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Rice May Extend Gains as Supply Tightens on Thai Hoarding

Rice May Extend Gains as Supplies Tighten
Rising prices in Thailand may support a 60 percent jump in rice futures in Chicago and increase global food costs tracked by the United Nations. Photographer: Udo Weitz/Bloomberg

Rice prices in Thailand, the world’s biggest exporter, may extend gains as supplies tighten at the end of the harvest season and millers hoard the grain on expectations of an increase in government’s purchase price.

Export prices of rice may climb 49 percent to $800 per metric ton in the fourth quarter as the newly elected government led by Pheu Thai Party implements a pledge to buy the grain from farmers above market rates, according to a survey of four exporters, millers and traders.

Rising prices in Thailand may support a 60 percent jump in rice futures in Chicago and increase global food costs tracked by the United Nations that advanced in June for the 10th time in the past 12 months. Rice rose globally in June, “reflecting strong import demand and uncertainty over export prices in Thailand,” the Food and Agriculture Organization said last week.

“Costlier rice from Thailand, which accounts for about 30 percent of worldwide shipments, will drive prices higher around the globe,” said Sumeth Laomoraphorn, chief executive officer of C.P. Trading Co., Thailand’s fourth-largest exporter.

Shipments surged 58 percent from the beginning of the year to July 4 to 6.44 million tons, according to the Thai Rice Exporters Association. The country may ship more than 10 million tons this year, Commerce Minister Porntiva Nakasai said June 20.

“With higher prices, importers will search elsewhere for more competitive supplies or opt for alternative food types,” Bernard Fig, Cape Town-based trader at Rice-Tic (South Africa) Ltd., who has been trading rice for 40 years, said in an e-mail.

Asia’s Benchmark

Rice for September delivery advanced as much as 1 percent to $15.79 per 100 pounds on the Chicago Board of Trade before trading at $15.645 at 6:18 p.m. Singapore time. Futures climbed to $16.265 on July 8, the highest level since Feb. 9.

Thai export prices are a benchmark for the industry. The price of the 100 percent grade-B variety, which is set weekly, advanced 3.5 percent to $537 a ton after Pheu Thai Party won a majority vote in the national election on July 3. Incoming Thai Prime Minister Yingluck Shinawatra won the election on pledges to raise the minimum wage and guaranteed rice prices for farmers.

Pheu Thai is a successor to parties loyal to ex-premier Thaksin Shinawatra. Yingluck, Thaksin’s sister, plans to buy unmilled rice from farmers for a guaranteed price of 15,000 baht ($493) per ton, 50 percent higher than the current level.

The new government plans to start buying rice from farmers around November to coincide with the main harvest, Yingluck told reporters in Bangkok today. Thailand will not cut prices to compete with neighboring countries as the country’s rice is known for its quality, she said.

Unmilled rice in Thailand has advanced almost 10 percent to 10,000 baht a ton on July 11, compared with 9,100 baht on July 1, according to Thai Rice Mills Association.

‘Snap Up Supplies’

Millers are holding back supplies as they expect the new government to implement the campaign pledge, Chanchai Rakthananon, president of Thai Rice Mills Association, said by phone from Bangkok.

“Millers snapped up limited supplies, offering above market prices, and slowed rice selling on optimism the prices will increase further when the government implements rice buying scheme,” he said. “Supplies have decreased as it is the end of the harvest of minor crop and overseas demand remains strong.”

Minor crop in Thailand accounts for about 28 percent of the nation’s total production of about 33 million tons. It’s harvested from March to May and from August to September.

Overseas demand of around one million tons each a month has also reduced supplies, driving prices higher, Sumeth of C.P. Trading said by phone from Bangkok. Higher prices will eventually reduce Thai shipments, he added.

‘Cheap Rice Era’

“It is indeed a bit more difficult to buy rice from Thailand as millers are not willing to sell,” Jac Luyendijk, chief executive officer of Swiss Agri Trading SA, which trades about $300 million tons a year with Thailand and Vietnam. “At the same time it is very difficult to sell rice to West Africa at today’s prices because it becomes too expensive.”

African countries account for about half of Thailand’s exports, while the remainder is shipped to Asia, Middle East, Europe and the U.S.

“An era of cheap rice has come to an end,” Chanchai of Thai mills association said.

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