Market wisdom is that Asian rice prices are set to rally as El Nino cuts output and bulging stockpiles are steadily eroded.

There's nothing wrong with this view, but as is often the case there are some offsetting factors that make a strong rally far from a sure thing, as can be seen by recent price movements in the grain, the staple for some two-thirds of the world's population.

Benchmark Thai 5-percent broken white rice staged a 10 percent rally from a 7 1/2-year low of $367.50 a tonne on June 24 to a recent peak of $405 on July 17.

However, since then, it has dropped back to a fresh low of $362.50 a tonne on Aug. 27, making the rally very short-lived.

Part of this is the general malaise that has roiled most commodity markets, but part is also that buyers have been demanding lower prices because of the depreciation of the Thai baht.

The baht has lost 10 percent of its value against the U.S. dollar since its 2015 closing high of 32.33 in April to Thursday's close of 35.64.

The fall in the baht has caused the baht price of rice to whipsaw about, but overall it is down about 6 percent so far this year, or less than half the 13.3 drop in dollar terms.

It's much the same situation for Thailand's regional competitor in rice exports, Vietnam, which has seen its currency, the dong, slip 6.7 percent against the dollar from the year high in early February to the close of 22,534 on Thursday.

Vietnamese 5-percent broken white rice has surrendered 12.9 percent so far this year to $337.50 a tonne, but is down only 8.2 percent in local currency terms.

With the outlook for ongoing dollar gains, especially against emerging market currencies, the chances are that buyers will apply additional pressure on sellers to keep prices low in dollar terms.

El Nino Looms

But what of El Nino, the weather phenomenon that brings dry, hot weather to Southeast Asia and Australia, but wetter conditions to North America.

Weather forecasters have been upping their predictions for a strong El Nino, which would last into next year and most likely cut output of rice, as well as that of Australian wheat, soybeans in India and corn in China.

Any rice production shortfall will have to be made up from stockpiles, but how much more rice is likely to be needed and will it be enough to significantly dent Thailand's rice mountain, built up by the ousted government as part of its generous support measures for farmers?

Indonesia, traditionally a rice importer but trying hard to become self-sufficient, still expects to increase its harvest by 7 percent in 2015 despite El Nino.

However, El Nino may delay rice crops and lead to imports of as much as 1.6 million tonnes this year, according to analysts, a step that would help curb rising domestic rice prices, already the second-highest in Southeast Asia.

The Philippines, another heavy importer, also plans to boost domestic rice production in 2016, but will import more in 2015 to meet a shortfall in this year's output.

The government has already bought 750,000 tonnes this year and may import another 250,000 before the end of the year. Private traders may add as much as 805,200 tonnes by Nov. 30, subject to a 35 percent tariff.

China's early season rice output dropped 0.9 percent to 33.69 million tonnes in 2015 from a year earlier, according to official figures, raising the possibility of higher imports by the world's second-biggest economy.

While it seems likely that Asia's top importers will increase purchases, there is still the question of large stockpiles that need to be worked through.

Thailand's 13-million tonne rice mountain may actually contain only about 9 million tonnes of edible rice because of spoiling from long storage periods, according to the U.N. Food and Agriculture Organisation (FAO).

The FAO also says that inventories have been dropping steadily in the world's five biggest exporters, after strong shipments in 2014, and the stock-to-use ratio, the level of inventories relative to domestic consumption and exports, will drop to 19 percent in 2015/16, the lowest since 2007/08.

This indicates a tightening of supply, but still suggests there is plenty of rice available even as El Nino makes its presence felt.

While rice prices should rise, the chances are that the process won't be even and will be influenced by currency movements, with those exporters experiencing stronger depreciation against the dollar likely to seek to maximize their advantage.