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Head and broken rice price spreads narrow as feed demand soars


International rice trade increasingly led by feed demand for broken rice

Asian price spreads between 5% and 100% broken white rice narrow significantly

Shift in demand dynamics principally comes from high corn prices

  • Author
  • Peter Storey
  • Editor
  • Jonathan Fox
  • Commodity
  • Agriculture

An influx of both domestic and international feed demand in the Asian rice market has curbed broken rice availability, narrowing the spread between head and broken rice grades considerably.

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On the export side of the market, sources in Asian origin markets have reported unusually high demand for broken rice from China in recent days, particularly from India and Pakistan. One Indian seller reported "very aggressive" demand from Chinese buyers, with India also facing supply curbs elsewhere. These curbs are principally a result of better-than-expected kharif crop milling yields, higher demand for 25% broken white rice in relation to 5% broken white rice and sources reporting issues transporting broken rice from inland mills to Kakinada Port.

In Pakistan, exporters have also reported incredibly strong broken rice demand from China at a time when head rice demand is subdued. Numerous sources have reported that mills are processing paddy simply to extract the broken rice, which is typically considered a byproduct. One exporter even made the claim that some mills were breaking head rice to supply broken rice orders, primarily to China. Some sources reported prices for 25% broken white rice at a discount to 100% broken white rice, and S&P Global Platts assessments of these grades were on a par for the first time ever Feb. 28.

Even outside of China, abnormal broken rice trade dynamics in Asia have emerged recently. One Thai exporter reported Feb. 28 that a breakbulk shipment of broken rice had recently left Bangkok bound for the US. The source confirmed that US buyers were avoiding Pakistan and India for pesticide residue reasons and that the sale was "unusual" as US buyers typically secure their international broken rice requirements from Brazil.

Ukraine dynamic

Much of this unusual demand for broken rice ultimately comes from rising animal feed costs amid supply concerns: principally corn and, to a lesser extent, wheat. This pricing spike primarily stemmed from rising tensions around the Black Sea in recent weeks, which culminated in Russia's invasion of Ukraine Feb. 24.

As Ukraine is the world's fourth-largest corn exporter, according to the US Department of Agriculture, and Russia is the world's largest wheat exporting country -- almost exclusively from the Black Sea region -- feed demand for broken rice is only likely to increase in the coming weeks as supply lines are severed.

As of Feb. 28, Platts Corn CFR North East Asia assessment touched $366/mt, up $42/mt from the start of 2022 and $71.30/mt year on year. While principally for human consumption, Matif's milling wheat front-month futures contract rose Eur41.75/mt on the day Feb. 24 to Eur328/mt.

At the same time, because of rising freight and feed prices, Asian countries which would typically export large volumes of broken rice and import large volumes of feed grains, such as Thailand and Vietnam, may see an influx of domestic demand for broken rice in the coming weeks to satisfy feed demand.

Spreads narrow considerably

In the meantime, Asian origin broken rice prices have already begun to follow rising corn and wheat prices as buyers switch to broken rice. Indian 100% broken white rice, for example, was assessed at $310/mt FOB Feb. 28, up $29/mt since the start of the year.

Arguably, what is more interesting is the impact this is having on price spreads between head and broken rice grades, with spreads narrowing considerably amid recent lackluster head rice demand (see table). Vietnam is the only outlier to this trend, with spreads between 5% and 100% broken white rice narrowing considerably for every other major Asian rice origin.

Asian 5% and 100% broken white rice price spreads as of Feb 25
2021 ($/mt)
2022 ($/mt)
Source: S&P Global Platts

With the impact of recent developments in the Black Sea region still being felt, it is possible that Pakistani 25% and 100% broken white rice being assessed on a par may not be a one-off incident and could be a sign of things to come. While this is still a very fluid situation, rice prices -- commonly viewed as undervalued in relation to other agricultural commodities -- may begin to see substantial support from a very unusual source.