Record Thai Rice Hoard Expanding Global Supply Glut: Commodities

Rice stockpiles in Thailand, once the world’s biggest exporter, are expanding to a record as a government program to buy production spurs farmers to plant the most crops ever and add to a global glut.

Reserves in Thailand will increase 24 percent to 15.5 million metric tons in 2013-2014 as global output rises 1.7 percent to an all-time high of 476.8 million tons, the U.S. Department of Agriculture estimates. The price of 5-percent broken Thai white rice, an Asian benchmark, will drop 12 percent to $390 a ton by April, a five-year low, according to the median of eight trader and analyst estimates compiled by Bloomberg.

Thailand spent $21.6 billion since October 2011 buying at above-market prices to shore up growers’ incomes, creating a stockpile large enough to meet annual demand from the eight biggest importers and still have grain to spare. The global supply of rice, a staple for half the world, is expanding just as farmers reap record amounts of everything from corn to wheat, driving global food costs to a three-year low.

“I’ve rented more land, expanding farms by more than double, to reap the benefit of good prices from selling paddy to the government,” said Uthai Thongsaensuk, a 45-year-old farmer in the northeastern Thai province of Udon Thani. “My friends also boosted plantings as we earn more.”

Farmers Protest

Thai rice prices fell 24 percent to $445 this year as the Standard & Poor’s GSCI Agriculture Index of eight commodities slumped 17 percent, heading for its worst year since 2008. The MSCI All-Country World Index of equities rallied 14 percent and the Bloomberg U.S. Treasury Bond Index lost 2.6 percent.

Thailand will spend 270 billion baht ($8.6 billion) buying rice from the harvest that started this month, reversing an earlier plan to cut prices after farmers threatened to protest. The ruling Pheu Thai party won a majority in 2011 elections with support from poorer rural residents who make up 87 percent of the population. Thai output will gain 4.5 percent to 21.1 million tons in 2013-2014, the USDA says.

Stockpiles in India, Vietnam, Thailand, the U.S. and Pakistan, the five largest shippers, will expand 6.8 percent to a record 42.6 million tons in 2013-2014, said Darren Cooper, a senior economist at the London-based International Grains Council. Global inventories will rise 4.8 percent to 183 million tons, expanding for a ninth year and lifting the stockpiles-to-usage ratio to the highest since at least 2002-2003, according to the United Nations’ Food & Agriculture Organization in Rome.

Largest Grower

Purchases by China, the largest grower and importer, may help curb the price slump. Heat waves earlier this year in China may cut domestic production and the International Grains Council is forecasting a 1.1 percent contraction in output to 141.4 million tons. Imports will rise 6.3 percent to 3.4 million tons in 2013-2014, USDA data show.

The harvest in Vietnam, the second-largest shipper, may decline next year for the first time in more than a decade as the government encourages farmers to switch rice-growing areas to other crops. The policy will be approved by the government by the end of the year, Pham Dong Quang, deputy head of the crop-production department, said in an interview last month. The nation shipped 7.4 million tons in 2012-2013.

Production in the U.S., the fourth-biggest exporter, will contract 7.8 percent to 5.9 million tons after farmers sowed fewer acres, according to the IGC. Rough-rice futures on the Chicago Board of Trade climbed 4.3 percent to $15.125 per 100 pounds since reaching an eight-month low in March.

African Buyers

Global imports will decline this year for the first time since 2009 because of weaker demand from some African and Asian buyers, the FAO says. World trade may contract 2.5 percent to 37.5 million tons, the agency said in August.

Thailand’s 30-year reign as the biggest exporter ended last year as shipments dropped 35 percent to 6.9 million tons, USDA data show. Grain from the country was more expensive than cargoes from Vietnam and India. The Thai government is under pressure to accelerate stockpile sales and push more supply onto the world market, said Chookiat Ophaswongse, the Bangkok-based honorary president of the Thai Rice Exporters Association.

The rice program heightens risks for Thailand achieving its goal of a balanced budget by 2017, Moody’s Investors Service said in September. Spending on rice, funded by borrowing and guaranteed by the finance ministry, is equivalent to about 13 percent of the budget in the current fiscal year, according to data compiled by Bloomberg.

Annual Imports

The country’s 15.5 million-ton stockpile would be sufficient to cover annual imports by China, Nigeria, Iran and the next five biggest buyers in 2013-2014, according to data compiled by Bloomberg from USDA estimates. China agreed to buy 1 million tons a year from Thailand under government-to-government purchases, Prime Minister Yingluck Shinawatra said Oct. 13.

Global food prices tracked by the FAO declined for a fifth month in September to the lowest level in three years on prospects for record global harvests. Cereal prices dropped 21 percent this year, beating declines in all other categories including oils, sugar, meats and dairy products, the group says. The global corn crop will climb by 11 percent to 956.5 million tons as the wheat harvest expands 8.2 percent to 708.9 million tons, the USDA forecasts.

An estimated 842 million people suffer from chronic hunger, or about one in eight of the global population, the FAO and other UN agencies said in report this month. For the extreme poor, or those on less than $1.25 a day, rice accounts for nearly half of their spending on food and a fifth of total household expenditure, according to the Los Banos, Philippines-based International Rice Research Institute.

“Poor countries that rely a lot on imports will be better off importing rice this year,” said Concepcion Calpe, the FAO’s senior economist who has tracked the market since 1998. “The drop in price was long overdue, as the world stockpile has been growing steadily for several years and is now reaching unprecedented high levels.”

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