BMI Cuts Rice Futures Forecast for 2025 after India Eases Export Restrictions

Economic

Summary:

BMI has cut its forecast for its key rice futures contracts, at an average price of US$14.85 per cwt ( hundredweight) in 2025, following easing of rice exports by India — Malaysia’s top rice supplier.

BMI, a unit of Fitch group, said this marks a 6.3% downward revision from its previous Chicago Board of Trade (CBOT)-listed second-month rough rice futures.

BMI’s 2024 average price outlook has also been adjusted to US$16.35 per cwt, slightly lower than earlier projections. As of Oct 4, 2024, rice futures closed at US$15.25 per cwt.

The revision followed India’s move to ease its rice export restrictions end of September, impacting global rice prices.

The Indian Ministry of Finance repealed the ban on non-basmati white rice exports and reduced the duty on parboiled rice exports from 20% to 10%. Following these changes, Thailand saw a significant drop in rice export prices. For example, quotations for 5% broken white rice decreased by over 10% between Sept 25 and Oct 2.

Meanwhile, BMI said US rice exports have shown strong performance, with traders accumulating nearly 965,000 tonnes by the week ending Sept 26, 2024.

This represents a 26.9% increase compared to the previous year and a four-season high. Harvesting progress is also ahead, with 86% of the US rice crop harvested by early October.

The Atlantic hurricane season poses some risk, but the pace of the US rice harvest reduces potential threats.

Speculators have reduced their net short positions in rough rice futures, reflecting changing market sentiment. India’s previous export restrictions had initially supported elevated international rice prices.

India’s easing of restrictions has already influenced market dynamics, leading to a sharp fall in prices for Thai rice exports. We anticipate further price adjustments in the FAO Rice Price Update in November. Our long-term outlook predicts a production surplus in the global rice sector for the 2024/2025 season.

World rice production is expected to rise by 1.3% to 528 million tonnes, while consumption will increase marginally to 522 million tonnes.

However, the easing of Indian export restrictions might boost rice consumption, presenting potential risks to our forecast. “We also note a potential upside risk to production due to anticipated La Niña conditions in Southeast Asia,” said BMI.

Rice market to remain in surplus coming years

“In the coming years, we expect the rice market to remain in surplus, though weather-related disruptions could alter this outlook,” said BMI.

Asia’s per capita rice consumption is likely to decline due to income growth and dietary diversification. Sub-Saharan Africa is poised to drive global rice consumption and import demand.

Between 2010 and 2022, per capita rice consumption in Africa increased, with Eastern Africa seeing significant growth. The region’s rice production deficit has widened, sustaining strong demand for imports.

Demographic trends, including population growth, will likely increase Africa’s share of global rice consumption. Consequently, the share of world rice production that is exported is expected to rise.

Source: The edge markets

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Warren Takunda

Economic

Central Bank

The European Central Bank looks set to deliver another interest rate cut on Thursday it had little appetite to point to just weeks ago.

Data signal a euro zone economy in worse shape than when policymakers last met, boosting bets on speedier rate cuts than the quarterly pace June and September cuts suggested.

"If the ECB does not cut in October, the market will think that the central bank is behind the curve and potentially making a policy error," said Deutsche Bank chief European economist Mark Wall.

Here are five key questions for markets:

1/ Will the ECB cut rates this week?

All but certainly. Traders are banking on around a 90% chance of a 25 basis-point cut, a huge increase from as low as 20% when the ECB met last month.

Euro zone business activity that unexpectedly contracted in September led to a surge in October bets, as investors feared that the ECB, so far sticking to its data-dependency mantra, may not cut rates quickly enough.

Several policymakers have already made the case for an October cut. Even ECB chief Christine Lagarde has hinted at one, saying confidence in falling inflation would be reflected in the bank's decision.

Going All Out? Five Questions for the ECB_1

The line chart shows the ECB's deposit policy rate from Jan. 1999 to Sep. 2024 with rate hiking cycles highlighted.

2/ Is this the start of back-to-back rate cuts?

Yes, Wall Street economists reckon.

And traders are pricing in just over three cuts at the four meetings following October.

ECB policymakers, however, are not quite there yet. Centrist Finnish governor Olli Rehn has repeated the message that the pace and scale of further cuts will be decided meeting by meeting.

But Lagarde may hint that a change is coming, pointing to projections the bank will release in December, said AXA's chief economist Gilles Moec.

"The December meeting is probably the right moment to really change the narrative on the future."

Going All Out? Five Questions for the ECB_2

Traders in the money markets see the ECB's deposit rate dropping to just over 2% over the next year

3/ Is inflation no longer a worry for the ECB?

Traders think so. After all, inflation, which surged over 10% two years ago, dropped below the ECB's 2% target in September.

Even stubborn services inflation, a particular worry for the ECB, dropped slightly. On a monthly, seasonally-adjusted basis, it slowed to its weakest since November 2023, according to Nomura.

Derivatives used to hedge inflation risk suggest price growth will hold below 2% from the first quarter of next year, according to data compiled by Danske Bank, much faster than September's ECB projections.

Even arch-hawk Isabel Schnabel has dropped her long-standing warning about the difficulty of taming price growth.

Yet services inflation is still at 4%, not dropping this year, and September's headline drop was driven by energy prices, so the ECB isn't quite declaring victory yet.

Going All Out? Five Questions for the ECB_3

Inflation swaps market suggests inflation will fall below the ECB's target much quicker than the central bank expects.

4/ Is growth the ECB's main concern now?

It's an increasing one.

But the ECB, unlike the U.S. Federal Reserve, only targets inflation, so the question is whether stagnation could tip it persistently below target - the bank's main challenge in the pre-pandemic decade.

So far, the ECB is banking on rising real incomes boosting consumption and growth, to 1.3% next year from 0.8% this year, an assumption some economists fear is too optimistic. Germany's economy is already facing a second year of contraction.

AXA's Moec said that if the anticipated rebound didn't materialise soon, inflation risked undershooting the ECB's target - a concern some policymakers share.

Going All Out? Five Questions for the ECB_4

The chart shows the Composite PMI for Eurozone and 5 major European economies i.e Australia, Eurozone, Gemany ,France, Italy & Spain. It shows that Eurozone PMI number was 50 which was was the lowest since February 2024.

5/ Are geopolitical risks worrying for the ECB?

Yes, but more from a growth perspective, economists reckon.

Oil prices have risen over 9% since the start of October as the Israel-Hezbollah conflict escalates, but remain more than $10 below this year's peak.

Low inflation means the ECB can tolerate any temporary energy-driven rises, said BNP Paribas' chief Europe economist Paul Hollingsworth.

"The ECB's reaction function has shifted to focus a bit more on growth risks now, so (geopolitical risks) will just exacerbate some of their concerns."

Crucially, Thursday is the ECB's last meeting ahead of November's U.S. presidential election.

If former Republican President Donald Trump were to win and follow through with a pledge to slap 10% tariffs across imports, that would hit euro zone growth and boost the case for deeper rate cuts, economists said.

Going All Out? Five Questions for the ECB_5

Oil prices shoot up on Middle East escalation

Source: Reuters

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JPMorgan

Economic

The third quarter was strong for risk assets and safe havens with U.S. equity markets posting an all-time closing high to finish out the quarter and bonds delivering positive returns, but not without a pickup in volatility at the start. 2024’s stock market rally was thrown off course in late July/early August as investors reacted to a weaker-than-expected jobs report, fueling concerns that a stumbling labor market implied a recession may be looming on the horizon.

After retracing 8.5% by early August, the S&P 500 had just about fully recovered by the end of the month, and subsequently powered to new highs after the Federal Reserve delivered a jumbo 50 basis point rate cut. Overseas, China delivered its largest stimulus since 2015 and Japanese policymakers adopted a less hawkish tone helping fuel strong global equity market returns.

Digging deeper into the performance drivers for the quarter:

Jobs data was noisy, but show a cooling, not crumbling labor market: Following soft July and August employment reports, a pickup in hiring in September helped assuage any concerns the economy was sliding into recession. Jobs data in the fourth quarter are likely to be noisy given turbulent weather across the county, but on balance we expect the unemployment rate to stay near 4%.

The Fed kicked off its rate cutting cycle: The Federal Reserve reduced the Fed funds target rate range by 0.50% to 4.75%-5.00% and indicated gradual rate reductions are expected through 2025. That said, the Fed will have to deliver on its promise, and given the committee’s sensitivity to incoming data, investors would be wise to stay diversified across stocks and bonds.

China delivered a sizeable stimulus package to help support its economy and stock market: The People’s Bank of China (PBOC) and regulators delivered a series of policies mainly targeted at supporting its ailing property market. These measures included rate cuts to lending rates, mortgage rates and facilities to allow institutions to fund stock purchases.

These drivers led to notable third quarter highlights:

The S&P 500 gained for the fourth straight quarter, making 18 new highs, while small caps logged its second-best quarter since 2021.U.S. Treasuries and corporate bonds rallied in the quarter as yields fell. The 2s10s curve flipped positive in early September after being inverted since mid-2022.Gold enjoyed its biggest gain since Q1 2016 as faster rate cuts were priced in.China stimulus helped propel EM equity returns on the quarter.

So what now for Q4? The good news is that positive expected earnings growth, cooling inflation, easing central banks and firm job creation create a robust backdrop for risk assets. That said, geopolitical risks and election uncertainty will be at the forefront for the rest of the year, suggesting investors should be prepared for a bumpy ride. The Quarter in Review: What Happened in 3Q 2024_1

The Quarter in Review: What Happened in 3Q 2024_1

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Cohen

Economic

Korea is set to attract up to $67 billion (90 trillion won) in offshore capital, thanks to its inclusion in the World Government Bond Index (WGBI), government officials and market watchers said.

FTSE Russell announced last Wednesday (local time) that Korea will be included in the index in November next year, following a one-year grace period and an additional one-year phase-in period.

The market capitalization-weighted bond index is a global benchmark for the sovereign debt market, managed by London-based FTSE Russell. It includes government bond markets from multiple economies.

Further boosting optimism is an anticipated rise in foreign investments, leading to more stable yields on Korea Treasury Bonds (KTBs) and healthy supply-demand dynamics in the foreign exchange (FX) market. This environment will likely reduce attempts at scalping, an investment strategy where investors buy and sell positions in quick succession to capture small price differences.

Also expanded will be the country’s investor base to include global pension funds, private asset managers, publicly managed funds and international financial entities.

KTB issuances are expected to rise, stabilizing bond yields. An increase in long-term foreign investments is likely to reduce the term premium, which is the additional yield that investors require for holding longer-term positions compared to shorter-duration bonds. A lower term premium indicates greater investor confidence in the Korean market.

However, the sensitivity of the local bond market to external conditions will increase slightly due to the greater influx of WGBI-tracking funds. These “passive” funds tend to have longer durations and offer more stability compared to shorter-duration fixed income sources.

“We are very happy to say the least,” said Kwak Sang-hyun, director of the Government Bond Policy Division at the Ministry of Economy and Finance.

“Months of anticipation, anxiety and worry were well worth it in hindsight. We are glad that foreign investors expressed faith and acknowledged our efforts to advance the financial market and revise tax systems to better accommodate the needs of fixed income investors.”

This timeframe is intended to give global investors time to prepare, as Korea's weight in the index will represent a significant 2.22 percent of the total. In comparison, Canada currently accounts for 1.72 percent, while Spain's figure stands at 4.06 percent and the U.K. at 4.86 percent.

Korea was placed on the FTSE WGBI watchlist in September 2022 and has since implemented measures to extend FX operating hours and eliminate taxes for offshore investors. These efforts resulted in an upgrade of Korea's market accessibility rating from level 1 to level 2.

“The Korean bond market will see offshore investments of between $2.5 trillion and $3 trillion every quarter starting November next year. The total could be as high as $67 billion,” Kwak said.

Global investors have expressed strong confidence in the progress of Korea's capital markets, which has been confirmed by the WGBI inclusion, according to Deputy Prime Minister and Finance Minister Choi Sang-mok.

“It will significantly fortify the government's fiscal planning capabilities and stabilize the FX market in the years to come,” he said during a press conference at the Seoul Government Complex in Gwanghwamun.

“We will continue to maintain close communication with stakeholders to create a healthy feedback loop whereby investor risks are reduced and their convenience is enhanced.”

Riad Chowdhury, head of APAC at MarketAxess, a U.S. fixed income trading platform, said the firm was excited about this announcement.

“Korea is one of the most actively traded bond markets on MarketAxess from our global client base. The WGBI inclusion as well as India's inclusion in the JP Morgan Emerging Market Global Diversified Index (GBI-EM) earlier this year, demonstrate the increasing momentum Asia fixed income is getting from global investors and index providers.”

From Jan. 30 to March 11, Bloomberg surveyed 300 investors with no experience in KTB investments and found that about 80 percent said the WGBI inclusion will have a positive impact on their investment decisions.

The ministry expects the total issuance of KTBs in 2025 to stand at 201.3 trillion won, up 27 percent from the previous year. The net issuance, excluding rollovers, is projected to reach 83.7 trillion won, marking a 68 percent increase.

Source: Koreatimes

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PIIE

Economic

Political

Colleagues at the Peterson Institute for International Economics have already explained the impracticality of trying to fund the government with the 10 to 60 percent tariffs that former president Donald Trump has proposed. It is not possible to pay for all government expenditures with tariffs at the levels he has proposed or for that matter at any level. Tariff revenues would be far too small on any assumption, and government expenditures far too large. But there is another problem with the Trump tariffs: They require a very large federal licensing administration.

Imposing a high tariff can be accomplished with Trump's signature on a single sheet of paper, if he has the authority to do it. That much is simple. In the real world, a tariff has a direct and immediate effect, not just on the public as consumers but on businesses. This is illustrated by the issues caused by the steel and aluminum "national security" measures. The Bureau of Industry and Security (BIS) of the Department of Commerce published a notice in May updating the process of getting exclusions from these import restrictions. Roughly 27,000 exclusion requests were filed between March 2022 and the time of the notice. The BIS estimates that these came from "somewhere between 380 and 500 small businesses." From March 2018 through September 2021—the first 3½ years of the tariffs—the BIS had approved a total of about 207,000 exclusions, about 188,000 for steel products and about 20,000 for aluminum products, according to the General Accounting Office (GAO).

The magnitude of the burden of red tape that businesses and the government would bear with Trump tariffs would be far larger than that. Steel and aluminum imports covered by restrictions account for roughly 1 percent of the $3.1 trillion of total US imports annually. Extrapolating from the steel and aluminum example, expanding the BIS exclusion process to all imports under Trump tariffs would likely result in millions of requests for exemption, and that would be just from small businesses. To this number would be added requests from larger businesses.

Why would there be requests for exclusions? There are a lot of goods that the United States just does not have. Examples: The United States imports most of the critical minerals it needs; around 90 percent of active pharmaceutical ingredients (APIs), with closer to 95 percent for common over-the-counter medicines such as ibuprofen; and during the COVID-19 pandemic, it became plain that essential goods, such as mechanical ventilators, on which many lives depended, had as many as 600 parts sourced from all over the world. None of that could be changed overnight even if it were desirable to do so. There are a lot of products, such as bananas, that would be outlandishly expensive to grow in the United States in hothouses. What use would a tariff on bananas be?

While the 10/20/60 percent tariffs are a proposal Trump often mentions, he also proposes a more complicated version. This is the Trump reciprocal tariff. It would require an even larger federal bureaucracy. He described it in the following way: "For example, food items like cereals or other preparatory goods are tariffed at 32.9 percent by India, 19.5 percent by China, and only 3.1 percent by the U.S. India applies a tariff of 25.3 percent on transportation equipment, while the U.S. only tariffs those goods at 2.9 percent. ... If India, China, or any other country hits us with a 100 or 200 percent tariff on American-made goods, we will hit them with the same exact tariff. In other words, 100 percent is 100 percent. If they charge US, we charge THEM—an eye for an eye, a tariff for a tariff, same exact amount."

This proposal requires a different US tariff schedule for every country we trade with. Instead of having one US tariff schedule for all imports, there would be close to 200 US tariff schedules, each with thousands of entries. A T-shirt from Bangladesh would bear a different tariff than one from Honduras or Vietnam. Cheese from Switzerland would have a different rate of duty than cheese from Ireland, the United Kingdom, or New Zealand. Moreover, the line-item reciprocity approach would require constant adjustments as countries changed their tariffs for their own domestic reasons or to deal with the United States, by attempting to buy their way out of a trade war or by retaliating against American exports. Trump does not specify if a country would get any credit for having a lower tariff on an item than the United States has. If it did, that would add a layer of complexity but also uncertainty. For example, if a foreign country eliminated its tariffs on an item, would the United States match that action without giving domestic producers an opportunity to petition to preserve the US tariff? More red tape.

There are radical solutions to trade issues that do not require enlarging the federal bureaucracy. If a tariff is high enough, it can become prohibitive. Seventy-five years ago, trade with China was prohibited. The Office of Foreign Assets Control (OFAC) worked to make sure that China could not obtain any dollars. For anything US Customs seized, at least for the period I am familiar with having briefly served in that office, it only took three Treasury Department employees to handle the job of allowing or denying entry into the United States. When there was an appeal to let something into the country that even looked Chinese, OFAC would write a letter to the owner saying the import could be allowed in—if the owner could prove that the item came out of China before the communist takeover in October 1949. Since for most personal possessions this was impossible, requests for entry were rarely approved.

Short of a total embargo, which no one is proposing, it will become necessary under any of the Trump tariff proposals to create an army of federal employees administering import restrictions, when they could be more productively employed solving other problems. What is worse is that the high Trump tariffs would harm the nation's economy. If put into place, these tariffs would bring with them a loss of freedom of choice for individual Americans and dramatically increased costs for domestic businesses and consumers, with taxpayers footing the bill for this administrative nightmare. This dystopian vision would become all too real.

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Alex

Commodity

Russia is looking to minimize the impact of volatile oil and gas prices on its budget revenues and sees the share of oil and gas sales of its state income declining, Russian Finance Minister Anton Siluanov has said.

“We are moving towards reducing the share of volatile income and reducing Russia's dependence on oil and gas in favor of boosting our domestic economy,” Siluanov told RT Television’s Arabic news service in an interview, as quoted by Russian media.

A few years ago, oil and gas revenues made up 35-40% of Russia’s budget revenues, the minister said, adding that this share is set to drop to 27% next year, and to 23% in 2027.

Siluanov has recently told Parliament that Russia is moving to reduce its dependence on oil and gas revenues and will boost internal borrowings to finance the budget.

Russia’s budget proceeds from oil and gas sales declined by 0.9% in September from the previous month, according to official Russian government data published earlier this month.

The Russian budget received $8.13 billion (771.9 billion Russian rubles) from oil and gas sales last month, per the data, which confirmed earlier Reuters estimates that proceeds would be roughly stable month-on-month.

For the first nine months of the year, Russia’s oil and gas revenues surged by 49.4% annually to $87.5 billion (8.33 trillion rubles), according to the finance ministry data.

Proceeds from oil and gas sales are the most important cash stream for Russia’s federal budget. These revenues have typically accounted for around a third of all federal budget revenues.

Russia is now preparing for lower oil revenues resulting from depressed prices along with a more relaxed tax regime, Bloomberg reported last month, citing a draft three-year budget.

Per that document, oil revenues in Russia would decline by 14% over the next three years—provided international oil prices remain weak. For 2025, the document sees oil revenues of some $120 billion, or 10.94 trillion rubles, which would be a decline of 3.3% from this year. That modest decline would then extend into 2026 and 2027, by which year oil revenues would fall to $110 billion, according to the government’s current projections.

Source: OILPRICE

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Warren Takunda

Economic

Stocks

London stocks were set to edge down at the open on Monday as investors eyed the release of key UK data points this week, including jobs figures on Tuesday and inflation readings on Wednesday.

The FTSE 100 was called to open around 10 points lower.

Kathleen Brooks, research director at XTB, said: "The data releases in the UK come thick and fast this week. On Tuesday we get labour market data. Employment data is expected to remain strong in the 3 months to August, with the UK economy expected to have created 238k jobs. The unemployment rate is expected to remain steady at 4.1%, however wage data could generate the biggest market reaction.

"Analysts expect wage growth to moderate in the three months to August. Average weekly earnings are expected to moderate to a 3.7% YoY rate, down from 4% in July. If analysts are correct, then this would be the first sub-4% reading for wage growth since 2020. It may also signal that inflation in the UK is now under control, which would support further interest rate cuts from the Bank of England.

"Wednesday’s UK CPI reading will be the most important determinant of the BOE’s next move, in our view. Analysts are expecting inflation growth to moderate to a 1.9% annual rate in September, down from 2.2% in August. If estimates are correct then this is a big milestone for the UK, as it would be the first reading that is below the BOE’s target 2% rate since 2021, and it would also be a sign that the BOE’s fight with inflation is over. If inflation does fall below 2% for September, then this is slightly below the BOE’s own forecasts for inflation that were included in the August Monetary Policy Report."

In corporate news, luxury handbag maker Mulberry said it was considering its position after major shareholder Challice said it had no intention of selling its 56% stake to Mike Ashley’s Frasers Group despite an increased bid for the company.

The statement came after Frasers, which already holds 37% of Mulberry, upped its offer for the rest of the firm to 150p a share from 130p late on Friday after an earlier £83m bid was rejected by the company earlier this month.

EasyJet said it was appointing the chief financial officer of European freight operator Lineas as the new head of its finance function, as current CFO Kenton Jarvis gets ready to move into the chief executive role early next year.

Jan De Raeymaeker, who prior to Lineas was the CFO of Brussels Airlines, will join the board on 20 January.

PageGroup reported a 13.5% drop in third-quarter gross profit to £201.4m, with challenging market conditions and declining confidence affecting client and candidate decision-making across all regions.

The FTSE 250 recruiter said in an update that Europe, the Middle East and Africa (EMEA) saw a 15.1% decline in gross profit, while the UK was down 13.5%, and Asia-Pacific suffered the largest drop at 16.8%, driven by a 25% fall in Greater China.

Despite the tough environment, it maintained a net cash position of £93m, with the board expecting full-year operating profit to align with market consensus of £58m.