HardAssetsInvestor

Written by Brett Owens  |

January 24, 2011

Setting Up For A Rally In Rice?

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In fact, we just saw this play out with cotton: Soybeans and corn have rallied for years, while cotton's price has languished. So farmers who traditionally had planted cotton increasingly eyed for the sexier returns its ag cousins could bring instead. Supply fell—and soon after, prices rocketed:

When cotton broke out—thanks to supply constraints—it really spiked! (Source: Barchart.com)

Around the world, rice exporters are projecting lower crop yields for 2011. Thailand, the world's biggest exporter of rough rice, predicts its main harvest will be off 5.3 percent this year due to devastating floods—the worst flooding in five decades (Source: Bloomberg). And Egypt, another major rice exporter, is having its issues as well; the USDA reports that Egypt's harvest area for 2010/2011 is down 30 percent from the previous year:

Demand Projected To Outstrip Supply

Last November, at a global rice conference in Hanoi, industry experts expressed worries that the world would see a shortage of rice within the next decade:

Demand is rising at 1.5 percent a year, but productivity increases—which surged from the 1960s through the 1990s—have dropped to about 1 percent a year. Couple this with the previously discussed acreage reductions, and the math starts to look pretty attractive for rice prices.