Thursday, April 24, 2008

Rice Price Spikes Leading to Hoarding and Other Fun Problems

From the WSJ's Marketebeat Blog:

Food-related protests have been occurring worldwide, and in the U.S. now major discounters are seeing runs on products, particularly rice, as both Sam’s Club, the Wal-Mart Stores Inc. operated discounter, and Costco Wholesale Corp. have seen shelves cleaned out of rice as consumers worry about higher prices. “It is just unreal what can happen when we get fear being spread as it is now, and when the general populace goes out and starts doing idiotic things like lining up at the Sam’s Club and the Costco and not buying one bag but buying 10 bags just because they might run out,” says Neauman Coleman, introducing broker at Neauman Coleman & Co. in Brinkley, Ark. Sam’s Club has decided to put limits (or rations, if you will) on the amount of 20-pound bags customers can purchase every week, and Costco earlier this week said it was considering such limits as well, which in a way is just as panicky a response.

When was the last time you heard of a food product not being available in he US? Anyone? I don't think it's ever happened in my lifetime for the reasons outlined above.

From CNBC:

Benchmark Thai rice prices leapt more than 5% to a record high above $1,000 a ton Thursday. Meanwhile, Brazil has temporarily halted rice exports to ensure domestic supply amid rising world prices for the grain.

Brazil grows more rice than it consumes and has a reserve that will safeguard the country's supply, Agriculture Minister Reinhold Stephanes said in a statement. Sales abroad will nevertheless be blocked to make sure the country has enough of the grain for the next six to eight months.


Brazil follows on the steps of India and Vietnam, the world's second- and third-largest rice exporters in 2007, in imposing export curbs of rice in a bid to keep prices of the grain under control. Brazil, which is not a major global rice supplier, exported 313,000 tons of rice last year.

Here's the problem. To bring the price down, what the world needs is a massive increase in supply to literally flood the market. However, we're dealing with food -- a basic human necessity. Governments will always do what Brazil is doing -- cutting exports -- in order to protect their citizens from starvation. While that is politically an astute move, economically it's the worst move possible because it limits an already dwindling supply. It leads to charts that look like this:

Notice the following:

-- Prices have continually broken through resistance to make new highs

-- All of the SMAs are moving higher

-- The shorter SMAs are higher than the longer SMAs

-- Prices have continually used the SMAs as support levels for the rally.

Bottom line -- this is a bullish chart that will bring more traders into the market.

Oh yeah -- this won't help the inflationary picture at all.