NEW YORK - A rice glut that sent prices slumping over a year ago is shrinking, just as El Nino arrives to parch paddies across Asia.
Global inventories were already heading for an eight-year low, including stockpiles so spoiled that top exporter Thailand may sell most for industrial use.
Now, the first dry-weather pattern since 2010 is threatening crops in the Philippines, Indonesia and India. At a time when world food costs are the lowest in more than five years, the price of rice may surge more than 40 per cent if monsoon-season rains falter, said Mr Jack Scoville at Price Futures Group in Chicago.
"The bigger risk is yet to come," said Mr Fred Neumann, co-head of Asian economics research at HSBC Holdings.
El Nino is causing havoc in the market for rice, the food staple for half the world's population.
The Philippines, once the biggest buyer, will have to import more to address weather-related disruptions to food supply, the International Monetary Fund said.
In Indonesia, imports are needed to curb domestic price increases, the United Nations said.
Smaller crops in India, the second-largest exporter, will send shipments falling 17 per cent to a five-year low, the US Department of Agriculture (USDA) estimates.
After almost a decade of surpluses that sent rice futures tumbling to an eight-year low last month, global demand will reach a record 489 million tonnes in 2015 and 2016, exceeding production for a third straight year, the USDA said last Wednesday.
The agency estimates inventories will drop to 91.4 million tonnes, the smallest since 2008, when tight supply sent prices to record levels, and food riots erupted in Africa and the Middle East.
While a repeat of 2008 is unlikely, rice will get "a lot more" expensive, Mr Neumann said. Indonesia has already seen food inflation accelerate to 7.9 per cent, and the USDA predicted Indian prices will rise too.
The warming waters of the equatorial Pacific change the atmosphere above the ocean to create the El Nino pattern, which may last through January and beyond, the US Climate Prediction Centre said last week.
The impact is not just on rice. India said the pattern may crimp the monsoon season that starts this month, hurting food output. And Australia, the fifth-largest wheat exporter, has cut its forecast for this year's crop.