Friday, April 4, 2008
Is Rice Heading US $ 1,000?
During dinner conversations with my friends from Thailand last week, they told me a farmer committed suicide after discovered his rice crop destroyed by bugs. The guy borrowed money from bank, hoping to harvest his crop to sell at a good profit and repay his loan. Unfortunately his dream dashed by bugs. What a tragic story.
They described to me their lunch box serving has been noticeably smaller as food vendors adopting pragmatic approach to cope with the rising costs. Even the professionals adopting the same solution, the Philippines government urging fast food restaurants operators to cut their serving by half to deal with their import bills.
The price of rice had soared from US$ 360 to US $ 750. A Thai minister said the price is heading North, US $ 1,000. With stock level at the lowest in 25 years, everyone are holding on to their inventory hoping to fetch a higher price, this is for sure a very sticky problem to deal with. Big rice importers like the Philippines, Indonesia and Iran are feeling the pains. If one look at most soft commodities charts carefully, the rally started around Q4 '07, right after the Ben Bernanke cut interest rate. Is this a coincident or the root of the inflationary problems that we are talking about?
Traders and landlords will be laughing but poor rural folks without land and poor city dwellers will be hard hit. The problem can cause social unrests if spun out of control - a big headache for many emerging governments. If the problem is partly caused by speculative money flows, I hope those guys will be merciful. I do not wish to go into moral and philosophical questions deeply, hope things will return to normal soon. If no good news emerge, inflations are something I have been feeling uncomfortable, a negative catalyst, even though it is cyclical in nature.