In a nondescript building outside Bangkok, along the murky Chao Phraya River, the government is preparing to unload a mountain of rice on an already oversupplied world. And there’s more on the way.
A prospective buyer straddles sacks of rice to collect a sample during a pre-auction rice inspection at the warehouse of the Boonnapa rice mill in Chock Chai, Nakhon Ratchasima province Jan 26. (Bloomberg photo)
The biggest exporter stockpiled 17.8 million metric tonnes after former prime minister Yingluck Shinawatra spent $27 billion since 2011 buying at above-market prices to aid farmers. The move threatened the nation's credit rating and helped fan months of protests. She was ousted in May by military leaders, who now plan to auction the grain over two years, with 1 million tonnes set for sale at the Department of Foreign Trade on Jan 29.
With global output poised to be near last year's record, Thailand will ship more this year than any country ever, US Department of Agriculture data show. The staple for half the world plunged to a four-year low in Chicago, helping cut food costs that the United Nations says are the lowest since 2010.
"We have plenty of rice," said Mamadou Ciss, who's traded the grain since 1984 and is president of Alliance Commodities (Suisse) SA in Geneva. "Thailand still has huge stocks available, compared with world trade. Anything more than 10 million tonnes will take time to clear. Prices will stay weak."
A prospective buyer takes samples of rice from a sack during a pre-auction rice inspection at the warehouse of the Boonnapa rice mill. (Bloomberg photo)
Global reserves are 30% above a 10-year average, UN Food & Agriculture Organization data show. Production for 2014-2015 in the US, the fifth-largest exporter, is seen rising by the most in a decade, expanding global grain inventories already at all-time highs following record global harvests of wheat, corn and soy.
Buying spree
The Thai buying spree from November 2011 to February 2014 filled more than 1,000 warehouses and left inventories equal to about 42% of what the world's importers bought in 2014. Exports from the country will surge 9.7% to a record 11.3 million tonnes this year, USDA data show.
Protest groups that opposed Ms Yingluck's government say the rice-buying program was part of a pattern of corruption by politicians allied with her brother, Thaksin Shinawatra, who was deposed as prime minister in a 2006 coup.
Ms Yingluck was impeached on Jan. 23 for failing to heed warnings about the spiralling cost of rice subsidies, which the FAO said were unsustainable. She also faces criminal prosecution. Ms Yingluck denies the corruption charges and defends the subsidies, saying they raised wages for the millions of farmers who voted for her party in the 2011 elections and boosted economic growth.
Prospective buyers collects samples of rice from sacks during a pre-auction rice inspection at the warehouse of the Boonnapa rice mill in Chock Chai, Nakhon Ratchasima province on Monday. (Bloomberg photo)
Prime Minister Prayut Chan-o-cha is seeking to clear the warehouses without torpedoing the market, saying on Jan 26 the government wants to accelerate sales to reduce inventory costs while ensuring prices are acceptable. Since government buying began, Thai 5% broken rice, an Asia benchmark, tumbled 35% from a three-year high of $647 a tonne in 2011 to $420 on Jan. 21. On the Chicago Board of Trade, futures reached $10.81 per 100 pounds on Jan. 26, the lowest since August 2010, and traded at $10.97 on Tuesday.
The government may get unexpected help from a dry spell that's reducing output. In the central basin north of Bangkok, irrigation officials shut the taps after reservoir levels fell to a 15-year low. Farmers are growing the smaller of two annual harvests that normally accounts for a quarter of production. The lack of water may cut output 31% to 6.7 million tonnes, the lowest in a decade, government data show.
"The reduction in production this season would be a welcome development for the Thai government, whose priority is now to get rid of the surpluses," said Concepcion Calpe, a senior economist at the Rome-based FAO.
A prospective buyer collects a sample of rice from a sack during a pre-auction rice inspection at the warehouse of the Siri Chockchai rice mill in Chock Chai, Nakhon Ratchasima province. (Bloomberg photo)
Kwanchai Mahachuenjai, a 54-year-old farmer in Ayutthaya, said he cut planting almost in half to 120 rai because he's getting less water. Yields will drop to 300 to 400 kilogrammes per rai from 700 to 800 kilograms, he said.
A decline in the quality of the stockpiles also may limit the impact of sales on prices, which reflect food-grade grain. An audit in 2014 found about 80% was substandard and almost 4% was poor quality, destined for non-food uses.
Most is still food-grade quality and can be sold as long as it's kept dry and fumigated, said Somkiat Makcayathorn, secretary-general of the Thai Rice Exporters Association.
While the government doesn't want to buy rice, it plans other support. About 40 billion baht has been earmarked for payments to the poorest farmers, and officials are encouraging the growing of other crops, including sugar.
For now, the government is focused on unloading 10 million tonnes this year and 7.8 million tonnes in 2016. This week's auction will be the biggest amount since 2004, said Duangporn Rodphaya, director-general at Department of Foreign Trade.
"It's good timing to sell because of low supply ahead of second-crop harvests," Ms Somkiat said. "Prices will stay under pressure until the government clears the huge inventories."
A man walks past rice storage silos prior to a pre-auction rice inspection at the warehouse of the Siri Chokchai rice mill in Chok Chai, Nakhon Ratchasima province on Jan 26. (Bloomberg photo)