But this decline is likely just the start for rice prices, which have been artificially inflated by government controls and may continue to plummet by as much as 20%.

Rice – which supplies one-fifth of the world’s calorie intake – really began its journey skyward last October, when India banned exports of non-basmati rice to protect the wildly popular grain from succumbing to inflationary pressures. Later that month, India eased the ban, but reapplied it last March.

Faced with civil unrest brought on by rising food prices, other countries have been following suit. In just a few months…

• India banned exports of non-basmati rice after inflation hit a 14-year high.
• Egypt, which typically brings 1.4 million metric tons of rice to the world market each year, banned exports from April 1 to Sept. 30.
• Vietnam, after curtailing exports in March and April, extended a ban on rice sales through May.
• Brazil suspended rice exports, approximately 313,000 metric tons a year, in an effort to maintain price stability.
• Indonesia suspended exports of medium-grade rice exports to combat inflation.

The price of rice doubled, and in some cases tripled, in the first four months of 2008, according to BusinessWeek. U.S. long grain rice jumped from $400 a ton to $800 a ton. Indian Basmati rice soared 182% from $850 a ton to $2,400 a ton. And Thai jasmine shot up from $559 per ton to $1,125.

But the price surge had little to do with supply and demand. Instead, experts pointed to the protectionist measures by rice producers.

“The primary reasons for the recent price spike in rice are due to export bans and restrictions by several major exporters globally that have tightened supplies in the global market,” Nathan Childs a rice specialist at the U.S. Department of Agriculture told Voice of America. “Overall though, the 2007-2008 rice crop is the largest on record and supplies are up a little bit from a year earlier.”

Only 7% of global rice production is traded internationally, which means any government intervention in the export or import markets could have a dramatic impact on rice supply and prices. Traders, millers, wholesalers and retailers also began hoarding supplies to see how much higher prices would go. A weak U.S. dollar and higher costs for fertilizer and shipping also contributed to the rise.

Speculation among investors and consumers has run rampant in recent months, adding to political and economic pressures. As the run-up in commodities price steepened in the early part of the year, driving the price of corn and wheat to all-time highs, traders on the Chicago Board of Trade dove head first into the volatile rice market. Rice futures have gained slightly less than 80% in the past year as a result.

“We have enough food on this planet today to feed everyone,” Adam Steiner, head of the U.N. Environment Program told the Associated Press, adding that the way that access to that food is being distorted by perceptions of future markets is distorting access to that food.

“Real people and real lives are being affected by a dimension that is essentially speculative,” Steiner said.

However, the market has begun to turnaround this week, with rice prices falling 11.6% from its April 24 peak. 

The drop accompanied news that Vietnam would produce enough rice to meet demand from exporters, as well as local consumers. The country also banned speculators from its domestic market.

Also, Thailand has announced it will release 2.1 million tons of rice from the state’s stockpiles for sale to the public to ensure that consumers pay moderate prices for the grain for the rest of the year.

Thailand is the world’s leading rice supplier and has repeatedly assured the public that it would not curb exports despite speculation to the contrary. The nation produces 18 to 20 million metric tons of milled rice each year, of which 9 million is consumed at home. The rest is exported.

Thailand has committed to the export of 8.75 to 9 million metric tons this year and remains confident it can meet that commitment, Reuters reported. In addition to causing a worldwide panic, going back on its word and imposing export curbs would be political suicide for the nations current governing party, which came into power largely on its populous farmer support. Almost half of Thailand’s 65 million people are involved in agriculture, which accounts for 11% of the nation’s GDP.

“I believe the government will not betray farmers who voted for them by imposing any export restrictions, which would cut export demand and adversely affect domestic prices,” Paka-on Tipayatanadaja, a rice analyst at Kasikorn Research in Bangkok, told Reuters. “Farmers invested a lot to grow more rice after the government said it has to plans to curb export. The government has no chance to reverse the policy now.”

Thai jasmine rice is one of the most popular types of rice in the world. U.S. imports of jasmine rice have jumped by 78% over the past ten years. One shopper outside a San Francisco Costco Wholesale Corp. (COST) stores told BusinessWeek that Thai jasmine rice was “the priced one, because of its smell.”

The price of the fragrant rice has benefited greatly from the bullish rice market as its price has more than doubled. As they did so, American shoppers and restaurant owners began panic buying the popular scented rice prompting wholesale clubs like Costco and the Wal-Mart Stores Inc.-owned (WMT) Sam’s Club to limit customers’ purchases.

Fortunately for jasmine rice fans, it’s likely that the price of all Thai rice will continue to ease next few weeks, possibly by 20% according to the secretary general of the Thai Rice Exporters’ Association.

“The market is likely to correct up to 20% even if the bans by India and Vietnam remain,” Korbsook Iamsuri, who is also managing director of Kamolkij Co. Ltd., told Reuters.

The benchmark Thai 100% B-grade white rice was quoted between $1,030 and $1,050 per metric ton, slightly below last week’s record of $1,080 per metric ton, Korbsook said. If she’s right, the price could adjust to $864 by mid-May. And if the price of Thai rice drops, it’s likely others will follow suit, as Thailand – which accounts for nearly a third of the global rice trade – is typically the standard bearer for global rice prices.

If rice prices persist at record levels, most experts expect that consumers will overcome cultural loyalties and switch to medium grade rice, like that grown in California and Arkansas. California will harvest approximately 4 billion pounds of rice this year, 40% of which will be exported. While it’s not as popular as its Asian counterparts, California rice has experienced a price jump of its own. According to the San Francisco Chronicle, California growers will get $20 per 100 pounds of rice this year, double the 2007 price. As a result the amount of rice being planted in the region is on the rise. Rice has been planted on an estimated 549,000 acres in California this year, up from 534,000 acres in 2007.

Agricultural commodities have been stellar performers in recent months, while commodities soared as a whole. However, increased volatility has crept into the grain markets here too. But there’s good reason to believe that any downside in soft commodities will be limited by the fact that we are in the midst of a global food crisis.

Yesterday, rice prices jumped to fresh record highs, and corn traded near its highest level ever. Soybeans and wheat also advanced strongly. Bloomberg reports that “Indonesia, the world’s third-largest rice producer, may join China, India, Vietnam and Egypt in curbing exports to secure domestic supplies.”

What we’re seeing now is nothing short of a full-scale global power struggle to secure valuable food resources which are growing scarce. Rice for example is the staple food for about three billion of the world’s people, mostly in poorer, developing nations. Since 2005, the prices of food staples (including rice) have soared 80%.

This is triggering sharp inflation spikes throughout the developing world – which in turn has sparked troubling social unrest. Consumer prices in China rose 8.7% in February to an 11-year high. Inflation in India is at a 13-month peak.

The United Nations is warning that “36 countries, including China, face food emergencies this year, as stockpiles of grains such as rice drop to a 26-year low.” The World Bank points to social unrest in 33 countries around the world because of “the acute hike in food and energy prices.”

Of course population growth, along with rising living standards around the world, is one of the key “demand factors” most often cited for soaring food prices. Another factor to keep an eye on is soaring input costs – which is keeping upward pressure on prices from the supply side too.

U.S. farmers, for instance, are paying much higher prices for diesel fuel to power their combines, nitrogen fertilizers to nurture their crops, and livestock feed. In fact, while commodity prices received by farmers jumped 17% year over year in March – the costs incurred by farmers to grow grains and livestock soared 11% over the same period.

These higher “input costs” will inevitably get passed along over the next few months in the form of…you guessed it: Even higher agricultural commodity prices.

MIKE BURNICK, Senior Editor & Global Markets Analyst

P.S. My colleague, Eric Roseman, will be hosting a special FREE teleconference next Thursday at 12 noon EDT to show you exactly how to pad your commodity portfolio as this global struggle for food continues. It’s absolutely FREE to join us. Simply click here to let us know you’ll be listening in next Thursday.

Yesterday, rice prices soared 30% after Egypt banned exports of the staple to keep domestic prices down. India has also restricted exports of rice.

Global rice stocks are at their lowest since 1976.

Tom Dyson, editor of the 12% Letter, says grain prices will triple.

“Grain markets are a little frothy right now, but the long-term argument is solid. If you’d like to invest in grains, PowerShares has a sugar, corn, soybean, and wheat ETF (DBA). In October, iPath created JJA, traded on the NYSE. It tracks corn, wheat, soybeans, sugar, coffee, cotton, and soybean oil. Elements has come out with an instrument that tracks the 20 commodities in the Rogers International Commodities Index (RJA). Finally, market Vectors has an ETF of agribusiness stocks (MOO).”