Thai Rice May Rally After Pro-Thaksin Party Forms Government
July 04, 2011, 7:19 AM EDTBy Supunnabul Suwannakij
(Adds rice exporter’s comment in 16th paragraph.)
July 4 (Bloomberg) -- Rice prices in Thailand, the biggest exporter, may rally 56 percent by yearend as the party that won parliamentary elections implements a policy to buy the crop from farmers above current rates, according to a survey.
The export price may climb to $810 per metric ton by Dec. 31, according to a median forecast of six millers, exporters and traders today and yesterday, who commented after Pheu Thai won a majority in yesterday’s contest.
“We will definitely reintroduce the rice-buying scheme,” Yingluck Shinawatra, who will become Thailand’s first female prime minister, said in Bangkok, where she announced a 299-seat coalition in Thailand’s 500-seat parliament.
Costlier rice from Thailand, which accounts for about 30 percent of worldwide shipments, may increase global food costs while making supplies from rival Vietnam more competitive. A Bloomberg survey last month, conducted during the campaign, suggested a gain to $750 per ton if Pheu Thai were to win.
“It isn’t only Thai prices that will go up, the rest of the world will have to follow,” Mamadou Ciss, chief executive officer of Hermes Investments Pte, said from Geneva. The price may jump $100 within two months and peak at $700, said Ciss, who correctly predicted in 2006 that prices would double.
Thai export prices are a benchmark for the industry. The price of the 100 percent grade-B variety, which is set weekly, was at $519 per ton on June 29, and has risen as much as 7.3 percent since outgoing Prime Minister Abhisit Vejjajiva called the election. Abhisit’s Democrat Party won 160 seats in the 500- member parliament while Pheu Thai took 264, with 98 percent of the vote counted.
Food Prices
Global food costs, as gauged by the Food & Agriculture Organization, reached an all-time high in February as wheat, corn, and soybeans rallied. Since then, corn futures in Chicago have slumped 18 percent, while wheat has tumbled 25 percent.
“Export prices will probably rise 10 percent in a month,” Wichai Srinawakul, vice president of the Thai Rice Mills Association, said from Nakhon Ratchasima province. “When its price-pledging scheme is implemented, it will boost the price further, probably to $830 per ton by the end of this year.”
Pheu Thai is a successor to parties loyal to ex-premier Thaksin Shinawatra that won the past four elections. Yingluck, Thaksin’s sister, plans to buy unmilled rice from farmers for a guaranteed price of 15,000 baht ($488) per ton, 63 percent higher than the current level. That would raise costs for exporters and boost shipment prices, according to the respondents of both the surveys.
Global Unrest
In 2008, when Thaksin’s allies were last in power, the government had a similar rice-buying policy and purchased 5.4 million tons from about 700,000 farmers, according to the Internal Trade Department. Local prices rose to a record 17,000 baht per ton in April that year and export rates hit an all-time high of $1,038 per ton the next month after India, China and Vietnam curbed shipments, spurring unrest from Haiti to Egypt.
“Pheu Thai will urgently implement the rice-pledging and farmer-credit policy,” Pichai Naripthaphan, a Pheu Thai member and former deputy finance minister, said by phone today. We’ll also discuss a rice cartel with other producers, Pichai said.
Thailand is on pace to export 10 million tons of rice this year, compared with global shipments of 31 million tons, according to the U.S. Department of Agriculture. The country shipped 6.3 million tons from the beginning of the year to June 28, according to the Thai Rice Exporters Association.
Vietnam May Benefit
Abhisit ended Thaksin’s rice-buying program after he took power in 2008, and adopted a system under which the government paid farmers the difference between the market price and the guaranteed level of 11,000 baht per ton. During the campaign, Abhisit pledged to increase the guaranteed price to 12,000 baht if his party won.
Thai rice exports may decline and the country could lose market share to rival Vietnam, Korbsook Iamsuri, president of Thai Rice Exporters Association, said by phone.
“Thai exporters may feel the squeeze between domestic and internationally acceptable prices, especially for those exporters that had committed in long-term contracts,” Anthony Lam, vice chairman at Hong Kong-based trader Golden Resources Development International Ltd., which annually trades about $150 million of rice, said by e-mail. “The market had already taken this into consideration, which some millers are already squeezing up the price by hoarding the rice.”
Some exporters have stopped taking overseas orders because millers are holding onto supplies until they find out how the new government will implement the plan, Chookiat Ophaswongse, honorary president of Thai Rice Exporters Association, said today.
--Editors: Jake Lloyd-Smith, Richard Dobson
To contact the reporter on this story: Supunnabul Suwannakij in Bangkok at ssuwannakij@bloomberg.net
To contact the editors responsible for this story: Jim Poole at jpoole4@bloomberg.net
