As with every other key foodstuff this year, global prices for rice have pushed to record levels in 2008 amid supply tightness, a surge of investment money in physical commodities and currency swings.

But even as markets in some grains and oilseeds, notably wheat, maize and soybeans, calmed a bit in March, with prices retreating from record peaks, the rice market grew more frenzied. Prices continued to steam upward through the month, and the specter of market panic began to surface.

Over a few days in late March, the Fijian government chastised supermarkets for hoarding, and armed Thai farmers were guarding their paddies at night amid rumors of widespread theft by rice bandits. Those developments occurred as benchmark Thai prices for 100% Grade B rice were quoted well above $600 a tonne, while prices for the premium fragrant Thai grade surged to $900.

In the Philippines, officials failed to secure enough rice from local traders to boost public food inventories, even at a price of $680. That forced the National Food Agency to issue an import tender — at which it reportedly paid $708 a tonne — and prompted local politicians to warn of social and political unrest.

In terms of supply/demand fundamentals, the price levels appear extreme. Global production in 2007-08 is forecast to be about 1% above the previous season and very slightly higher than 2007-08 consumption.

So while reserves will not expand, a drawdown should be narrowly avoided. But that news is being overshadowed this season by more worrisome factors, some fundamental to rice and some not.

For one thing, rice reserve levels are already fairly tight. The most recent U.S. Department of Agriculture estimate of 2007-08 world ending stocks is 75.2 million tonnes, up just a tad from 74.8 million last year and representing a supply-to-use ratio of just 17.9%, unchanged from 2006-07 and the smallest since 1980-81.

The ending stocks level also is down nearly 50% from 2000-01. Some observers worry that the sharp drawdown may signal a trend that cannot be reversed, leaving rice consumers vulnerable in case of widespread crop failures.

A Philippine official noted concerns over the conflicts between urbanization and the need to preserve arable land for food crops amid population growth. Other expanding economies, including China and India, face similar issues.

Recent momentum for surging rice prices also comes from the virtual withdrawal of key rice suppliers from the export market. China, India, Vietnam and Egypt each imposed short-term restrictions through new export duties, high export price minimums or outright export bans to maintain domestic supplies and try to tamp down local price inflation.

Some of these immediate pressures are expected to ease in the coming weeks, as the second-season Asian harvest will provide additional supplies. But issues not directly related to rice may continue to roil the market.

The weakening U.S. dollar relative to other currencies has made all commodities traded in dollars — such as oil and rice — more expensive. Indeed, some Thai rice traders reportedly had lost $200 a tonne on rice sales booked in January, in part because of the strengthening baht versus the dollar.

The falling dollar stems largely from U.S. central bank efforts to ease a credit crisis by lowering interest rates, which has driven investors to seek higher rates of return elsewhere. Many have put money into financial instruments in countries with higher interest rates such as Thailand, where yields this year have surpassed 4%, second only to Hong Kong among Asian markets.

Many others have fled to commodities, for both higher returns and as an inflation hedge. These money flows will keep upward pressure on prices and volatility in the markets.