Export bans by the top suppliers of both commodities have hit global rice and diesel fuel markets, temporarily raising prices in international markets.
Commodities are driven by supply and demand, and when it comes to food and fuel, interruptions in supply generally have an outsized effect on prices because demand stays resilient due to the importance of food and fuel to human survival itself.
In the case of rice, India dominates global export markets accounting for over 40 percent of all all global exports, exporting an impressive 230 percent more volume of rice than the world’s second largest rice exporter, Thailand.
Poor weather and declining supplies in China, India, and Vietnam, the world’s first, second, and fifth largest rice producers respectively, had started a price rally in the Food and Agriculture Organization (FAO) Global All Rice Price Index that began to accelerate in March 2023. But when India restricted rice exports on July 20, 2023, the FAO All Rice Price Index reached a fifteen year high as of the end of August 2023.
Americans haven’t been affected by global rice price inflation because we have plentiful supplies of rice due to increasing production and supplies, so much so that the USDA’s latest Rice Outlook projects exports to world markets by the U.S. will increase by a full 32 percent on the back of a 38 percent increase in U.S. domestic rice production. In fact, CBOT Rough Rice Futures traded in the U.S. are down over 10 percent year-to-date.
As for diesel fuel, called Gasoil in Europe, prices are up about 5 percent year to date, as measured by the price of European Low Sulfur Gasoil Futures. But more than half that gain has occurred in the past week since Russia banned exports of petroleum products, including diesel, on September 20, 2023.
Both Russia and India banned exports of these important commodities to assure availability and dampen prices in their own domestic markets. Russia is likely to lift the ban on diesel exports far sooner than India will lift its ban on rice exports, because refineries producing diesel can run continuously, 24/7/365. Once fuel storage tanks are full in Russia there will be nowhere to send the diesel except to foreign buyers through exports; at that point Russia will resume diesel exports, collecting much needed revenues and providing the world with much needed fuel.
But India is dealing with an agricultural commodity, meaning it has to cycle through another growing season in order to replenish supplies – and that’s if weather cooperates. It will be quite some time before international rice prices see relief, because the cosmic forces of nature are what govern production cycles in agriculture.
Luckily, other rice producer/exporters, led by the U.S., are on track to supply an increasing amount of rice to global markets, which should help temper the global rice price rise.
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