Global Rice Outlook: Vietnam Focus
BMI View: We maintain our view that Vietnam's rice production will reach a new high in the 2013/14 season, although this will represent only modest year-on-year growth. In spite of strong supply and stocks, we believe the recent collapse in Thai rice prices will limit Vietnam's share of global exports in 2013/14. We expect global rice prices to break support at US$15.00/cwt over the year and average US$14.00/cwt in 2014.
We maintain our view that Vietnam's rice production will reach a new record high in the 2013/14 season, although year-on-year (y-o-y) growth will remain modest. We forecast production to reach 27.6mn tonnes, only 0.5% higher than in 2012/13, but 6.1% higher than the five-year average. As a result, the country's production balance at 7.4mn tonnes, combined with strong ending stocks in 2012/13, will help exports. As of February, Vietnamese rice export prices are still more competitive than Thai prices, but are now less competitive than Indian and Pakistani prices. Also, the discount compared to Thai prices is now minimal and could close in the coming months. We believe the Vietnamese supply will still be exported and contribute to another global surplus in the rice market. We forecast another global rice surplus of 3.5mn tonnes in 2013/14 and the global stocks-to-use ratio to increase to 26.1%, higher than the 23.5% over the past five years. This will help global rice prices to average lower in 2014 and 2015.
We believe the recent collapse in Thai rice prices will limit Vietnam's share of global exports in 2013/14, but expect Vietnam's market share to rebound over the long term. Thailand has rushed to sell its huge stockpiles as the government needs money to pay farmers, lest they add their voices to a wider anti-government uprising. Ending stocks in the country climbed to a record 18.0mn tonnes during 2013 and the government has only started recently to sell inventories at a loss. These dynamics will give a competitive advantage to Thai rice supplies in the near term, and prevent significant further growth in Vietnam's global rice market share. The USDA forecasts Thailand's share of global exports to recover to 20.8% in 2013/14, compared with 17.4% in 2012/13, while Vietnam's share will only increase to 18.3% in 2013/14, from 17.4% in 2012/13. Beyond the current season, we do not expect the Thai government to continue supporting rice farmers through similar mechanisms. We therefore believe Vietnam will make further competitiveness gains in the coming years, further undercutting Thailand's market share in the long term.
|Close To Break?|
|Front-Month CBOT Rice (US$/cwt, weekly) & RSI (Below)|