Rice May Rally 22% by Yearend as Thai Buying Elevates Costs, Curbs Exports

Rice may rally 22 percent by yearend as Thailand, the world’s largest exporter, buys the grain from farmers at above-market rates, pushing up costs for importers and fanning global inflation even as economic growth slows.

The price of 100 percent grade-B Thai rice, the regional benchmark, may rally to $750 per metric ton by Dec. 31, according to the median estimate in a Bloomberg News survey of seven exporters, traders and millers conducted last week. That target is $50 higher than the median estimate in a separate Bloomberg survey undertaken in the first half of this month.

The surge may complicate matters for central bankers and policy makers around Asia who are already struggling to cool rising prices. Rice was the only grain separating the world from a food crisis, Abdolreza Abbassian, senior economist at the United Nations Food & Agriculture Organization, or FAO, said in February when worldwide food costs rallied to a record.

“If the sources of supply are actually inflating the prices for their commodities, regardless whether there’s supply or not, that’s going to keep prices elevated,” Abah Ofon, an analyst at Standard Chartered Plc, said by phone from Singapore. “That would keep risks for food inflation elevated.”

Thailand’s 100 percent grade-B variety rallied 6 percent to $617 per ton in the week to Aug. 24, the highest level since December 2009, according to the Thai Rice Exporters’ Association. The price hasn’t been more than $750 since September 2008. Rough-rice futures in Chicago rose 23 cents, or 1.3 percent, to close at $17.54 per 100 pounds today, up 23 percent this year.

Rural Incomes

Millers, traders and exporters in Thailand are advancing purchases as Yingluck Shinawatra -- appointed as prime minister in early August -- pledges to implement the policy of buying unmilled grain direct from farmers at 43 percent above market prices. The plan, designed to bolster rural incomes, may make Thai shipments less competitive as output in the U.S., the fourth-largest shipper, is estimated by the Department of Agriculture, or USDA, to slump by the most since 1984.

While the FAO forecasts global rice production will exceed demand in 2011-2012, and stockpiles will rise to an 11-year high, the Thai policy may mean that some of the nation’s exportable surplus ends up sitting in state warehouses, said Darren Cooper, a senior economist at the International Grains Council.

Prices of rice are advancing as the global food market braces for another year of deficits in corn and wheat, draining stockpiles of grains. Demand for wheat, used in making bread, pasta, noodles and mixed in animal feeds, will exceed production for a second straight year in 2011-2012, while corn stockpiles will drop to the lowest in five years, according to USDA data.

‘Danger Zone’

World food prices, as tracked by the World Bank, surged 33 percent in July from a year earlier, boosted by higher costs of rice, corn, wheat, sugar and soybean oil. Persistently high food prices and low inventories show “we’re still in the danger zone,” World Bank President Robert Zoellick said on Aug. 15. The FAO’s 55-item World Food Price Index was at 233.84 in June, the latest reading, after peaking at 237.68 in February.

Exports of Thai rice may tumble 20 percent to 8 million tons in 2012 as Yingluck’s buying policy reduces the competitiveness of the nation’s shipments, according to an Aug. 12 report from the USDA’s Economic Research Service.

In the U.S., milled-rice output will drop 20 percent to 6 million tons in the season that began Aug. 1, the most since the season ended 1984, according to USDA data. That will cut the nation’s shipments 4.5 percent to 3.15 million tons next year.

‘Wrong Time’

“A significantly smaller U.S. crop comes at the wrong time for importers, should they be forced to turn to other origins if Thai availabilities dwindle markedly due to government- intervention buying,” said Cooper at the Grains Council.

A surge in rice-export prices may encourage India to ship as much as 3 million tons, Rakesh Singh, a grain trader at Emmsons International Ltd., said in a phone interview from New Delhi. That may slow the advance in prices, he said.

The global trade in rice will rise 1.5 million tons to a record 32.7 million tons this year, before declining next year on the lower shipments from Thailand, the USDA said. China and Indonesia are forecast to increase shipments this year.

To contact the reporters on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net; Supunnabul Suwannakij in Bangkok at ssuwannakij@bloomberg.net

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net

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