Periods of prolonged drought in Indonesia have forced the country to rely on foreign supply of rice, a phenomenon which has resulted in increases of regional prices of the commodity. It is believed that the deficit is almost 1.5 million tonnes, and within the past two weeks, the Vietnamese government announced that it has won a tender to supply almost two thirds of this demand. If this deal materialises, it will represent 3.5% of global rice trade this year. However, there is still hope for other competing suppliers as information from the domestic grains agency, Bulog, indicates that the deal was merely a “supply guarantee”, rather than intent to ship rice. Therefore, it is not surprising to see prices skyrocketing in several countries within the region due to speculation that has forced producers to put on hold current sales of rice.
Notable in the price changes are export prices for rice in Vietnam and Thailand (others are Pakistan and India). Thus, since early October, export prices in Vietnam and Thailand have risen by almost 3%-6% such that within the past two weeks,Vietnamese 5% broken rice prices have risen to USD350/tonne (fob Saigon port) from around USD340/tonne in the previous week and USD325/tonne a month ago. Similarly, in Thailand, offers for 5% broken rice have reached USD360/tonne up from September averages of USD340-355/tonne, which represents a massive recovery from eight-year lows hit last month.
Worth noting is that the regional market reaction to the Indonesian economic realities is against the fact that world production of rice for the closing 2014/15 season has grown by 4% above the five-year average to an estimated level of 479 million tonnes, according to the International Grains Council (IGC). However for the upcoming 2015/16 season, world rice production is seen marginally lower than in the previous year at 477 million tonnes owing to lower expected yields due to anticipated below average monsoon rains in Asia. With respect to global demand, world rice uptake is also expected to grow reaching 484 million tonnes in 2014/15, which represents a 1% annual boost. Nonetheless, this growth is less than those recorded in previous years due to the continued diversification of diets amid rising global incomes following the recovery from the 2008/9 global financial meltdown.
MITC 20 October 2015