Singapore 2010

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Singapore 2010

  1. 1. An Outlook For The Rice Price 2010-2011 and Beyond Milo Hamilton Firstgrain October 11, 2010
  2. 2. The Rice Price 2010-2011 About the Presenter • 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 2 October 2010
  3. 3. The Rice Price 2010-2011 "The precious things are not pearls and jade but the five grains, of which rice is first.” -Chinese saying 3 October 2010
  4. 4. The Rice Price 2010-2011 Outline • 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 4 October 2010
  5. 5. The Rice Price 2010-2011 Short-Term: Price Drivers in next six months • 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 5 October 2010
  6. 6. The Rice Price 2010-2011 $600 World LG Rough Rice Prices (USD/MT) $500 $400 $300 $200 $100 US Rough Futures Brazil Thailand Vietnam India China $0 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 6 October 2010
  7. 7. The Rice Price 2010-2011 7 October 2010
  8. 8. The Rice Price 2010-2011 Long Term Outlook: Status Quo • 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 8 October 2010
  9. 9. The Rice Price 2010-2011 Long Term Outlook: Status Quo • 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? 9 October 2010
  10. 10. The Rice Price 2010-2011 $160 Nominal Prices $140 $120 $100 Milled Rice (USD/cwt) FOB Mill Crude (USD/barrel) $80 $60 $40 $20 $0 1909 1915 1921 1926 1932 1937 1943 1948 1954 1959 1965 1970 1976 1981 1987 1992 1998 2003 10 October 2010
  11. 11. The Rice Price 2010-2011 $4,500 Real Prices (in 2008 Dollars) $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 "Milled Rice (USD/MT) FOB Mill" $500 $0 1909 1915 1921 1926 1932 1937 1943 1948 1954 1959 1965 1970 1976 1981 1987 1992 1998 2003 11 October 2010
  12. 12. The Rice Price 2010-2011 $150 Rice Minus Wheat (USD/MT) $100 $50 $0 -$50 -$100 -$150 1914 1924 1934 1944 1954 1964 1974 1984 1994 2004 12 October 2010
  13. 13. The Rice Price 2010-2011 The Problem with the Rice Price • 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 13 October 2010
  14. 14. The Rice Price 2010-2011 Obstacles to Change • 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 14 October 2010
  15. 15. The Rice Price 2010-2011 Cost of Water "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.” 15 October 2010
  16. 16. The Rice Price 2010-2011 Cost of Water (continued) “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 NasreddinAllam.” This implies one million acres = six billion cubic meters of water - Reuters story, 19 August 2010 16 October 2010
  17. 17. The Rice Price 2010-2011 “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 17 October 2010
  18. 18. The Rice Price 2010-2011 Solutions to Obstacles 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 18 October 2010
  19. 19. The Rice Price 2010-2011 Solution 1: Freely Traded Rice • 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? 19 October 2010
  20. 20. The Rice Price 2010-2011 Solution 2: Redefine Food Security • 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 20 October 2010
  21. 21. The Rice Price 2010-2011 Solution 3: Empower the Farmer • 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 21 October 2010
  22. 22. The Rice Price 2010-2011 Reuters Market Light 22 October 2010
  23. 23. The Rice Price 2010-2011 “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 23 October 2010
  24. 24. No Farmers, No Food

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