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Analysis: Strong Asian rice demand for animal feed raises food supply concerns

FILE PHOTO: A farmer displays grains of rice after harvesting them in a field in Al-Sharkia province
FILE PHOTO: A farmer displays grains of rice after harvesting them from a field in Al-Sharkia province, northeast of Cairo, Egypt September 21, 2021. REUTERS/Mohamed Abd El Ghany

March 16, 2022

By Naveen Thukral

SINGAPORE (Reuters) – A rise in wheat and corn prices is fueling demand for low-grade rice in animal rations across Asia, pushing up prices of the world’s most important staple at a time when global food inflation is already nearing Record highs moved.

Global grain importers are scrambling for supplies after Russia’s invasion of Ukraine severed grain supplies from the two countries, which together account for about 25% of world wheat exports and 16% of world corn exports.

Chicago wheat futures hit a record high last week, while corn soared to its highest level in a decade after war-torn Ukraine closed its ports and Western sanctions hit Russian exports.

The spikes in wheat and corn prices, in turn, prompted buyers to look for alternatives, including in China, by far the world’s largest animal feed market. Importers there are in talks to buy additional quantities of broken rice — low-grade rice where the grains have been broken during the milling process — to fatten pigs and other animals, traders and analysts said.

Rice normally trades at a large premium to wheat, but wheat’s 50% price increase a month ago has greatly narrowed the difference between the two grains, making wheat even more expensive than some lower-end rice varieties.

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Benchmark food-grade rice from Thai exporters last week posted its biggest weekly gain since October 2020 amid firmer demand for food and feed, rising 5% to around $421.50 a tonne.

It’s the highest reading since last June, and sources say prices could rise further if disruption to Black Sea rivers continues. Export prices from Vietnam and India have also risen.

“There could be greater interest in broken rice as animal feed if the starches currently dominating the wheat and corn markets continue,” said Rome-based FAO rice economist Shirley Mustafa.

“It’s not just animal feed, there could be substitution in other uses, e.g. B. if more people use rice in their meals.”

The global rally in wheat and corn spores increased feed demand for rice

CORN CUT

China had booked up to two million tons of Ukrainian corn imports for this year, but most of those shipments are now at risk amid the disruption in Ukraine’s logistics chains.

To replace those lost volumes, China is expected to import about 3 million tons of broken rice, up from about 2 million tons annually over the past two years, a Beijing-based rice trader said.

An importer in Guangdong wants to buy broken rice from Thailand, while others have recently bought Indian broken rice for feed, according to another source briefed on the matter.

“Demand for Indian broken rice has increased due to higher corn prices. Forage manufacturers are trying to substitute rice for corn,” BV Krishna Rao, president of the Indian Rice Exporters Association, told Reuters.

Prices for 100% Indian broken rice have risen to $320 a ton this month from $290 in February, he added.

To further prop up rice prices, forage manufacturers in Thailand are also looking into using more broken rice to replace corn, pushing up domestic prices across the country, Bangkok-based traders said.

“There is a huge increase in demand for lower quality rice from Thailand’s animal feed industry,” said a Bangkok trader. “In fact, much of Thailand’s broken rice is likely to be consumed in the domestic market.”

FOOD FEARS

Global rice prices could rise further in the second quarter as wheat consumers in India — the second largest rice consumer after China — switch to rice on record domestic wheat prices, which would accelerate any decline in rice supplies, said Chookiat Ophaswongse, honorary president of the Thailand Rice Exporters Association .

While global rice stocks are expected to hit a record 190 million tons this year, global rice production is expected to exceed world consumption by less than 5 million tons in 2022, according to the US Department of Agriculture, prompting a sudden surge in global demand could quickly start depleting these inventories and adding to the bullish sentiment in the market.

In turn, a rise in rice prices will increase concerns about food security for some of the poorest countries in Africa and Asia, where millions depend on the cheap availability of the staple food.

“Currently, broken rice is mainly for the feed sector, but if the war lasts longer and buyers are unable to source enough wheat, it’s about food security,” said a Singapore-based grain trader.

“Buyers will do anything to replace expensive wheat with rice or other alternatives.”

(Reporting by Naveen Thukral; additional reporting by Hallie Gu in Beijing, Khanh Vu in Hanoi, Patpicha Tanakasempipat in Bangkok and Rajendra Jadhav in Mumbai; Editing by Gavin Maguire and Richard Pullin)

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DUSTIN JONES

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