Price War Seen as Thai Rice Glut Swamps Market: Southeast Asia

Photographer: Dario Pignatelli/Bloomberg

A worker sweeps the drying area at the Sahakorn Kan Kasert rice mill in U Ya, Suphan Buri province, Thailand. Thailand, India and Vietnam, the three biggest shippers, accounted for 62 percent of the rice trade last year, the U.S. Department of Agriculture estimates. Close

A worker sweeps the drying area at the Sahakorn Kan Kasert rice mill in U Ya, Suphan... Read More

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Photographer: Dario Pignatelli/Bloomberg

A worker sweeps the drying area at the Sahakorn Kan Kasert rice mill in U Ya, Suphan Buri province, Thailand. Thailand, India and Vietnam, the three biggest shippers, accounted for 62 percent of the rice trade last year, the U.S. Department of Agriculture estimates.

Asian rice costs will keep slumping from near a six-year low as Thailand clears out record stockpiles, threatening a price war with Vietnam and India.

The government plans to sell about 1 million metric tons a month, compared with average monthly exports of 558,000 tons last year. The nation’s benchmark price, which is already below costs in Vietnam and India, may retreat 11 percent to $350 a ton by May, the Thai Rice Exporters Association forecasts.

Thailand accumulated reserves under a state-buying program which ended this year amid a political crisis in Southeast Asia’s second-largest economy. Its stockpiles reached 12.8 million tons in 2013, or about a third of the global export market. Vietnam’s Minister of Industry and Trade said this week that Thailand was willing to sell the grain at any price.

“We could see a price war, with Vietnam cutting prices, selling lower than Thai rates,” said Chookiat Ophaswongse, an honorary president of the Thai Rice Exporters Association.

The 5-percent Thai broken white grade, used as a reference price in Asia, tumbled 30 percent to $394 in the past year, according to data compiled by Bloomberg. Thai grain is currently quoted at about $365 to $370 a ton, lower than $385 in Vietnam and $420 in India, said Chookiat. His forecast for $350 would be the lowest since December 2007.

Photographer: Dhiraj Singh/Bloomberg

A worker carries a bag of sella rice on his head into a warehouse in the Vashi Agricultural Produce Market Committee (APMC) wholesale market in Mumbai. Cheaper rice may contribute to lower food costs, helping to damp inflation across Asia, where billions depend on the staple. Close

A worker carries a bag of sella rice on his head into a warehouse in the Vashi... Read More

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Photographer: Dhiraj Singh/Bloomberg

A worker carries a bag of sella rice on his head into a warehouse in the Vashi Agricultural Produce Market Committee (APMC) wholesale market in Mumbai. Cheaper rice may contribute to lower food costs, helping to damp inflation across Asia, where billions depend on the staple.

Cheaper rice may contribute to lower food costs, helping to damp inflation across Asia, where billions depend on the staple. Global food prices tracked by the United Nations fell 2.1 percent in the past year. Thailand, India and Vietnam, the three biggest shippers, accounted for 62 percent of the rice trade last year, the U.S. Department of Agriculture estimates. Rice is falling as wheat in Chicago rose 11 percent this year.

‘Cheaper Rates’

“Now that Thailand is selling from government stockpiles at cheaper rates, trade inquiries have stopped,” said B.V. Krishna Rao, managing director of Kakinada, Andhra Pradesh-based Pattabhi Agro Foods Pvt., India’s largest exporter of non-basmati rice. “India’s export price needs to be dropped by $20 a ton to be competitive against Thailand.”

Thailand is short of funds to pay farmers under the now-ended program, which is the target of an anti-corruption probe. The country’s reserves more than doubled from 5.6 million tons in 2011, when the intervention began under the Pheu Thai party administration, to 14.7 million tons this year, USDA data show. The program, which paid farmers above-market rates for their crop, was designed to lift rural incomes.

While stockpile sales increase, dry weather in Thailand may curb harvests this year just as farmers adjust to the absence of guaranteed prices. The so-called minor crop, which runs to October, may contract 5 percent to 10.2 million tons, the Office of Agricultural Economics forecast March 25.

Seventh Year

World demand is expected to rise 1.5 percent to 471.2 million tons this year, below production of 474.8 million tons, according to the USDA, which forecasts the ninth year of a glut. Thai shipments may expand 27 percent to 8.5 million tons as India’s drop 4.8 percent to 10 million tons and Vietnam ships 7.5 million tons, 10 percent more.

“We will see heightened competition in the market because Thailand is quite eager to release the stockpiles,” said Darren Cooper, a senior economist at the London-based International Grains Council. “Thai prices have been falling steadily for the past year. We have seen some acceleration in the past few weeks, when it became clearer that Thailand needs to offload stocks to generate funds.”

The Philippines, Asia’s largest buyer this year after China and Indonesia, will hold a tender for 800,000 tons on April 15. While Thailand will offer the full amount, it’s concerned the sale is taking place as crops from Vietnam are coming onto the market and hurting prices, according to Surasak Riangkrul, director-general of Thailand’s Department of Foreign Trade.

First Quarter

Thailand is willing to agree to sales at any price, Vietnam’s Minister of Industry and Trade Vu Huy Hoang said April 1 in a television broadcast. Vietnam’s shipments dropped about 20 percent to 1.2 million tons in the first quarter.

Thailand’s National Anti-Corruption Commission is investigating allegations that Prime Minister Yingluck Shinawatra was negligent for failing to stem losses from the program. Yingluck has defended the policy, a centerpiece of her administration, and is contesting the allegations.

The Thai government has sold about 17 million tons of stockpiled rice since the program began, according to data from the Ministry of Commerce. State stockpiles are estimated at 10 million to 13 million tons, Commerce Minister Niwattumrong Boonsongpaisan told reporters in Bangkok on March 7. The administration plans to raise at least 8 billion baht ($247 million) a month from sales, Niwattumrong said.

Thailand will have spent 880 billion baht on rice under the program from October 2011 to February 2014, according to the Bank for Agriculture and Agricultural Cooperatives, including about 100 billion baht that hasn’t yet been paid to farmers. The government has recouped about 200 billion baht through stockpile sales, according to the Ministry of Commerce.

“If the government continues selling at low rates like this, that will help the country regain its position as the top exporter,” said Chookiat. “At this low price, buyers who buy from India and Vietnam will switch to Thailand.”

To contact the reporter on this story: Supunnabul Suwannakij in Bangkok at ssuwannakij@bloomberg.net

To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net Jake Lloyd-Smith

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