production is forecast to be more than 5 per cent lower as a result, commerce ministry figures show.
“It is true that Thailand’s white rice is one of the better options, but it can’t fill all of India’s shortfall,” said a prominent rice broker based in the Southeast Asian nation, speaking on condition of anonymity. At best the country may supply an additional million tonnes, he predicted.
Last year, India exported about 22 million tonnes of rice, while Thailand and Vietnam collectively exported less than 15 million tonnes.
“What to expect in prices from here will largely be determined by the ability of Vietnam and Thailand to fill the void left by India,” said Hughes, the agricultural economist, adding that the severity of this year’s El Nino conditions will be a key factor in determining supply and demand.
More than 90 per cent of the world’s rice is produced and consumed in the Asia-Pacific, making the scale of the region’s production vital to meeting global demand.
Thailand’s recent “unfavourable weather” is likely to affect global rice and sugar supplies worldwide given the “sizeable role” the country plays in both commodities markets, ANZ bank forecast in an insights report on Friday.
‘It’s very difficult’: prayers for rain as scorching heatwave bakes Asia
‘It’s very difficult’: prayers for rain as scorching heatwave bakes Asia
Since India’s ban, prices in the rice-exporting hubs of Vietnam and Thailand have jumped nearly 20 per cent, according to data cited by Reuters this month. Exporters in both places have reportedly been pushing to renegotiate for higher prices on contracts for around half a million tonnes of rice set to be shipped this month.
Poor households in Indonesia are being provided up to 10kg of rice per month for the next three months in anticipation of higher prices, with the government also finalising a deal with Delhi for 1 million tonnes of rice despite the export ban.
Uncertain impact
But the wheat ban, in particular, “turned out to not be so binding” because India continued to provide neighbouring countries with the grain and honoured letters of credit, said Joe Glauber, senior research fellow at the International Food Policy Research Institute.
“Much will depend on how stringent the [recent rice-export] ban is and for how long it remains in place,” he said.
“[India’s] short-lived ban on exports of broken rice last year was far more effective in limiting exports … [so its] ban on non-Basmati rice could be quite consequential if strictly implemented.”
Glauber said international rice prices had increased 30 per cent since September last year and are no longer low in comparison to other grains such as wheat and maize.
There is a bright spot on the horizon as India’s ban excludes parboiled rice, or about 44 per cent of total exports, according to Vinod Kaul, senior executive director at the All India Rice Exporters’ Association.
He said the trade restrictions had been put in place following torrential rains, exacerbated by a powerful cyclone, in India’s northwestern breadbasket region – with El Nino only adding to the uncertainty.
A waterlogged June and July meant a slow start to rice plantings, Kaul said, but these had since picked up and the association was now forecasting output from this year’s harvest to be 3.4 per cent higher than last.
“We should get a good crop, but I think the government will want to be doubly sure before it reviews the export ban,” he said.
India saw above-average rainfall last month, and the country’s weather office is forecasting favourable conditions for the rest of the monsoon season through to September. But analysts say the government is unlikely to review its export ban before November and the start of winter.
Why Asia faces a looming ‘rice crisis’ amid ‘inevitable’ price rises
Why Asia faces a looming ‘rice crisis’ amid ‘inevitable’ price rises
R.S. Seshadri, a former director of a large rice company, said India had sufficient stocks of rice, so Delhi had likely put the export ban in place to nip price speculation in the bud.
“You don’t have to wait for price rises to establish. El Nino was supposed to give us a lousy monsoon, but we had a vigorous monsoon in July,” he said.
“I do not think there is a supply side problem, but the government was probably keen to soften hardening sentiment.”