Bumper rice harvests drag prices to decade-lows

By | November 29, 2016

Rice HQ

BANGKOK — Years of drought brought by the weather cycle El Nino to South and Southeast Asia, home to the world’s biggest rice traders, have given way once more to soaking rains, boosting harvests of the region’s major staple crop and sending prices tumbling to 10-year lows.

A combination of improved harvests, significant inventories due to government policies and commodities market speculation, contracting export demand and programs to boost rice production for Asia’s biggest importers have led to widespread problems for farmers and subsequent intervention by regional administrations.

Asia grows about 90% of the world’s rice, the main staple for about half of the world’s populations, according to the U.S. Department of Agriculture. The total crop there is expected to expand by 1.4% in 2016 compared with last year.

Rice from Thailand, the world’s second biggest exporter in 2015 after India, is the most prized and more expensive. At the top of the heap is high-quality jasmine rice, also known as hom mali, which makes about a quarter of Thailand’s total rice exports. Its price has tumbled from about $1,200 per metric ton in 2012-13 to an average of $1,008 per metric ton in 2015 and down to $725 by the end of October 2016, according to Thai Rice Exporters Association.

Jasmine rice acts as the grain’s price-setter, with prices for other types of rice rising and falling on its fortunes.

The Thailand benchmark price of 5% broken white rice fell to $345-$348 per metric ton by Nov. 9 from $345-$350 per metric ton the previous week, despite the announcement of a new government-funded program. Worth at least $1 billion, it includes a range of subsides including payments to farmers for “pledged” rice as well as interest-free loans.

Thailand’s rice woes have a contagion effect on other exporters who sell rice of a lower quality. This is especially true for Vietnam, the number three exporter, whose government has rapidly expanded its rice industry in recent years with an eye to exports of low to middling varieties. But this leaves its cargoes at risk of competition from Thailand, now that its top grain is trading at lower levels.

Vietnam’s aromatic rice prices are currently quoted at about $570-$650 per metric ton. Exports so far this year (January-October) have crashed by 21.2 % from the same period in 2015. They were mostly sold to China, Ghana and the Philippines, the country’s Agriculture Ministry said in a statement.

Vietnamese 5% broken rice was $350 per metric ton compared with $350-$355 the previous week, with its price advantage against Thailand now wiped out. India and neighboring Pakistan grow and export mainly basmati rice which effectively operates in a separate market.

World production of paddy — global raw rice crop — is now expected to reach a record of 749.7 million metric tons, or about 497.9 million metric tons, of milled rice, the United Nations Food and Agriculture Organization said in its October quarterly Rice Market Monitor.

“This will mark the first global production expansion of the grain to occur since 2013 and exceed 2015’s drought depressed harvest by 10.1 million metric tons, ” the report said, adding that in Asia, weather conditions have enabled “cropping activities to unfold considerably better than in the past two seasons.”

India accounted for much of the upward adjustment with the outlook also improving for major rice producers Thailand, Cambodia, Colombia, Iran, Nigeria and Brazil. In contrast, prospects deteriorated in mainland China, the world’s largest rice producer, the U.S. and Vietnam.

The latest forecast for the primary staple for about half of the world’s rice supplies for 2016/17 was raised by 0.5 million metric tons to 1.3 million tons, in the UN FAO’s latest supply and demand estimates on Nov. 9.

Government intervention

Still various government initiatives across the region have seen rice inventories rise in recent years, in particular Thailand. Rice stocks there were accumulated in an expensive subsidy program operated from 2011-2014 that eventually helped seal the downfall of the elected government.

The accumulative effect of all this has seen exports forecast contract for the second successive year, as demand reduction has also pushed prices lower.

“FAO has lowered its forecast of international trade in rice in calendar 2016 by 800,000 metric tons since July, now pointing to global rice deliveries amounting to 43.1 million metric tons,” the UN FAO said, adding this would be 3% short of the 2015 volume.

As well as bumper supplies, existing inventories can be drawn down and sold into the market. Some of these inventories have been hoarded by rice millers, the biggest customers at the farm gate, who have speculated on prices, analysts noted.

But now, those bets are increasingly out of the money, and with little sign of any improvement in prices in the medium term, millers are limiting their losses by selling. Inventories held by importers have also weighed on export demand and that, too, has increased downward pressure on prices.

In another update on global cereals and grains released on Nov. 8, the UNFAO said it anticipated drawdowns of stocks in India and Thailand but these will be compensated by accumulations elsewhere, especially in China, leaving forecast inventories for the end of the season in February down only slightly.

While weather cycles will remain important, the longer term out outlook for rice prices is poor due to a combination of Asian governments moving slowly on agricultural reform and major export markets closing up. The UN FAO is predicting that the international rice trade will increase by only 0.7% in 2017.

In the Philippines, the government of President Rodrigo Duterte has asserted that the country’s goal of rice self-sufficiency, set in 2010, will be achievable in two years.

In 2010, the Philippines was producing 81% of its domestic rice demand according to the country’s Department of Agriculture, but that has now risen to 97%.

Indonesian President Joko Widodo, too, has been preaching the message of food — and ultimately rice self-sufficiency — since he came into office in 2014.

“We are improving all regulations that are seen to be hindering the pace toward achieving self-sufficiency in food production,” Indonesia’s Agriculture Minister Amran Sulaiman said Oct. 28.

Other major importers such as Nigeria, which last year bought 4.8% of the total global rice exports, are also planning to end imports with an ambitious 2017 target for self-sufficiency.