Rice Seen Extending Drop Before Low Prices Spur Mid-Year Rally

(Bloomberg) -- Thai rice prices face further losses before a decline in supply and increasing demand boost prices by at least 30 percent.

Thai rice may decline to $310 a metric ton early next year as harvests in Thailand and Vietnam boost supply, according to Mamadou Ciss, president of Alliance Commodities (Suisse) SA, who has traded the grain since 1984. They may then rebound to more than $400 a ton around the middle of the year when supplies in Asia are seasonally low and sustained lower prices boost demand in Indonesia, the Philippines and the Middle East, he said.

Thai five-percent broken white rice, an Asian benchmark, has slumped 20 percent since the start of August to $356 a ton, while unmilled Hommali is at the lowest in about a decade. World milled rice output will climb to a record this year, topping demand for a 12th straight year, amid a bumper crop in India, the biggest exporter. Global rice trade may drop 6 percent this year on weaker imports by China, Indonesia, Iran and the Philippines before increasing 2 percent in 2017, U.S. Department of Agriculture data show.

“Prices may go down because buyers are holding back on purchases,” Ciss said. “Indonesia will come back and catch up with what they didn’t buy and China will buy more.”

Imports

China’s imports may increase 8.7 percent to 5 million tons in 2017, according to the USDA. Purchases by Indonesia may surge 14 percent to 1.25 million tons, and imports by the Philippines may jump 40 percent, the data show.

The slump in prices has prompted Thailand, the world’s second-biggest shipper, to provide subsidies to help stabilize the market. The government announced a series of packages worth 77.6 billion baht ($2.2 billion) including loans for farmers to stockpile rice, delay sales and to support production costs. Other measures include encouraging farmers to cut planting, switch to other crops and increasing product .

The average price of unmilled Hommali rice in the first two weeks of November was 8,039 baht per kilogram, the lowest since December 2006, according to data from the Office of Agricultural Economics. The farm price of unmilled white rice was at 7,050 baht per kilogram, the lowest since January 2008, data shows.

“Prices being this low, it is a great opportunity for buying countries to stock up with rice,” Jeremy Zwinger, chief executive officer of The Rice Trader, a Durham, California-based researcher, said at its World Rice Conference in Chiang Mai, Thailand. “Producers are being greatly pressured globally to be profitable. This will lead to instability and in the end will lead to a decrease in global crop production growth.”