Rice prices may jump 22% to US$750/tonne by year end as Thailand buys grain from farmers at above-market prices, driving up export costs, fueling inflation

LOS ANGELES , August 29, 2011 () – By the end of the year, rice may jump 22% spurred by Thailand, the world’s biggest shipper, purchasing grain from farmers at above-market prices, costing importers more and fueling global inflation despite slowing economic growth, Bloomberg reported Aug. 29.

By Dec. 31, the price of 100% grade-B Thai rice may jump to US$750 per tonne, according to the median estimate of seven exporters, traders and millers in a survey conducted by Bloomberg News. That number is $50 greater than the median estimate of a separate survey conducted in the first half of August by Bloomberg.

A surge in prices could make the situation for central bankers and policy makers in Asia more difficult as they attempt to reign in rising costs. With the sources of supply inflating prices for their commodities, prices will remain elevated, thus keeping risks for food inflation higher, Standard Chartered Plc analyst Abah Ofon said.

In the week to Aug. 24, 100% grade-B Thai rice rose 6% to $617 per tonne, reaching the highest level since December 2009, the Thai Rice Exporters’ Association said. Since September 2008, the price has not reached more than $750. In Chicago, rough rice futures hit $17.47 per 100 pounds Aug. 29, up 22% this year.

In Thailand, millers, traders and exporters are advancing purchases as the new prime minister has pledged to purchase unmilled grain directly from farmers at 43% above market prices in an effort to boost rural incomes. Thai exports may become less competitive as the U.S. Department of Agriculture is predicting U.S. shipments to fall the most since 1984.

In 2011-2012, the United Nations Food & Agriculture Organization predicts global rice production will outpace demand and stockpiles will reach an 11-year high, but the new Thai policy could see some of the country’s surplus end up in state warehouses, International Grains Council senior economist Darren Cooper said.

Thai rice exports may fall 20% to 8 million tonnes in 2012 as the new policy undermines the competitiveness of the country’s shipments, according to a report from the USDA’s Economic Research Service put out Aug. 12.

In the season that began Aug. 1, production of milled-rice in the U.S. will fall 20% to 6 million tonnes, the biggest fall since the end of the 1984 season, according to the USDA. The slump will cut U.S. exports 45% to 3.15 million tonnes next year.

The primary source of this article is Bloomberg, New York, New York, on Aug. 29, 2011.

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