State intervention could hurt sentiment
CHAROEN KITTIKANYA & NUNTAWUN POLKUAMDEE
The Agricultural Futures Exchange of Thailand (AFET) is preparing to introduce trading of Thai Hom Mali Rice Grade B contracts on July 14 as planned, despite lingering concerns over the effect the government's rice-pledging scheme would have on prices and the market mechanism. ''Agricultural futures should be free from any intervention by the government,'' said Supoj Wongjirattitikarn, president of the Thai Rice Association.
''If intervention, particularly through a pledging scheme, is needed, we would like to plead with authorities to take into account the production costs of farmers as related to costs and, more importantly, the world market conditions.''
AFET president Nitus Patrayothin admitted that state intervention at fairly high pledging prices offered to farmers would affect the futures market and investors, as it would eliminate price fluctuations.
He urged the government to step aside and allow responsible organisations to help farmers by using the futures market's mechanism to manage their risk.
The AFET first began trading futures of natural rubber ribbed smoked sheet No. 3 (RSS3) on May 28, 2004. It added 5% broken white rice on Aug 26, 2004, and premium-grade tapioca starch on March 25, 2005. Rubber contracts dominate trade, comprising nearly 75% of overall daily turnover.
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| • EXCH RATES |
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Baht/$ 33.40/47
Bid/Ask
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GOLD |
14,500
+ 150
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Last year, the AFET traded 89,966 futures contracts, with 5% white rice accounting for 20,473 contracts (23%), and tapioca and latex making up the rest.
Trading volume on the AFET in the first five months of this year totalled 53,386 contracts, up 75.48% from 30,422 contracts in the same period last year. Driven by rising rice prices, 21,223 rice contracts changed hands from January to May, compared with 3,876 in the same period last year.
In May alone, rice contracts rose sharply to 8,529 from 1,873 in 2007.
According to Mr Nitus, the rising rice prices should help attract more investors to the AFET.
''We strongly believe that the potential of the new product, the right timing of its launch and steady marketing activities would help make this rice more appealing to investors and operators both in and outside the country. We are also confident that Hom Mali traded through the AFET would create the reference prices for the world's market and increase the AFET's liquidity,'' he said.
Chookiat Ophaswongse, president of the Rice Exporters Association, said Hom Mali was currently not only the benchmark for Thai rice, but also represented the highest export value of all rice types.
Hom Mali exports have grown steadily by 10% on average over the last three years, with last year's figure reaching 1.864 million tonnes. For the first five months of this year, Hom Mali shipments amounted to 917,000 tonnes, up 21% from a year earlier.
''Hom Mali rice has great potential not only for its unique fragrance but also limited plantations,'' said Mr Chookiat. ''Hom Mali whole grain is now getting popular among the world's consumers particularly in Africa, which previously bought only broken Hom Mali rice.''
Last year, three of the top 10 Hom Mali importers _ Senegal, Ivory Coast, and Ghana _ were in Africa. Senegal alone imported up to 540,000 tonnes.
Thai Hom Mali Rice 100% Grade B contract would be traded under the symbol BHMR, with a contract size of 15 tonnes per unit. Trading would be allowed for both options as currently executed for 5% white rice.
Under the both-options regime, traders are allowed to settle contracts in cash or by physical delivery. In the past, only cash settlements were allowed.
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