May21

Impact of El Niño? The rice market is not bothered

Author // Dr. Sam Mohanty Categories // Sam's rice price and market blog

Impact of El Niño? The rice market is not bothered

Current weather patterns in some Asian countries reinforce the recent announcement by the Australian Bureau of Meteorology that a strong El Niño event is already taking place. Severe and ongoing drought has affected the dry-season rice crop in Thailand and the Philippines. According to the Office of Agricultural Economics (OAE), the Thai dry-season rice crop is expected to decline by 30% or by 2 million tons of milled rice compared with last year’s yield.

Similarly, drought in Western Visayas region of the Philippines, including Bohol province, has had some effect on the dry-season crop but, if the drought continues, the main cropping season that starts in May will also be affected.

So far, the market has been quite indifferent to the possibility of a strong El Niño this year, in which India is predicted to be hardest hit along with Indonesia, Malaysia, and the Philippines. Despite such possibilities, rice prices continue to remain weak on the back of surplus Thai and Indian rice in the market. Last year’s forecast of a strong El Niño, which did not materialize, has been playing in the mind of many in the rice market.

The comfortable level of nearly 100 million tons in global rice stocks, including 9 million tons of Thai stocks (based on USDA data), has been acting as a buffer against any irrational market sentiment and speculation. This does not mean that market sentiment will not change in the coming weeks as we draw closer to the advent of the monsoon and main cropping season in many rice-growing countries. Among various factors that can influence the market, India’s monsoon situation will be the key factor influencing market sentiment in the coming weeks. India’s influence on the rice market has never been more than what it is now, with 7 million tons of nonbasmati exports and 3 to 4 million tons of basmati exports. India’s basmati exports will not come under the radar in case of a drought. But, nonbasmati exports will certainly be the target of policymakers to ensure domestic food security. Indian public-sector rice procurement stocks through the Food Corporation of India and state agencies are at a level much higher than the strategic stock requirement, but the level of current procurement stocks is much lower than what it was during the same time last year. Based on the data available on the FCI website, total rice stocks as of 1 May 2015 stood at 22.35 million tons of rice vis-à-vis 28.6 million tons at the same time last year and 34.7 million tons the year before.

Overall, the market is poised to remain rational and driven by market fundamentals as long as exporting countries remain open for business and refrain from making unilateral decisions to restrict rice trade flows and importing countries refrain from panic buying for domestic stockpiles. The major worry for the market is the countries in the El Niño watch, which include the second-largest exporter, India, and three large importers, Indonesia, Malaysia, and the Philippines. If these countries are affected by drought in the coming season, this could spell trouble for the market. On the one hand, India will be pulling out of the nonbasmati market to meet the local shortfall and, on the other hand, demand from importing countries will be rising. If this happens, the 9 million tons of Thai rice stocks could come in very handy in keeping the market in check and ensuring that importers not resort to panic buying.

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About the Author

Dr. Sam Mohanty

Dr. Sam Mohanty

As head of the Social Sciences Division, Sam recruits and retains quality staff and create a conducive environment for research and professional development and conduct research on all aspects of rice including marketing, policy and trade and impact assessment.

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