Record reserves of rice in Thailand, accumulated from a state-buying program that’s spurred concern from the International Monetary Fund, are seen contributing to lower prices next year as worldwide harvests expand.
The stockpiles probably total 16 million metric tons, which will pressure global prices, according to Eklavya Chandra, director at Bangkok-based Phoenix Commodities Ltd. (Thailand), part of a group that trades about 1 million tons of rice a year. The Thai holdings will increase 18 percent to 14.9 million tons in 2013-2014, the International Grains Council forecasts.
The third-largest shipper started buying from farmers at above-market rates in 2011 to boost rural incomes, fulfilling a campaign pledge by the Pheu Thai Party, which won a parliamentary majority that year. The IMF said last week the program was likely to generate wider losses and should be dropped in favor of budget transfers to low-income households. Thai ministers said the will press on with the intervention.
“Everybody realizes that 16 million tons cannot be sold in a year or two years, so there is no bullish trend in the market,” Chandra said in an interview in Hong Kong, where he’s attending a conference. “Supply continues to increase, while Thai stocks put more pressure on prices.”
The price of Thai 5 percent broken white rice, an Asian benchmark, tumbled 26 percent this year to $433 a ton, contributing to lower food costs as harvests of corn, wheat and soybeans increased. World food prices tracked by the Food & Agriculture Organization lost 5.3 percent in the past year.
“It’s still a buyers’ market because supply is actually more than demand,” said Anthony Lam, vice chairman at Hong Kong-based Golden Resources Development International Ltd. “In the short term, the Philippines is going to buy and Indonesia will buy soon, before the election, that will spike up prices.”
The Philippines may boost imports 20 percent to 1.2 million tons next year after Typhoon Haiyan struck the country, the FAO said on Nov. 19. Still, the storm’s impact on output is minimal as most harvests had been gathered, Orlan Calayag, administrator of National Food Authority, told the conference today.
“The global surplus is large enough to be able to cope with any large tender by the Philippines,” said Darren Cooper, senior economist at the International Grains Council. “I doubt that it would have a significant impact on the world market since the additional demand would likely be temporary.”
World stockpiles will expand 1.2 percent to 109.3 million tons in 2013-2014 as reserves in the five largest exporters including Thailand gain to records, IGC forecasts show. Global output will climb to an all-time high of 474 million tons, topping demand by 2 million tons, the data show.
Bad weather that hurt crops in the Philippines as well as in India will provide price support in the near term, said Samarendu Mohanty, senior economist at the International Rice Research Institute, based in Los Banos, the Philippines. Output in India may drop as much as 5 million tons to about 100 million to 105 million tons in 2013-2014, Mohanty said.
“With these Philippines and India cases, and China importing more, I don’t think the price will go down any more,” said Mohanty, forecasting a gain of as much as $30 a ton by the end of March. “The upside is limited by ample supply in the market and stockpiles in Thailand.”
Thailand has spent 678 billion baht ($21.3 billion) since October 2011 buying about 29 million tons of milled rice from farmers. The program spurred the buildup of record reserves and dethroned the country as the largest exporter.
Thailand will sell 1.2 million tons of rice to Beijing Great Northern Wilderness Rice Industry, a state-owned company, according to a statement from the Commerce Ministry yesterday. The price will be based on market rates and the shipment will be delivered by the end of December, it said.