HANOI — Global rice prices will extend declines as Thailand is forced to offload grain from record stockpiles accumulated under its state-buying programme, according to the Vietnam Food Association, the main shippers' group.
A flock of pigeons fly over a pile of rice drying in a courtyard at the Sahakorn Kan Kasert rice mill in U Ya, Suphan Buri province on Feb 17, 2014. (Photo by Bloomberg)
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 programme 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 government, which has faced months of demonstrations. Mr Phong's comments reflect concern among exporters about the pace of sales from holdings that are large enough to cover 39% of annual world import demand.
"The rice market has seen fierce competition for the past two years due to the global surplus," said Mr 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% broken white rice, a benchmark grade, tumbled 23% last year and was at $460 a tonne on Feb 12. The Vietnamese 5%-broken variety is about $395 a tonne, higher than $370 for old-harvest Thai grain, Mr Phong said, without giving price forecasts. Rough rice fell 0.3% to $15.81 per 100 pounds in Chicago today, paring losses this year to 0.7%.
Rural Incomes
Thailand spent 689 billion baht (US$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 tonnes this year from 6.1 million tonnes in 2010, according to the US Department of Agriculture. The programme is set to lapse at the end of this month as Prime Minister Yingluck's caretaker government 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 Organisation. "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 tonnes a month from stockpiles during the first quarter, Deputy Prime Minister and Commerce Minister Niwatthamrong Bunsongphaisan 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 tonnes this year, with shipments of 1.2 million tonnes seen this quarter and 3.5 million in the first half, Mr Phong said. The country shipped 6.68 million Mr tons in 2013, the lowest level in four years, according to VFA data.
Official exports to China may drop 9.1% to 2 million tonnes this year, Mr Phong said on Feb 14, referring to trade tracked by customs. Unofficial shipments, not tracked by customs, may slide to 1 million tonnes to 1.1 million tonnes from a range of 1.4 million tonnes to 1.5 million last year, Mr Phong said.
Biggest importer
China, the world's largest buyer, will import 3.4 million tonnes in 2014, according to the USDA. Heilongjiang province halted a plan to buy 1.2 million tonnes, Deputy Prime Minister Niwatthamrong said on Feb 4, citing the province's concerns about an anti-corruption probe into the programme.
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. Ms Yingluck will have an opportunity to defend herself before the commission determines whether she will be indicted. The prime minister defended the programme in a national address yesterday.
Vietnam's sales to Africa will drop as India and Pakistan offer cheaper prices, Mr Phong said. Shipments were 1.9 million tonnes last year, accounting for about 28% of the total. That will decline to 23% to 25% this year, he said.
Shipments from India, the second-largest producer, will probably expand to a record 11 million tonnes 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 tonnes in 2014 compared with 3.5 million tonnes last year, a USDA projection shows.
Harvest forecast
The global rice harvest expanded 0.8% to 469.5 million tonnes in 2013, outstripping demand of 467.1 million tonnes, 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% from a record in February 2011.
Vietnam's total output of unmilled rice this year will be similar to last year's 44 million tonnes, Mr Phong said. In 2015, the harvest may decline 2% to 3% 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 Mr 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."