Thai rice policy shift may depress prices

       For the first time in decades, Thailand,the world's biggest rice exporter, will not buy directly from farmers in the coming harvest season, a shift likely to prompt a jump in exports that will push down world prices.
       It marks a dramatic reversal of fortune over the last year for the rice market,for which global prices surged along with those of other food staples in early 2008 as funds flooded into commodities on speculation of rising demand.
       A flood of rice from Thailand, on top of rising sales from No.2 exporter Vietnam and increased output from Burma and Cambodia, could quickly push benchmark export prices down by a quarter to $400 a tonne or lower, analysts and traders said.
       "If there is no weather catastrophe or any sudden drought, I expect Thai rice prices to fall to around $380 to $400 a tonne by the end of this year due to rising supply," said Chookiat Ophaswongse, president of the Thai Rice Exporters Association.
       For the moment, benchmark 100%B grade white rice is holding at $540 per tonne, helped by the government's decision to extend its buying programme until the end of September to face off protests by farmers.
       That is exactly half the record high of $1,080 per tonne seen in April 2008 at the peak of last year's world food crisis. Thai prices have slumped since early 2009 when demand subsided as most big importers had secured supplies.
       The fall was in line with global trends as supply in key producing countries is on the rise, including in the United States, the world's fourth-biggest rice exporter.
       US rice futures on the Chicago Board of Trade (CBOT) for November ended down 35 cents at $13.16 per hundredweight on Monday on prospects of a bumper American crop.
       In Southeast Asia, the world's main rice-producing region, supply should rise sharply by the year-end.
       Vietnam expanded its rice stockpiling scheme last week, saying it would buy another 500,000 tonnes on top of the 400,000 it bought in August to stop prices falling under the 35.99 million tonnes the US Department of Agriculture (USDA) says the country will produce this year.
       But Thailand has said it will no longer support farmers by buying directly from them, as it has done for years, citing the need to cut huge storage costs.Consequently, all of the 2009-10 crop of perhaps 20 million tonnes will hit the market.
       Instead of using a pledging scheme,which offered high prices to win political favour in rural communities, the government is introducing an options programme. Authorities will set a benchmark price and pay farmers the difference if they are forced to sell to millers at a price below that level.
       "This means there is no big buyer such as the government to drain some supply out of the market to help lift prices any more and prices could drop sharply," said Kiattisak Kanlayasirivat of Novel Agritrade (Thailand) Co Ltd.
       Moreover, the rice the government has bought in the past and now holds in its stocks will add to the downward pressure on prices - since traders know it will be released at some point.
       Thailand is holding its highest-ever stock of 7 million tonnes and has failed to push ahead with plans to reduce it.
       In India, rice stocks have risen to 30.1 million tonnes from 23.2 million a year ago.
       Traders said that was enough to satisfy domestic consumption but not enough for India to return to the export market in a big way, especially as the monsoon rainfall in rice-growing northwestern states was about 21% lower than normal.
       In the past, before the supply problems that forced up prices last year,India vied with Vietnam to be the second-biggest exporter after Thailand.
       However, other countries are starting to add to supply.
       Burma in particular is re-emerging as a player. It aims to export up to one million tonnes in the fiscal year to next March. As of late August it had exported 600,000 tonnes, compared with 666,400 tonnes in 2008-09 and 358,500 tonnes the previous year.
       All this will put pressure on prices to fall.
       "There is no reason for prices to rise. What we want to know is how much they will fall as buyers realise there will be plenty of rice next year,"said Sumeth Laomoraporn, president of CP Intertrade in Bangkok.
       The fall in prices should stimulate export demand, traders said, especially if big importers start to rebuild stocks next year after struggling to find grain at affordable prices in 2008.
       Thailand could be a beneficiary in terms of export volume.
       "The new Thai intervention plan should bring down export prices and could help Thailand grasp bigger market shares," said Paka-on Tipayatanadaja,an analyst at Kasikorn Research Center in Bangkok.
       According to KResearch, Thai exports in 2010 could reach 10 million tonnes,a record high.
       Chookiat of the Thai Rice Exporters Association said 2010 exports could go even higher than 10 million tonnes if the government managed its stocks wisely, selling gradually without flooding the market.
       Vietnam could also export a record amount this year,6 million tonnes,and that could go even higher in 2010 if the Philippines, one of its traditional buyers, stepped up its buying as prices fell, Paka-on said.