Turbulent weather hasn't rocked rice prices
Asian rice markets have been relatively subdued in October and November despite warnings from many quarters that all hell is going to break loose with floods and typhoons in many Southeast Asian countries, home to the largest rice-exporting and -importing nations.
Asian rice markets have been relatively subdued in October and November despite warnings from many quarters that all hell is going to break loose with floods and typhoons in many Southeast Asian countries, home to the largest rice-exporting and -importing nations. So far, not much has happened in the market. It still looks like a buyer’s market at least for medium- to low-quality rice. Even rough rice futures on the Chicago Mercantile Exchange have slumped by more than 18% from 25 October to 23 November. This is happening at a time when 2011-12 rice production is estimated to be 23% lower than last year, the smallest crop in 13 years (source: Rice Outlook, ERS, USDA). Despite the tight supply situation, the weakness in export sales and the ongoing financial crisis have contributed to the sharp drop in U.S. rough rice futures prices.
Despite the slump in the global market, Thai prices continue to rise due to domestic factors. In the past four weeks, Thai prices have gone up by nearly 5% and their spread with comparable Indian/Pakistani rice is now reaching close to $200 per ton in some cases.
Thailand, the world's top rice exporter ,has been inundated with floods in the past weeks.
Dr. Mohanty says that at the moment, the global supply situation remains quite adequate despite significant flood damage to the Thai rice crop.
At this very moment, rice prices in major Asian export markets do not appear to be in sync. Thai quotations are influenced by the country’s mortgage scheme and floods whereas the Vietnamese have been pricing following Thai footsteps. On the other extreme, Indian traders have been relishing the government’s decision to allow 2 million tons of white and parboiled rice exports after a lapse of nearly four years and they have been aggressively selling rice to take advantage of the open export licensing system, which is available on a first-come, first-served basis. The weakening of the rupee by nearly 20% in the last few months has also enabled Indian traders to price their rice more aggressively. Pakistanis are also pricing in a way not to lose out to Indian traders.
The obvious question becomes, what happens next and how long will this continue? There is no straightforward answer to this question. Thai prices can continue to remain high and the spread between Thai and other competing rice prices can remain abnormally greater as long as the Thai government is actively procuring rice at the mortgage price. If the global supply situation becomes tighter in the coming months due to extreme weather in some parts of the world, it is possible for other prices to rise and the spread to become narrower.
However, at this moment, the global supply situation remains quite adequate despite significant flood damage to the Thai rice crop. India, Pakistan, Bangladesh, and Vietnam have just harvested a very good crop. According to recent USDA estimates, global rice production in 2011-12 will exceed 460 million (milled equivalent) tons despite all the weather-related losses in many Southeast Asian countries. A majority of the losses this season will be made up in the upcoming dry-season crop. The Philippines, the largest rice importer in the world, is estimated to produce 16.7 million tons of rice in 2011 despite some losses due to typhoons, according to the Department of Agriculture-Bureau of Statistics. This is still 5.7% higher than what it was in 2010. The rice inventory, both public and private, in the Philippines also stands at a comfortable 2.75 million tons in November 2011.
Overall, the market is likely to be range-bound in the next few months. If India announces an additional export quota in the near term, this may bring down white and parboiled prices even further and widen the spread between Thai and South Asian quotations (India and Pakistan) even more than what it is today.