Thai rice prices to drop at least 20 percent if stockpile is sold
Thai rice prices have already dropped 18 percent since their peak this year in February, but they are likely to fall considerably further if the government is serious about selling down its stockpile.
A third failed tender this week by the government shows that whatever they are currently doing, it isn't working.
Prime Minister Yingluck Shinawatra, who won power in July 2011 with a promise of generous subsidies to rice farmers, has seen her vote-winner turn into an economic and fiscal mess.
Yingluck's party initially asserted that the market would simply pay whatever Thailand demanded for its rice, but this confidence was shown for the economic naivety it was when India resumed rice exports in 2012, and good crops were harvested across Southeast Asia.
The simple truth is that if Thailand, formerly the world's top rice exporter, is to significantly reduce it stockpiles of about 17 million tonnes of milled rice, prices will have to fall further, to at least the level of major competitor Vietnam.
Thai benchmark 5 percent broken rice <RI-THBKN5-P1> has already lost much of its artificial premium to its Vietnamese counterpart <RI-VNBKN5-P1>, which was caused by Thailand's decision to build inventories rather than sell at a loss.
The difference between the two is currently $82.50 a tonne, making the Thai grain 21 percent more expensive that its Vietnamese equivalent.
In late January the difference was $180 a tonne, or a premium of 46 percent for Thai rice.
Prior to the start of the Thai intervention scheme, the two traded more or less in lockstep and as at the beginning of August 2011 the difference between them was $10 a tonne in Thailand's favour.
Artificially inflating rice prices in order to pay for the 15,000 baht ($470) a tonne price paid to Thai farmers for paddy rice, equivalent to about $710 for milled rice, was never going to work, especially given the surplus of grain globally.
Now the Thai government has to work out how much of a loss it is prepared to wear in order to lower the stockpile, which is some 170 percent bigger than the record annual exports of 10.6 million tonnes achieved in 2011.
In two tenders in July and one on Aug. 20, the Thai government received bids for only 240,000 tonnes of rice, compared to the 660,000 tonnes offered, a figure that in itself is a mere 3.8 percent of the stockpile available.
The latest initiative appears to be plans to auction rice through the Agricultural Futures Exchange of Thailand, with industry newsletter Oryza reporting on Thursday that 140,000 tonnes will be offered next month.