Rice Prices Stay Sideways Despite Severe Drought in Asia

May 10, 2016 10:35 AM
 
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A severe drought that is threatening Asia’s top rice producers and drying up the Mekong River basin in Southeast Asia has exerted only limited impact on prices, thanks to last year’s huge rice surplus, according to officials.

“Despite El Nino hurting crops for the largest exporters of rice in the world, there has been little price increase,” observed Nathan Childs, an agricultural economist with USDA.  Unlike other grains, rice is not traded on a global exchange, and many purchases are between governments or private parties, Childs explained.

Rice (Grade B, Bangkok) from Thailand, the world’s second largest producer, was trading at $3.93, down from a high of $4, but up from a low of $3.80 on April 15, according to U.S. officials and the International Grains Council.

Weather is affecting the current crop.  El Nino has parched farmland across India, Thailand and Vietnam. The three account for more than 60% of the global rice trade of about 43 million tons.

The weather pattern is also worsening a water shortage caused by the number of hydroelectric dams being built along the Mekong, a 3,000-mile river that runs from China to Thailand to the South China Sea. According to the United Nations, the Mekong is now at its lowest level in a century.

For Asian farmers, for whom the Mekong River’s flow and sediments are critically important to their farming, the result is the first drop in rice production since 2010.

Northeast Thailand is in very bad shape,” said Richard Cronin, director of the Southeast Asia program at the Stimson Center in Washington, D.C. “It’s politically sensitive (as well with) the countryside versus Bangkok.”

Meanwhile, as the two sides fight, the dams are destroying the ecology of the river, according to Cronin.

The situation could impact a major rice-growing region. The Mekong River countries of Vietnam, Thailand, Laos, Cambodia and Myanmar produce about 63 million metric tons of rice, or 13% of global output, according to USDA.

The IGC expects the 2016 rice harvest to fall 6 MMT, to 473 MMT, down from 479 MMT in 2015.  However, last year’s crops are expected to cover shortfalls, as some Asian countries gear up to import more rice, according to officials.

USDA lowered the 2016 global production forecast by 0.5 million tons to 470.6 million tons in April, nearly 2% below last year and the smallest in four years. It also said global consumption would outpace production by 14.0 MMT, with global ending stocks falling for the third year in a row to 13 percent to 90.2 cwt tons.

Could this help U.S. rice farmers? Probably not—at least for now.

Despite the growing problems in Asia, where rice had been a staple for centuries, American producers are unlikely to find opportunity there. Instead, the region’s big producers of Thailand and Vietnam will likely cover the growing demand from Asia’s rice importers; the Philippines, Indonesia and Malaysia.

Why? Because only farmers in California export the rice variety preferred in Asia. Most American farmers export unmilled rice, also known as rough rice, to Mexico, Central America and the Caribbean under NAFTA. According to USDA, 10% of U.S. rice exports go to Haiti.

In the U.S., rice is trading at about $5.10, according to USDA officials.   

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