July 8 (Bloomberg) -- Rice stockpiles are expanding to the highest level in 12 years as production increases to a record, adding to a worldwide surge in agricultural output that is poised to diminish the $1.1 trillion global food-import bill.
Reserves will gain for a seventh year, rising 2.7 percent to 108.6 million metric tons in 2013-2014, the U.S. Department of Agriculture estimates. Output will climb 1.9 percent to 479.2 million tons, exceeding demand by 2.8 million tons. Prices for 5-percent broken Thai white rice, an Asian benchmark, will drop 13 percent to $455 a ton by December, according to the median of eight trader and analyst estimates compiled by Bloomberg.
Combined global output of rice, corn, soybeans and wheat will advance to a record as fields in the U.S. and Europe recover from droughts last year, according to the USDA. Wheat, corn and soybeans are already in bear markets, contributing to two consecutive months of declining world food costs tracked by the United Nations. Inventories of rice, the staple for half the world, are now equal to almost three years of annual trade.
"The stocks are so big, I don’t think anyone can talk about a bottom in prices," said Geneva-based Mamadou Ciss, the president of Alliance Commodities SA, who has traded rice for almost three decades. "There is oversupply for sure in the world. The crops are pretty good everywhere."
The Thai grade fell 10 percent to $524 a ton this year as the Standard & Poor’s GSCI Agriculture Spot Index of eight commodities retreated 15 percent. The MSCI All-Country World Index of equities advanced 5.9 percent, and a Bank of America Corp. index shows Treasuries lost 3.5 percent.
Expanding rice production and stockpiles mean less demand for imports, which the UN’s Food & Agriculture Organization in Rome estimates will drop to 37.6 million tons, contracting for the first time in four years. Global inventories expanded 44 percent since 2006-2007, USDA data show.
Government subsidies are encouraging more production even as prices decline and inventories expand. Thailand, once the biggest exporter, spent 588.7 billion baht ($18.9 billion) stockpiling 27 million tons of milled rice since October 2011 under a policy that paid farmers as much as 50 percent more than local prices. Domestic output will expand 4.5 percent to 21.1 million tons in 2013-2014, the USDA estimates.
Thailand lost about 137 billion baht through the buying program in the last crop year, according to a government estimate, and Moody’s Investors Service said last month the policy is undermining efforts to balance the budget by 2017. The government kept the purchase price at 15,000 baht a ton this month, reversing a proposal to lower it to 12,000 baht, and said that it would keep selling from stockpiles.