Bloomberg News

Rice May Rally on Thai Floods, State Buying, Sumeth Says

October 19, 2011

(Updates price in seventh paragraph.)

Oct. 19 (Bloomberg) -- Rice may advance 19 percent after floods cut supplies in Southeast Asia, including in the biggest shipper Thailand, and that nation’s government started a state- purchasing program, according to the country’s largest packer.

The price of Thai parboiled rice may climb to $750 per metric ton on a free-on-board basis by year-end from $630, while the same product from India may gain to $500 per ton from $480, C.P. Intertrade Co. President Sumeth Laomoraphorn said in an interview in Bangkok. Parboiled rice is soaked, steamed and dried before milling, a technique that preserves vitamins.

Costlier rice may push up global food costs and elevate inflation, complicating the task for the world’s central bankers as they seek to sustain economic growth hurt by the euro zone debt crisis. Indian suppliers may benefit from sales not met by Thailand and the South Asian nation may become the world’s second-largest supplier, Sumeth, 50, said on Oct. 17.

“Thailand seems to have suffered the biggest damage,” Samarendu Mohanty, a senior economist at the International Rice Research Institute, said from Los Banos, the Philippines yesterday. While Thai parboiled prices may rise 10 percent at most, India will boost shipments, Mohanty said by phone.

Thailand has been battling the worst flooding in five decades and the waters have hurt crops, damaged infrastructure and killed more than 300 people. The inundation may cut output of unmilled rice by 3.5 million tons, the Thai Rice Exporters Association said on Oct. 17. That’s 10 percent of last year’s harvest, according to Bloomberg calculations.

‘High Prices’

“We will see high prices until at least March,” said Sumeth, whose company is a unit of Bangkok-based Charoen Pokphand Group, Asia’s biggest animal-feed producer. “India’s loading capacities at ports won’t be able to cope.”

Rough-rice in Chicago, which has rallied 17 percent over the past year, traded at $16.33 per 100 pounds at 4:03 p.m. in Singapore. Thailand’s 100 percent grade-B variety, a benchmark that’s priced weekly, was set at $619 per ton on Oct. 12.

Parboiled and white-rice grades each account for about 35 percent of Thailand’s total shipments, according to the Thai Rice Exporters Association. African buyers accounted for 49 percent of all Thai shipments last year, according to the group.

Rice prices will also be driven higher by the Thai government’s new price-support program, Sumeth said, restating comments by exporters that the policy introduced this month by Prime Minister Yingluck Shinawatra will elevate costs.

Rural Incomes

The government has started paying 15,000 baht ($488) per ton for white rice and 20,000 baht per ton for jasmine rice, higher than market rates. While the program is intended to bolster rural incomes, exporters have said it will boost prices and erode Thailand’s competitiveness, favoring rival shippers.

“The Thai price-support policy impact on exports will be greater than the floods,” said Mohanty, the economist at the rice institute. “This is the market that is still finding a balance between the Thai shortfall and India’s excess supply.”

Thailand’s rice exports will drop to about 8 million tons next year, compared with 10.5 million tons this year, according to estimates from the U.S. Department of Agriculture on Oct. 12. Shipments from India, the third-largest exporter, were revised 1 million tons higher to 4.5 million tons next year.

Export Demand

India will be able to draw on its estimated 22 million tons of inventories, which were built up during a suspension of exports of non-basmati rice, to meet the increased export demand, said Sumeth, who’s spent three decades at the CP Group.

India’s government, which banned private companies from shipping non-basmati rice in April 2008 amid a global food crisis, removed curbs on Sept. 8. Exports may total 4 million tons in the year from April 1, Vijay Setia, president of the All India Rice Exporters Association, said on Sept. 13.

“I estimate the nation to ship about 2 million tons in the six months ending March,” said Sumeth. “India may become the world’s second-largest rice exporter next year.”

Vietnam was the world’s second-largest shipper last year, exporting 6.7 million tons, according to data from the USDA. India shipped 2 million tons and Thailand exported 9 million.

Southeast Asia’s rice production may be cut by about 4 million tons because of the floods, with projected losses in Thailand of 3.5 million tons, said Pawan Kumar, a Singapore- based analyst at Rabobank International.

“About 4 million tons of rice will be out of the export pool,” said Kumar. Still, high so-called ending stockpiles in Thailand and the possibility of additional exports from India can potentially balance out the market, he said.

--With assistance from Luzi Ann Javier in Singapore. Editors: Jake Lloyd-Smith, Tony Jordan, Thomas Abraham

To contact the reporters on this story: Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net; Supunnabul Suwannakij in Bangkok at ssuwannakij@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net


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