Bloomberg News

Rice Rout Seen Extending as Thai Sales Quicken: Southeast Asia

February 19, 2014

Rice Mill

A worker walks up a pile of rice to be processed at the Sahakorn Kan Kasert rice mill in U Ya, Suphan Buri province, Thailand. Photographer: Dario Pignatelli/Bloomberg

Global rice prices will extend declines as Thailand is forced to offload grain from record stockpiles accumulated under a state-buying program, according to the Vietnam Food Association, the main shippers’ group.

Exports to China and Africa from the second-largest shipper will drop this year on increased competition from Thailand as well as from India and Pakistan amid a global glut, said Truong Thanh Phong, chairman of the Ho Chi Minh City-based group.

While Thailand’s reserves built up as the government paid farmers above-market prices since 2011, the program is now short of funds and unpaid growers are demanding stockpile sales. The unrest by the growers adds to opposition targeting Yingluck Shinawatra’s caretaker administration, which has faced months of demonstrations. Phong’s comments reflect concern among exporters about the pace of sales from holdings that are large enough to cover 39 percent of annual world import demand.

“The rice market has seen fierce competition for the past two years due to the global surplus,” said Phong, who has been chairman of the group for 13 years. Global prices will decline this year because they’re guided by Thai rates, he said.

The price of new-crop Thai 5-percent broken white rice, a benchmark grade, tumbled 23 percent last year and was at $460 a metric ton on Feb. 12. The Vietnamese 5 percent-broken variety is about $395 a ton, higher than $370 for old-harvest Thai grain, Phong said, without giving price forecasts. Rough rice fell 0.3 percent to $15.81 per 100 pounds in Chicago today, paring losses this year to 0.7 percent.

Rural Incomes

Thailand spent 689 billion baht ($21 billion) in the past two years buying from farmers to boost rural incomes. That spurred the buildup in the inventories to 14.7 million tons this year from 6.1 million tons in 2010, according to the U.S. Department of Agriculture. The program is set to lapse at the end of this month as Prime Minister Yingluck’s caretaker administration doesn’t have the authority to extend it.

“Given the caretaker government’s troubles in securing financing to pay farmers for their paddy pledged during the past wet-season crop, it seems likely that they will try to increase sales,” said David Dawe, Bangkok-based senior economist at the Food & Agriculture Organization. “If they are sold too soon and all at once, the global price will fall, but if they are sold too late then the quality will continue to deteriorate.”

Thai farmers blocked roads in the provinces and protested in Bangkok this month, urging a faster pace of sales from the stockpiles so that the government can make missed payments to growers. It may take about five years for the state stockpiles to be sold off and a further slump in prices is possible as more of the grain is shipped out, Thai Rice Exporters Association President Chareon Laothamatas said on Feb. 5.

Planned Sales

Thailand plans to sell about 1 million tons a month from stockpiles during the first quarter, Deputy Prime Minister and Commerce Minister Niwattumrong Boonsongpaisan said on Feb. 17. The government will clear all remaining payments to farmers within six to eight weeks using short-term borrowings, Finance Minister Kittiratt Na-Ranong said the same day.

Vietnam’s exports are forecast at 6.5 million to 7 million tons this year, with shipments of 1.2 million tons seen this quarter and 3.5 million in the first half, Phong said. The country shipped 6.68 million tons in 2013, the lowest level in four years, according to VFA data.

Official exports to China may drop 9.1 percent to 2 million tons this year, Phong said on Feb. 14, referring to trade tracked by customs. Unofficial shipments, not tracked by customs, may slide to 1 million tons to 1.1 million tons from a range of 1.4 million tons to 1.5 million last year, Phong said.

Biggest Importer

China, the world’s largest buyer, will import 3.4 million tons in 2014, according to the USDA. Heilongjiang province halted a plan to buy 1.2 million tons, Deputy Prime Minister Niwattumrong said on Feb. 4, citing the province’s concerns about an anti-corruption probe into the program.

There’s enough evidence to charge Yingluck with negligence for her role overseeing the policy that generated losses, the National Anti-Corruption Commission said yesterday. Yingluck will have an opportunity to defend herself before the commission determines whether she will be indicted. The prime minister defended the program in a national address yesterday.

Vietnam’s sales to Africa will drop as India and Pakistan offer cheaper prices, Phong said. Shipments were 1.9 million tons last year, accounting for about 28 percent of the total. That’ll decline to 23 percent to 25 percent this year, he said.

Shipments from India, the second-largest producer, will probably expand to a record 11 million tons in the 12 months through March, according to M.P. Jindal, president of the All India Rice Exporters Association. Exports from Pakistan may total 3.4 million tons in 2014 compared with 3.5 million tons last year, a USDA projection shows.

Harvest Forecast

The global rice harvest expanded 0.8 percent to 469.5 million tons in 2013, outstripping demand of 467.1 million tons, according to the USDA. The surplus -- together with record supplies of wheat, corn and soybeans -- helped world food costs tracked by the Rome-based Food & Agriculture Organization to drop 15 percent from a record in February 2011.

Vietnam’s total output of unmilled rice this year will be similar to last year’s 44 million tons, Phong said. In 2015, the harvest may decline 2 percent to 3 percent as the government implements a plan to switch more land to other crops, he said.

The switch away from rice is designed to boost farmers’ incomes, with corn one of the alternatives, Pham Dong Quang, deputy head of the government’s crop-production department, said in an interview in September. Any reduction in planting will be mainly in the north of the country as the Mekong Delta in the south will stick to rice, said the VFA’s Phong.

“We will try to promote trade in China because it’s our biggest buyer,” said Phong, who’s been in the industry for almost four decades. “But China will definitely demand lower prices from us because of Thailand’s selling pressure.”

To contact the reporter on this story: Diep Ngoc Pham in Hanoi at dpham5@bloomberg.net

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


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