Fertilizer Markets and Finance

The smallest increase in rice stockpiles in five years means global grain inventories will extend a decline that already drove food costs to a record.

Combined global stores of wheat, corn and rice will drop 2.5 percent to a four-year low as farmers fail to keep pace with demand, the U.S. Department of Agriculture estimates. Rice prices will rise more than 20 percent by December as inventories expand 1.1 percent, compared with a 29 percent gain in the past four years, a Bloomberg survey of 13 millers and traders showed.

While wheat and corn prices as much as doubled last year, rice retreated as the United Nations’ global food-inflation index jumped 25 percent. Rice advanced 15 percent since May, potentially worsening the lives of the 1.1 billion the World Bank says live on less than $1 a day. Wheat fell 20 percent since the middle of February on prospects for a bigger crop.

“World rice prices had been far more stable than other cereals,” saidConcepcion Calpe, a senior economist at the UN Food and Agriculture Organization in Rome. “Now this is changing and rice is rallying, the international situation is likely to worsen. Wheat may become the stabilizing foodstuff.”

Thailand, the biggest shipper, is bringing back a policy of buying rice from farmers at above-market prices for storage. Exports fromVietnam, the second-largest, may drop 6.9 percent, according to the FAO. Farmers in the U.S., the third-biggest shipper, will harvest 20 percent less after planting more corn and wheat in response to rising prices, the government says.

Kenya may increase wheat imports to at least 800,000 metric tons, according to Diamond Lalji, chairman of the Cereal Millers Association.

Kenya usually imports 700,000 to 750,000 tons, Lalji said. “We will have to import more than usual because local production has been very low this year,” Lalji said.

Kenya is paying 3,300 shillings ($35.42) for 90 kilograms (198.4 pounds), according to the chairman.

Poland’s grain production and quality will decline this year because of heavy rain in the past weeks, Agriculture Minister Marek Sawicki said.

“This year’s harvest is one of the most difficult in more than a decade,” Sawicki said in an e-mailed comment. “The quality of grain is much worse because of rainfall, this regarding both the consumption and feed grain.”

The wheat harvest in Poland, the European Union’s fourth- largest grower of the grain, usually starts in July. Last year the output of the so-called basic grains, excluding corn, was 25.5 million metric tons compared with 28 million tons in 2009, according to the country’s statistics office.

“Output will be lower than last year, though a lot will depend on the weather in the coming days,” Sawicki said. “Unfortunately, for the moment the forecast is not promising. Eastern Poland suffered the most from bad weather conditions and the harvest in that region has been delayed by at least three weeks.”

Eastern Poland received between 120 to 150 millimeters (4.7 to 5.9 inches) more rain in July than normal, data from the EU’s Monitoring Agricultural Resources unit shows. France,Germany and the U.K. are the top producers in the 27-nation EU, according to data from the bloc.

Spring wheat yields in Manitoba and Saskatchewan may improve as hot weather dried up flooded areas and created “optimal crop-development conditions,” the Canadian Wheat Board said in a report today.

Floods that delayed seeding of winter wheat were followed by hot weather in July that dried flooded areas and provided sun and warmth needed to promote crop growth, according to the report. Spring wheat is now more developed than earlier planted varieties, the wheat board said.

“The record-breaking heat wave that hit Manitoba and eastern parts of Saskatchewan in July, created optimal crop development conditions for most cereal grains,” Bruce Burnett, director of weather and market analysis at the wheat board, wrote in the report. “The areas originally washed out with flood waters have now caught up, and in some cases surpassed the early-sowed crops.”

Wheat futures for December delivery on the Minneapolis Grain Exchange, where spring wheat is traded, gained 2 cents, or 0.2 percent, to $8.685 a bushel, at 11:36 a.m. London time. Prices are up 4 percent this week.

The spring wheat harvest has started in some southern areas of the provinces and is expected to accelerate in the next two weeks, Burnett said.

Grain sales were set for a slow start from Friday, when Russia returned to the global market as an exporter after an absence of nearly a year, but appetite for its wheat will return as stocks dwindle in importing countries and the attraction of its comparatively low prices overcomes reluctance to purchase supplies.

“Everybody expects us to start dumping grain, and nobody is ready to buy our grain at international prices,” Arkady Zlochevsky, president of the powerful Russian Grain Union lobby, told reporters last week.

Russian farmers may harvest as much as 56 million metric tons of wheat this year, the country’s Grain Union President Arkady Zlochevsky said, a third more than in 2010.

Rice supply in China, the world’s biggest grower and consumer, may decline after drought and floods damaged crops, potentially boosting inflation and increasing imports.