Thai rice stocks could help market keep El Niño in check

The severe and ongoing drought the weather event has brought has become evident in the dry-season rice crop in the Philippines and Thailand where, according to the Office of Agricultural Economics, it is expected to decline by 30%, or 2m tonnes of milled rice compared to last year’s yield.

Similarly, drought in the Western Visayas region of the Philippines, including Bohol province, has had some effect on the dry-season crop but, if the drought continues, the main cropping season that starts in May will also be affected.

Less supply but still prices remain weak​

“So far, the market has been quite indifferent to the possibility of a strong El Niño this year, in which India is predicted to be hardest hit along with Indonesia, Malaysia, and the Philippines​,” writes Dr Sam Mohanty, head of the social sciences of the International Rice Research Institute (Irri) in the Philippines, on his blog. 

Despite such possibilities, rice prices continue to remain weak on the back of surplus Thai and Indian rice in the market. Last year’s forecast of a strong El Niño, which did not materialise, has been playing on the minds of many in the rice market.

“The comfortable level of nearly 100m tonnes in global rice stocks, including 9m tonnes of Thai stocks (based on USDA data), has been acting as a buffer against any irrational market sentiment and speculation​. 

“This does not mean that market sentiment will not change in the coming weeks as we draw closer to the advent of the monsoon and main cropping season in many rice-growing countries​.”

India wields a mighty influence on rest of world​

Of the various factors that can influence the market, writes Mohanty, India’s monsoon situation will be the key in the coming weeks, Mohanty adds. India’s influence on the rice market has never been greater than what it is now, with 7m tonnes of non-basmati and 3-4m tonnes of basmati exports. 

In case of a drought, non-basmati exports will be the target of policymakers to ensure domestic food security. Indian public-sector rice procurement stocks through the Food Corporation of India and state agencies are at a level much higher than the strategic stock requirement, but the level of current procurement stocks is much lower than what it was during the same time last year. 

Based on the data available on the FCI website, total rice stocks at the start of May stood at 22.35m tonnes, compared to 28.6m tonnes at the same time last year, and 34.7m tonnes the year before.

Mohanty says the market is poised to remain rational and driven by market fundamentals as long as exporting countries remain open for business and refrain from making unilateral decisions to restrict rice trade flows and importing countries refrain from panic buying for domestic stockpiles. 

“The major worry for the market is the countries in the El Niño watch, which include the second-largest exporter, India, and three large importers, Indonesia, Malaysia, and the Philippines​. 

“If these countries are affected by drought in the coming season, this could spell trouble for the market. On the one hand, India will be pulling out of the non-basmati market to meet the local shortfall and, on the other hand, demand from importing countries will be rising. ​

“If this happens, the 9m tonnes of Thai rice stocks could come in very handy in keeping the market in check and ensuring that importers not resort to panic buying​.”