Rising rice output in Asia, due to favourable weather in 2013, and huge stockpiles in Thailand will squeeze global prices in the second quarter of the year, according to a report from the Food and Agriculture Organisation (FAO) and industry officials.
Asian rice production was expected to rise 2.2 percent, or 15 million tonnes, to 677.5 million tonnes of paddy, yielding 451.7 million tonnes of milled rice, the FAO said in a quarterly report dated Tuesday. The FAO forecast bumper crops in South Korea, Myanmar, Pakistan, Sri Lanka, Bangladesh, Cambodia the Philippines and in Thailand, which would push up Thai stocks.
"The large stocks accumulated by the Thai government through the paddy pledging programme weighed on market prices," the FAO said. That was in line with traders' forecasts for prices to stay under pressure until the end of the year. "I don't see any positive factor to support prices in the second half of the year. Government stocks have stayed at a high level and supply is rising," said Kiattisak Kalayasirivat of Novel Agritrade.
For a second year, the Thai government is paying farmers 15,000 Thai baht ($510) per tonne for paddy, a price estimated to be around 50 percent above the market level. As a result, it is estimated to be holding record high stocks of 17 million tonnes of milled rice, and no one in the market can see how it will be able to release these without suffering a big loss. The buying scheme has pushed Thai export prices to uncompetitive levels of around $170 a tonne above other origins.
However, prices softened slightly this week, thanks to a drop in the Thai baht to around 29.58 per dollar on Wednesday from a 16-year high of 28.55 per tonne in mid-April. A higher baht tends to push up dollar-denominated export prices. The price of the 5 percent broken grade Thai white rice dropped to $555 a tonne from last week's $570. Vietnamese prices stayed low on thin demand, traders said. The 5 percent broken rice was offered at $380 to $383 a tonne, free on board, barely changed from $380 to $385 in late April, before a public holiday last week.
The 25 percent broken rice dipped to $350 to $365 a tonne, FOB, from $360 to $370 two weeks ago. Given the price fall, Chinese buyers have delayed taking more than 140,000 tonnes of Vietnamese rice and African countries are holding back on shipping 50,000 tonnes, traders said, citing Vietnam Food Association data last week. Traders assume they are trying to renegotiate prices. "The delays have a chain effect, pulling down domestic prices while stocks are still high, and we see no fresh buying demand yet," an exporter based in Ho Chi Minh City said.
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