Bloomberg News

Rice Poised for Third Record Crop as Food Prices Retreat

June 05, 2012

Rice Poised for Third Record Crop as Prices Retrea

The cost of benchmark 100 percent grade-B Thai rice fell 7 percent since reaching a three-year high of $663 in November. The grain is still 5.7 percent higher this year after the government began stockpiling supply to support farmers. Photographer: Dario Pignatelli/Bloomberg

The third consecutive year of record rice production is poised to expand inventories to the most in more than a decade, driving down prices and helping to contain the more than $1 trillion spent on food imports annually.

Farmers will harvest 466.4 million metric tons in the 2012-2013 season, boosting stockpiles by 0.7 percent to 104.9 million tons, the largest since 2001-2002, says the U.S. Department of Agriculture. Prices of 5 percent white rice in Thailand may drop as much as 14 percent to $520 a ton by the end of July, said Mamadou Ciss, who is the president of Alliance Commodities SA in Geneva and has traded the grain for more than a quarter century.

Rising supply will contribute to the biggest grain crop ever, according to the United Nations, whose gauge of world food costs fell 10 percent since reaching a record in February 2011. Lower grain prices will help contain inflation because rice is a staple for more than 3 billion people. The global food-import bill was already expected by the UN to drop by about $50 billion in 2012 from an all-time high of $1.29 trillion last year.

“There is enough supply to meet all the demand in the world,” said Concepcion Calpe, a senior economist at the UN’s Food & Agriculture Organization, where she is also secretary of the Rome-based group’s inter-governmental body on rice. “There will be ground for a further slide in prices.”

Support Farmers

The cost of benchmark 100 percent grade-B Thai rice fell 7 percent since reaching a three-year high of $663 in November. The grain is still 5.7 percent higher this year after the government began stockpiling supply to support farmers. Prices are now dropping because the harvest will be so big that exports can still expand 23 percent, allowing Thailand to overtake India and Vietnam as the world’s biggest shipper, the USDA estimates.

Rough-rice futures on the Chicago Board of Trade declined 7.2 percent this year to $13.825 per 100 pounds. Ciss said prices may drop to $13.25. The Standard & Poor’s GSCI Agriculture Index of eight commodities fell 10 percent this year, and the MSCI All-Country World Index (MXWD) of equities retreated 2.3 percent. Treasuries returned 2.3 percent, a Bank of America Corp. index shows.

The global stockpiles projected by the USDA would be 30 percent above the level reached in 2007-2008, when curbs on exports by countries including India drove the Asian benchmark to a record $1,038 a ton. With harvests now expanding across the region, demand for imports will drop 1.5 percent to 32.4 million tons, the first contraction in four years, the USDA estimates.

Nigerian Supply

India, the second-biggest grower after China, has lifted a three-year ban on non-basmati sales overseas and will ship 6 million tons, USDA data show. That’s enough to supply Nigeria, the largest importer, for about 2 1/2 years. More exports will also come from Pakistan, China, Cambodia, Myanmar, Brazil and Australia, the USDA estimates.

Extreme weather is the greatest threat to lower prices. Indian farmers rely on a favorable monsoon for the so-called kharif crop, which is sown in the rainy season from June and accounts for more than 80 percent of annual output. Rain from this year’s monsoon, the farmers’ main source of irrigation, will probably be about 99 percent of the 50-year average, the India Meteorological Department said in April. The rains should reach the Indian mainland during the next 48 hours, according to the weather bureau yesterday.

El Nino weather conditions, which can parch parts of Asia including Vietnam, Thailand and Indonesia, may develop this year as the Pacific Ocean warms, Australia’s Bureau of Meteorology warned last month. All seven models used by the Melbourne-based bureau show conditions are likely to approach or exceed El Nino thresholds, according to a report on May 22.

Profitable Crops

In the U.S., the fifth-largest shipper, production is forecast to slump to the smallest in 14 years as farmers plant the least in a quarter century in favor of more profitable crops including soybeans and corn, the USDA estimates. Exports will decline for a third year, dropping 7.9 percent to 2.8 million tons, the lowest since 2000-2001, predicts the department.

Thailand’s stockpiling program runs until mid-September and there is no limit on the amount that can be bought. The government wants export prices at $800 a ton and will stop buying when they reach that level, Yanyong Phuangrach, permanent secretary at the Commerce Ministry, said on June 1.

The Thai program may be less effective than planned because inventories already exceed 10 million tons, space is scarce and funding is constrained, Alliance Commodities’ Ciss said. The country will have accumulated more than 12 million tons of reserves by the end of this season, the USDA estimates.

Grain Supply

That’s mirroring gains in the availability of combined grain supply worldwide, with the FAO predicting a 1.1 percent advance to 2.37 billion tons. Rice and corn will more than compensate for smaller wheat harvests.

Vietnamese rice production will expand for a 12th straight year, reaching an all-time high of 26.5 million tons, the USDA predicts. Exports will match the previous year’s record 7 million tons, making them the second-largest after Thailand.

Stockpiles in India, underpinning the scale of exports, will rise 2 percent to a record 25.5 million tons by the end of the season, USDA data show. State-run warehouses held 32.92 million tons as of May 1, 19 percent more than a year earlier, according to Food Corp. of India, the country’s biggest buyer of food grains.

Typhoon Season

The Philippines, formerly the largest importer, has been promoting self-sufficiency. More irrigation means land can be planted earlier, allowing harvests before the typhoon season, Agriculture Secretary Proceso Alcala said in April. The government anticipates imports of 500,000 tons this year, from a record 2.47 million tons in 2010. Purchases by Indonesia may drop to a three-year low of 1.45 million tons, USDA data show.

Smaller producers are also boosting output for sale overseas. Cambodian shipments may climb to 950,000 tons, 19 percent more than a year earlier and up from 10,000 tons a decade ago, the USDA estimates. Myanmar, which is now opening up its economy after decades of isolation, may ship 750,000 tons, from 600,000 tons a year earlier, the department predicts.

“With record output, the market will be bearish this year,” said Ciss, who correctly predicted in 2006 that prices would double. “The crop is very good in Vietnam and the government in Thailand is sitting on over 10 million tons, which they will soon have to release.”

To contact the reporters on this story: Supunnabul Suwannakij in Bangkok at ssuwannakij@bloomberg.net; Luzi Ann Javier in Singapore at ljavier@bloomberg.net

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


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