Chicago, Aug 22 - Rice prices on Tuesday tumbled 5 percent to the lowest level in nearly two months, amid fears that exports could suffer after the discovery of U.S. rice supplies tainted with unapproved genetically modified rice.
Japan has already banned imports of U.S. long grain rice after U.S. government officials announced on Friday that GMO rice was found in commercial supplies.
Europe, a major market for U.S. rice, was set to block unauthorized biotech rice from reaching its shores even as American farmers harvest this year's crop.
"The saga continues, and it's still the psychological fear element that is driving the market," said Neauman Coleman, analyst and rice broker from Brinkley, Arkansas.
Rice futures at the Chicago Board of Trade fell by the daily trading limit of 50 cents per hundredweight, or more than 5 percent, the sharpest one-day decline in years.
Tuesday's drop came on top of declines chalked up on Monday, the first dayside trading session after news of the commingling was announced late on Friday by the U.S. Agriculture Department.
U.S. officials said it was the first time unmarketed genetically modified rice has been found in rice used in the commercial market.
The Food and Drug Administration and USDA were notified on July 31 that testing by Bayer CropScience, a division of Bayer AG, reported the biotech sample, called LLRICE 601, in rice bins in Arkansas and Missouri.
There were no plans to recall or destroy the commercial rice that was contaminated with the unapproved variety.
CBOT traders were most concerned that the European Union, a big buyer of long grain rice as traded at the exchange, will stop importing U.S. long grain rice following Japan's move.
The 25-nation European Union bloc imported 300,000 tonnes of U.S. rice last year, with 85 percent being long grain. No GMO rice is authorized for import or sale in the EU.
CBOT rice futures for November delivery SX6> fell the 50-cent trading limit before closing 49 cents lower at $9.35 per hundredweight -- its lowest close since June 29.
CBOT September futures closed 50 cents lower.
Since the USDA's announcement late Friday, the price of CBOT November rice has fallen 75 cents.
"There are going to be trade tensions. That is basically your knee-jerk reaction," said grain analyst Shawn McCambridge with Prudential Financial.
"Where it goes from here really depends on the political environment within the importing countries, and whether or not this whole GMO issue is as big as they think it is," McCambridge added.
U.S. government scientists, meanwhile, were scrambling to certify a test that would identify the unapproved rice gene to ease fears of U.S. rice customers who don't want the experimental strain mixed in their supplies.
A valid test could be ready for the market within a few days, possibly as early as Wednesday, to ensure that the unauthorized rice does not enter consumer markets there, said an official with the Grain Inspection, Packers & Stockyards Administration.
Traders were also watching for any possible reaction from buyers in Central America. "Where rice is really important is into Central America," said analyst Roy Huckabay with The Linn Group, a Chicago trade house.
Central America imported roughly 765,000 tonnes of U.S. rice in 2005. Only a small percentage is long grain rice.
That area of the world also tends to be less restrictive in importing GMO crops, he added.