BMI View: We expect China's rice production to recover in the 2014/15 season after output declined for the first time in 10 years in 2013/14. In spite of the increase in output, the country will record a production deficit in 2014/15 for the third consecutive year. Although import demand from China should be strong, we continue to believe the global market will be relatively well supplied in 2014, which will keep international prices in check. Therefore, we forecast CBOT rice prices to average lower in 2014 and 2015.
China's rice production in the 2014/15 season (starting in July with the harvest of the early double crop) is likely to recover, after output declined for the first time in 10 years in 2013/14. That season, drought and high temperatures in South China adversely affected rice yields of the late season rice crop. We estimate production came in at 142.2mn tonnes, down 0.6% year-on-year (y-o-y).
|Select Countries - Rice Imports ('000 tonnes)|
Turning to the next season, planting of the early 2014/15 crop is now completed and should be harvested in June - August. We see production recovering by 0.7% y-o-y to 143.2mn tonnes, based on a return to more favourable weather and continued government support to the rice sector. The rainfall across southern China has been above average since the start of the season, significantly boosting moisture levels and benefiting planting activities. Moreover, China raised the protective procurement price in 2014 for early indica rice by 2.3% to CNY2,640/tonne and japonica rice by 3.3% to CNY3,100/tonne. In 2014, grains production costs are likely to increase, mainly driven by strong growth in labour, land and seed costs, but declining fertiliser prices should partially offset this. As a result, area under rice cultivation is likely to rise only mildly. Low fertiliser prices should boost application and maintain yields at elevated levels. The USDA estimates area harvested in 2014/15 at 30.7mn ha, up by 1.0%.
|High Domestic Prices Favouring Imports|
|China - Rice Imports, '000 tonnes (LHS) & China/Vietnam Rice Price Ratio (RHS)|
In spite of the increase in output, China will record a production deficit in 2014/15 for the third consecutive year, as rice consumption continues to grow mildly but still at a faster pace than production. We expect the deficit to be broadly stable in 2014/15 at 2.7mn tonnes (up 0.5% y-o-y), but significantly higher than in recent years as China recorded a surplus of 1.2mn tonnes on average annually between 2008/09 and 2012/13. The decrease in domestic supply, coupled with attractive import prices compared with domestic quotes, has led to a steep increase in imports since 2011/12. In fact, 2011 was the year when the Chinese government implemented its stockpiling programme for rice, aimed at incentivising rice plantings and maintaining a high level of self-sufficiency. The government's support prices are above international prices, and therefore favour imports. Imports are likely to grow in 2013/14 and 2014/15, to 3.5mn tonnes and 4mn tonnes respectively, compared with the 10 year average of 990,000 tonnes.
|Front-Month CBOT Rough Rice, USD/cwt (weekly chart)|
Elevated rice imports from China in the coming months, coupled with the lingering effects of the disappointing global rice crop in 2013/14 will keep CBOT prices supported over the short term. Following various downward revisions to production estimates, our global surplus forecast for 2014 has declined from 6.2mn tonnes in October to 2.7mn tonnes. As a result, we expect prices to keep trading in the USD15.50-16.50/cwt range on a three-month horizon. Prices are likely to start to ease with the harvest of the main 2014/15 crop in September-October 2014, as we forecast a strong rebound in US production and easing domestic prices in the US, to which CBOT prices have been highly correlated in recent quarters. We have revised up our CBOT price forecast for 2014 (and consequently for the rest of our forecast period to 2018) as the tightness recorded in 2013/14 will keep prices supported over most of the 2014 calendar year. We now see prices averaging USD15.00/cwt in 2014, compared with our previous forecast of USD14.00/cwt and an actual average of USD15.47/cwt in 2013.
|BMI China Rice Production*||130.2||134.3||136.6||137.0||140.5||143.0||142.2||143.2|
|China Ending Stocks*||37.7||38.5||40.5||42.6||45.0||47.4||46.8||45.5|
|Rice Area Harvested (mn ha)||28.9||29.2||29.6||29.9||30.1||30.1||30.4||30.7|
|Rough Rice Yield (tonne/ha)||6.43||6.56||6.59||6.55||6.69||6.78||6.68||6.50|
|% Of Global Production||30.1||29.9||30.9||30.5||30.2||30.5||30.0||29.9|
|% Of Global Exports||4.4||2.6||2.1||1.4||1.1||0.9||0.9||na|
|% Of Global Imports||1.5||0.7||1.4||1.6||5.0||10.0||9.0||na|
|BMI Global Rice Production*||432.9||448.7||441.4||449.2||465.8||469.5||473.7||478.9|
|USDA Global Rice Estimates*||432.9||448.7||440.9||450.1||466.9||471.3||475.6||na|
|na = not available; *(mn tonnes) USDA, BMI (FY14 = 07/2013 to 06/2014)|
|Early Double Crop||P||P||P||P||H||H|
|Intermediate Single Crop||P||P||P||H||H||H|
|Late Double Crop||P||P||H||H|
|Northern Single Crop||P||P||P||H|
|Note: P= Planting, H=Harvest; Source: USDA, BMI|