Increased panic buying of food due to coronavirus lockdowns has led to price spikes for the world’s two staple grains – rice and wheat. Reuters data showed, rice prices are now the highest since late April 2013.
Importers have rushed to stockpile the goods, while exporters have curbed shipments.
The price of rice has hit seven-year highs, while wheat futures have risen by around 15 percent since the second half of March.
The International Grain Council expects a sharp upturn in near-term demand for rice and wheat-based foods.
According to the Thai Rice Exporters Association, the price of five percent broken white rice (the industry benchmark) rose 12 percent between March 25 and April 1.
“Supply is currently tightening due to the impact of the Covid-19 (coronavirus) pandemic on demand and trade, as well as to the aftermath of bad weather in key producers (severe drought in South East Asia and Australia),” said Fitch Solutions.
Rice prices had started climbing in late 2019 due to a severe drought in Thailand and strong demand from Asian and African importers.
Thailand is the world’s second-largest exporter after India, one place ahead of Vietnam.
In India, rice traders have now stopped signing new export contracts as labor shortages and logistical disruptions have been hampering the delivery of existing contracts.
“Unlike other sectors, agriculture is heavily affected by the timing of the lockdown, rather than the duration, because of the strict planting and harvesting calendar,” said Samarendu Mohanty, Asia regional director at the Peru-based International Potato Center (a non-profit group researching food security).
He explained to CNBC that North America, Europe and China are now facing labor shortages and supply line disruptions for spring planting and “if the planting season is missed, there will be no crop for the season or for the entire year.”
Food industry associations and organizations are urging countries to keep trade open. According to Mohanty: “One cannot blame countries for ensuring their domestic food security during this trying time, but countries need to be extra careful in taking unnecessary policy measures that could create panic in the market.”
He said that “countries should be aware that enough grains exist in warehouses to feed the world for more than four months. But these grains are of no use if countries resort to trade restrictions.”
Oil prices surge
Crude prices jumped 12 percent on Thursday after the Organization of the Petroleum Exporting Countries (OPEC) and major producers led by Russia agreed to cut output by 20 million barrels a day.
U.S. West Texas Intermediate surged 12 percent on the report of collective cuts to $28.36 per barrel, while international benchmark Brent crude gained 8.5 percent to $35.79 a barrel.
Oil prices have collapsed after OPEC+ countries disagreed on production cuts last month, with Russia refusing to lower output. In response, Saudi Arabia ramped up its production to a record high of more than 12 million barrels per day, after previous OPEC+ production cuts expired at the end of March.
Russian President Vladimir Putin said last week that the world needs to cut production by 10 million bpd. During a televised meeting with Energy Minister Alexander Novak, Putin said the Saudis were flooding the market to force competing shale oil producers out of business, particularly in the U.S.
The U.S. currently produces around 15 million bpd, followed by Saudi Arabia with 12 million bpd and Russia with 10 million bpd. Putin said that moving forward, Moscow would be comfortable with a price of $42 per barrel, roughly $10-15 higher than the current levels.
Gold rush
As Covid-19 disrupts the global economy, people are snapping up small gold bars and coins, confirming once again the yellow metal’s safe haven reputation during times of uncertainty.
The price of gold hit a seven-year high of more than $1,700 per troy ounce on March 9, as a result of the deepening economic impact of the coronavirus outbreak.
“People want to buy, not sell, gold,” Mark O’Byrne, the founder of GoldCore, a dealer based in Dublin, told Bloomberg. “We have a buyers’ waiting list and we emailed our clients seeing who wished to sell their gold. At this time there are roughly only one or two sellers for every 99 buyers.”
According to Markus Krall, chief executive of German precious-metal retailer Degussa, premiums in the retail market “have exploded.” The average price of products in shops is somewhere between 10 percent and 15 percent over spot prices, Krall explained, adding that he’s never seen that before. Demand has also hit the highest level he has ever experienced.
United Overseas Bank (UOB) reported that in March, the market has encountered a “massive short squeeze for physical gold” as the epidemic reduced air transport and shut down bullion trading centers and refineries.
“This pushed future price for gold to a significant premium against spot price. The net result for this is also a wider bid-offer spread for gold amidst signs of limited liquidity,” said UOB’s Head of Markets Strategy Heng Koon.
He added that after a temporary drop below $1,500 an ounce, gold has rebounded and is ready for a major rally.
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