Rice prices are becoming "worrisome" as global supplies tighten because of crop losses in some of the largest exporters, according to an official in the Philippines, the world's biggest buyer.

The global supply-and-demand balance is "not at the 2008 level yet, but it's pretty worrisome because of the prices,"

Lito Banayo, head of the National Food Authority, which handles state rice purchases in the Philippines, said in an interview in Manila yesterday.

The United Nations Food & Agriculture Organization's global Food Price Index surged in August to the highest level since September 2008 as wheat and rice prices advanced after Russia, the world's third-largest wheat grower last year, banned exports and flooding in Pakistan damaged rice crops, curbing supplies of Asia's two main staple grains.

The FAO pared its estimate for global rice production on Sept. 1 for the second time since April as lower water levels in the Mekong River curbed yields in Thailand and Vietnam, the world's two biggest exporters, and flooding slashed the harvest in Pakistan, the third-largest shipper.

The agency's Rice Price Index, which tracks 16 export prices around the world, climbed to a five-month high of 215 points in August. "We feel the market could be subject to a supply crunch,"

Jonathan Barratt, managing director at Commodity Broking Services Pty. in Sydney, said in an e-mail to Bloomberg News today. "Already we have seen a strong movement in rough rice" prices, he said.

Eoin Treacy's view Since China's Yunnan province is a major watershed for the Mekong, Pearl and Yangtze rivers drought in that that area earlier this year has predictably had an effect on water levels further down river and hence rice yields. (Also see Comment of the day on March 11th). In tandem with floods in Pakistan and drought in the Philippines, global supply is going to be lower than expected whereas demand at current prices is as yet undiminished.

Prices have risen impressively over the last few weeks but are still less than half their peak value so we are nowhere close to the issues faced by rice importers in 2008. However the trend is towards higher prices, the food sector has a high degree of commonality and major buyers seem likely to conclude that buying just-in-case supplies might be a good idea.

Prices have sustained a progression of higher reaction lows since July and are currently pressuring the $12 level. A sustained move below $11.25 would be required to question the consistency of the short-term move and potential for continued upside.