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.
But unless no reserve price is set, or it is lower than comparable prices for Vietnamese and Indian rice, it's hard to see this tactic working either.
Chinese Cancelling Cargoes
Even without Thai rice, the market appears over-supplied, with Vietnamese traders reporting cancellations of cargoes of up to 1 million tonnes, with some Chinese buyers terminating deals because they expect prices to fall further.
China has been the salvation for the rice market so far in 2013, boosting imports almost 12 percent in the first half of 2013 from the same period a year ago.
But imports fell 37 percent in July from a year earlier, bringing the year-on-year gain for the first seven months to just 4 percent.
If Chinese buyers continue to scale back purchases, the Philippines maintains some import restrictions and Indonesia also buys less on higher domestic output, then it's hard to see rice demand increasing in the next few months.
This makes it even tougher for the Thai government to sell, and there is a time consideration as well given the next main harvest is in October, after which more rice will flow to already bursting warehouses.
Yingluck's government is also preparing to have a second go at lowering the price paid to farmer to 12,000 baht, having abandoned an earlier attempt at this on July 1 after farmers threatened protests.
The current scheme expires on Sept. 30 and may be renewed at the lower price from Oct. 1, assuming the government doesn't get another bout of popularity jitters.
Commerce Minister Niwatthamrong Bunsongphaisan has said that the government has paid up to 650 billion baht, or $20.37 billion, to farmers so far.
He hasn't said how much has been recovered through sales, but it won't be anything close.
Thailand exported 6.9 million tonnes of rice in 2012, and if an average price of $550 a tonne is assumed, it translates into revenue of around $3.8 billion.
Add to this revenue from sales in late 2011 and so far in 2013 and it's safe to assume that the government is still well over $10 billion out of pocket.
This is a situation that can only get worse for the government, and rice buyers are aware of this and furthermore can afford to wait for the lower prices that should come if Thailand does try to offload its stockpiles.
It would be reasonable to assume that Thai rice prices will have to drop to match those for Vietnamese supplies, and both will come under further downward pressure from increased supply.
Self-contained hydraulic system with power cables (hydraulic). Tandem Henschen axles (hydraulic). Hydraulic fenders. Manual or hydraulic tilt. 6,500-gallon tank.
- Dry weather, biofuel mandate to boost palm prices in 2014
- 2014 Farm Bill: Reallocating base acreage
- FAS administrator talks world ag export situation
- The Beige Book is out. The agriculture picture is not rosy
- New precision potassium fertilizer from AgroLiquid
- Ag markets ended the week in decidedly mixed fashion
- Are you in favor of a federal labeling standard for food that might contain genetically modified ingredients?
- Commentary: Barking up the wrong tree
- Water allocation for most drought-stricken Calif. farms to end
- Larson Electronics offers 150 Watt LED high bay light fixture
- Growth Points: Big data is about to get even bigger
- Update on the world’s 15 largest seed banks
Fertilizer Conveying Systems
Waconia Manufacturing Inc.