Speculation over aggressive intervention by the new government in Thailand, the world’s biggest exporter, has pushed the benchmark white rice to $615 a ton, the highest since December 2009, even though demand has remained thin with top importers largely covered.
The rally coincides with higher prices for other staples, reigniting worries about food inflation at a time when the global economic outlook is grim.
Asia is home to the world’s top rice consumers and producers, as well as its two most populous nations — India and China, which have declared war on inflation.
US wheat climbed this week to its highest level in nearly three months, a gain of 36 percent from a July low and corn rose almost 25 percent from the end of June to reach a 2-1/2 month high.
Rice prices are up more than 30 percent since an April low, but traders said plentiful supply meant prices were unlikely to see a repeat of 2008, when the benchmark rose above $1,000 a ton and Vietnamese rice followed suit.
Thailand and fellow top exporter Vietnam are on track to produce bumper crops and India, the world’s biggest rice producer after China, is expected to return to the market soon after the government in July eased an export ban in place since 2008.
“The market is reasonably well supplied and buyers are not rushing to cover as the price rise has been quite dramatic,” said Vijay Iyengar, managing director of Agrocorp International, a regional grains trader based in Singapore.
“I see limited upside for rice, and when the Indian situation gets resolved you will find additional material coming into the market.”
The first round of Indian exports — one million tons — has been blocked by a court after exporters complained about quota allocations, an issue the government is resolving.
Traders forecast Thai rice prices to be capped at around $700 a ton until the end of 2011, even as domestic market climbs toward $850 a ton after taking into account the government’s paddy procurement price of 15,000 baht ($500) a ton and costs involved in processing, packaging and storage.
Vietnamese traders also said prices could advance by $20-$30 a ton but they will not reach the April 2008 peak. Vietnam’s 5-percent broken rice stood this week at $550-$565 a ton, up around 18 percent from a year ago.
The world’s top buyers in Asia, the Middle East and Africa are expected to hold back as the price of Thai white rice jumped more than 10 percent in August.
“Demand will start rationing as we have seen in 2008,” said one Singapore-based trader, who declined to be identified in line with his company policy.
“People know the risks associated with such prices, every time the market has gone up sharply it has reversed and people have lost money.”
Traders in Bangkok said they don’t expect any major deals within the next few months, with overseas purchases being capped at around 100,000 to 300,000 tons.
“I don’t see any big demand during the last quarter of the year that could have any impact on prices,” said one trader.
“Even if buyers want to purchase, they will wait for lower prices because they know there will be plenty of rice in Thailand and Vietnam at the end of the year when harvesting peaks.”
Thailand is forecast to produce an average paddy crop of 23-25 million tons from its main crop, which is due to be harvested in November.
Vietnam is due to finish harvesting its second rice crop in two weeks, while a minor crop will be ready by the end of 2011, helping lift output this year by 4 percent to 41.6 million tons, according to the country’s farm ministry.
India is also expected to add to these plentiful supplies.
“India can export 3 million tons of common grade rice and 2.5 million tons of basmati rice until September next year,” said R. S. Seshadri, director of Tilda Riceland, a leading New-Delhi-based rice exporter.
Several Indian states have asked the government to allow more rice exports, and the government has little choice but to sell as its stocks were at an unmanageable 25.27 million tons on Aug. 1 against a target of 9.8 million tons.
Swollen reserves may also force the Thai authorities to offload stockpiles in the international market at a discount as in 2009, when reserves ballooned to 7 million tons and the government sold rice to exporters in private deals to avoid public criticism.
Logistically, it would also be impossible for the Thai authorities to buy the entire volume of rice that comes into the market, leaving room for private exporters to step in.
The government is also likely thwarting its own inflation-fighting efforts by providing farmers with higher rice prices, analysts said.
Thailand is planning to release 2 million tons from state stocks to ease rising food prices.
“The government will definitely incur losses as it buy rice at higher than market prices and pays for storage costs,” said a Bangkok-based trader.
“It will be even worse when it has to release stocks in the market at lower prices to contain food prices.”
