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USDA GAIN: Oilseeds, Cotton, Sugar, Grain and Feed

09 November 2012

USDA GAIN: Thailand Grain and Feed Update November 2012USDA GAIN: Thailand Grain and Feed Update November 2012

MY2012/13 main-crop rice production is revised down due to deficient rainfall in the northeastern region. Participation in the MY2012/13 Main-Crop Paddy Pledging Program started strong and the government is likely to speed up the sale of its rice stocks due to public debt concerns
USDA GAIN Report - Oilseeds, Cotton, Sugar, Grain and Feed


Rice, Milled

Author Defined:

1. MY2012/13 Main-crop Rice Production Down Due To Drought

MY2012/13 main-crop rice production is revised down due to deficient rainfall in the northeastern region, which is the major growing area for fragrant and glutinous rice (Table 1 and 2). This region accounts for approximately 80 percent of total fragrant and glutinous rice production. According to the Thai Meteorological Department (TMD), precipitation during January – September 2012 was nearly 7 percent below average in the northeastern region, particularly in the central and lower parts of the region. Precipitation in this area is also likely to be far below the normal average in October 2012 (Figure 1 and 2) due to the lack of storms this year. Tropical storm Gaemi in early October marginally prevented severe drought damage to the fragrant rice crop as it caused more rain in the western than in the northeastern region.

The Ministry of Agriculture and Cooperative estimated the drought damage in the region between May 1- October 19, 2012 to be around 0.6 million rai (0.1 million hectares), of which 0.5 million rai (0.08 million hectares) are rice crops. Meanwhile, flood damage to the MY2012/13 main crop rice paddy is minimal at around 5,500 rai (880 hectares). However, Post estimates drought damage area is likely increase to 1-2 million rai (0.2 million hectares) as another tropical storm Prapiroon is expected to move away from Thailand. In addition, current tropical storm Sontinh, in the South China Sea, is expected to cause heavy rain in northeastern Thailand by the end of October, but it will likely be too late to improve the average yield of the fragrant rice crops, which account for around 60 percent of total main-crop rice production in the northeastern region.

The average yield for fragrant rice is likely to decline to 370 kg/rai (2.31 tons/hectare), down approximately 10 percent from the previous year, due to insufficient rainfall during September and October (milk and dough stage). Total MY2012/13 main-crop rice production is revised down to 21.5 million metric tons of paddy (14.2 million metric tons milled equivalent) (Table 2), which is still slightly above last year as main-crop rice production in the northern and the central plain regions are better than average due to sufficient rainfall and adequate water reservoir levels.

MY2012/13 off-season rice production forecast remains unchanged from the previous forecast as water reservoir levels are likely to be able to provide enough water for the off-season rice crop, particularly in the lower northern and central plain regions. These regions account for around 80 percent of the total off-season rice crop production. Presently, reservoir levels are around 75 percent of capacity nationwide, which will likely be enough to irrigate the off-season crop. However, there is a possibility that the off-season crop production could be lower than expected if the reservoirs unexpectedly dropped. The major dams in the northern region are presently at 60-70 percent of capacity (Figure 3).

In addition, the TMD expects warmer and drier conditions between November 2012 and January 2013.

2. Better Prospect For Rice Exports In 2012 - 2013 Due To Stock Releases

MY2011/12 rice exports remain unchanged from the previous forecast of 6.5 million metric tons, down 39 percent from the previous year as Thai rice prices remain much higher than competitors’ prices like Vietnam and India as a result of its Paddy Pledging Program. Presently, prices for Thai 5% grade white rice remain $100/MT above Vietnamese rice despite a reduction from an average price difference of $140/MT during January through September 2012. Prices for 100% grade parboiled rice are $175/MT above Indian rice prices.

In the first nine months of this year, Thai rice exports totaled around 5.0 million metric tons, down 44 percent from last year. White and parboiled rice exports have been adversely affected by the high intervention prices set by the paddy pledging program. White and parboiled rice exports are down approximately 50 percent from last year to around 2.1 million metric tons and 1.5 million metric tons, respectively. In addition, fragrant rice exports dropped 24 percent from last year to 1.4 million metric tons.

Prices for Thai white rice have been falling since July 2012 due to the sale of government rice stocks. (Figure 4). Monthly rice exports during October – December 2012 will likely reach 0.5 million tons as the government sells its rice stocks to help finance the new MY2012/13 Main-Crop Paddy Pledging Program. The government is likely sell its new-crop fragrant rice stocks of around 0.3 – 0.5 million metric tons during November 2012 – January 2013, mostly destined for the export market. In addition, government rice stocks are expected to fall even more as Nigeria continues to purchase Thai parboiled rice before its new import tariffs double the cost of imported rice.

MY2012/13 rice exports are expected to increase to 8.0 million metric tons, unchanged from the previous forecast, in anticipation of government stock releases. The government will likely speed up the sale of old-crop rice stocks in 2013 to exporters through open or closed tenders, which will enable them to compete with Vietnamese rice crops. Meanwhile, the Thai Government’s memorandum of understanding (MOU) to sell 7.3 million metric tons of rice in 2012-2013 (valued at approximately 114 billion baht ($3.8 billion) to China, Indonesia, Bangladesh, and Cote d’Ivoire is likely to take years to finalize. The MOU is being challenged in court by a group of Thai senators who claim that the government has not been transparent in developing the agreements, and consequently should not be allowed to finalize the sale.

MY2011/12 and MY2012/13 rice imports are revised up to 0.4 million due to an increase in broken rice imports and rice paddy smuggling along the border. During January – August 2012, rice imports doubled from the previous year, particularly from Myanmar and Cambodia. The increase reflected tight supplies of domestic broken rice caused by the changes instituted by the MY2011/12 Paddy Pledging Program, which requires millers to deliver both head rice and broken rice to the program. The attractive intervention prices of the pledging program are encouraging more rice smuggling from neighboring countries along the border, particularly along the Thai-Cambodia border. Cambodian paddy is normally traded along the border between December and May. Around 70 percent of Cambodian paddy traded on the border is fragrant rice and the balance is low-quality white rice. Cambodian fragrant rice paddy prices are approximately 50 percent below Thai fragrant rice prices, but the quality is just as good, if not better than Thai fragrant rice.

3. Controversial Paddy Pledging Program

The MY2011/12 Paddy Pledging Program has received pledges of about 21.5 million metric tons (MMT) of paddy, of which approximately 70 percent are off-season-crop rice paddy (Table 3). White rice paddy accounts for around 80 percent of the program. As of October 3, 2012, millers participating in the program delivered around 11.0 MMT of milled rice to government warehouses, of which 4.1 MMT are main-crop rice and 6.9 MMT are off-season-crop rice (Table 4). There are pending deliveries of off-season-crop milled rice and paddies of around 1.2 million metric tons each. The state-run Bank for Agriculture and Agricultural Cooperative (BAAC) has provided loans worth 304 billion baht ($10 billion) to farmers, of which 214 billion baht ($7 billion) have been covered by loans from government banks other than BAAC. Farmers are unlikely to redeem the full value of their rice under the pledging program as current market prices are presently 20-30 percent below the intervention prices.

Overall the pledging scheme props up farm-gate prices. Under the program, prices for fragrant rice paddy are 18 percent higher, main-crop rice paddy is 15 percent higher and off-season crop paddy is 10 percent higher (Figure 5 and 6). Sources report that the program is reportedly biased against large farmers as they receive 80-90 percent of the benefit from the pledging program due to their large farm land holdings. The Thailand Development Research Institute (TDRI) estimated that smaller farmers received 20 percent of the benefit from the main-crop rice paddy program and only 8 percent for the off-season-crop rice paddy program. Around half of Thailand’s main-crop rice farmers and one-third of the off-season-crop rice farmers come from low-income households.

Furthermore, the pledging program is likely to incur losses of at least 113 billion baht ($3.8 billion). Around 60 percent of the losses are attributed to the sales of rice stocks below its acquisition price and the remainder from rising administrative costs.

In October 2012, the Thai Cabinet approved a budget of 240 billion baht ($8 billion) to fund the MY2012/13 Main-Crop Paddy Pledging Program. The program will be funded by a 150 billion baht ($5 billion) loan from government banks and 90 billion baht ($3 billion) from government stock sales. Financing for the new program is structured differently from past programs due to the concern over public debt levels which are expected to increase to around 48 percent of GDP in 2013. The new main-crop rice paddy program began on October 1, 2012 and runs until February 28, 2013 with the pledging target ranging around 15.0 million metric tons of paddy (roughly 10 million tons milled equivalent). The intervention price remain unchanged for white rice paddy (13,800 - 15,000 baht/tons ($444 – $482/MT), which is around 40 percent above current market prices. The price for fragrant rice paddy will range between 18,000 – 20,000 baht/ton ($579 – $643/MT), which is 20 percent above current market prices. No limit restrictions were imposed on the amount of paddies that could be sold to the government. The Thai Cabinet is expected to consider funding for the MY2012/13 off-season rice crop next year.

The Thai Government is currently holding an estimated 12.0 million metric tons of rice stocks, down from prior estimate of 14-15 million metric tons. The government has sold approximately 2-3 million metric tons of rice stocks, consisting primarily of old rice stocks. Around 60 percent of the rice stock sales were through closed tenders for exports, particularly to Indonesia and African countries under government-to-government contracts. Open tenders accounted for approximately 10 percent of the government’s rice sales. The final bids for the August – September tenders were approximately 10-20 percent below market prices. [For figures and tables, please download the document]

November 2012

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