Rice market on a slippery slope
Global rice prices continue their downward spiral in the face of excess supply from the major exporting countries. The good-looking wet-season rice crop in the fields of most rice-growing countries in Asia is also putting additional pressure on the market. The uncertainties involving the Thai rice mortgage scheme, whether or not the Thai government will be able to lower mortgage prices for the second crop, and the timing of the release of the existing mortgage stocks are adding more uncertainty to the market and keeping traders on their toes. In the last two months, rice prices have declined by more than 5%.
Rice is not the only crop in a bearish mood; others such as wheat, corn (maize), and soybean have also witnessed a weakening of prices in the past few months with the prospect of good harvests in North America. The corn price has been the hardest hit, with a 30% drop, whereas soybean and wheat have witnessed a somewhat moderate decline of 5−10%. The December futures prices for these commodities point to further weakening in the coming months but this is unlikely to have much effect on Asian rice prices.
As usual, Asian rice prices in the coming months will be influenced by weather and politics. The main rice crop in most of Asia is progressing well, with isolated instances of flood/drought in a few locations, such as flood in Pakistan and drought in parts of India (Bihar and Jharkhand). Despite drought in these two states, India is expected to harvest another bumper crop on the back of normal monsoon in other rice-growing states. This augurs well for India’s recently passed National Food Security Bill, which provides a right to food to nearly two-thirds of India’s billion-plus population. With nearly 30 million tons of rice procurement stocks and the prospect of another good harvest, the new Food Security Bill is unlikely to have much impact on the global market, at least in the short run. However, in years of bad production, the Indian government will be quick to restrict or ban exports and may even enter the global market to purchase rice as part of its legal obligation to provide cheap food.
On the import side, things are relatively quiet. Many buyers are on the sideline in anticipation of lower prices after the harvest, which is around the corner. Chinese purchases of rice primarily from Vietnam, Pakistan, and Myanmar have supported the market in the past few months. China is well on its way to claiming the top spot in 2013 with 3 million tons of imports, with nearly half already imported in the first half of the year. Chinese imports may go even higher if global rice prices continue their downward spiral for the remainder of the year.
Despite China’s imports, the rice market will be under pressure in the coming months with the arrival of the new crop. Weak currency and a good monsoon harvest will keep India in the hunt for the top exporter spot in 2013. The reluctance of Thailand to subsidize exports will keep it out of the white broken rice market.