BMI View: We expect India's rice production to recover in 2014/15, following two years of production decline. Exports are likely to remain historically elevated, but should ease, mainly due to increased competition from Thailand. The increase in exportable rice supply from Asia, coupled with growth in global production in 2014/15 will help international rice prices average lower in 2014.
We have revised up our estimate for the 2013/14 crop, as the climatic setbacks in October-December were less severe than previously foreshadowed. The main crop ( kharif) was disappointing and this will lead to a small decline in overall production in 2013/14. We forecast 105.1mn tonnes, down 0.1% year-on-year (y-o-y), but slightly higher than our previous estimate of 104.5mn tonnes. The rabi crop, the harvest for which is now almost complete, is shaping up well and the FAO forecasts a 10% increase in output.
Looking at the 2014/15 season (starting in October 2014 with the main crop harvest), we continue to see rice production recovering, to 106.1mn tonnes, up 1.0% y-o-y. However, we see downside risks to this forecast, stemming from the probable return of El Niño in 2014 and its impact on the summer monsoon. The performance of the seasonal rains (June-September) will be critical to the development of the main kharif crop, which accounts for 86 percent of the country's overall production and is predominantly non-irrigated. There is growing consensus among official meteorologists across the world that the El Niño weather phenomenon, which usually brings drier than normal weather to South East and South Asia, is developing. In fact, the India Meteorological Department warned that the 2014 monsoon rain will probably be 95% of the 50-year average. Showers between 96% and 104% of the long-term average are considered normal by the department. Few details over the intensity of El Niño this year are known so far.
|Second-Month CBOT Rough Rice, USD/cwt (Weekly chart)|
Rice exports from India are likely to ease in 2013/14 and 2014/15 to 10mn tonnes and 9mn tonnes respectively, after reaching a record high in 2012/13 of 10.9mn tonnes (accounting for 28% of total global rice exports). This will be driven by lower domestic supply and increasing competition on the international rice export market. First, although India's production surplus and stocks will remain elevated by historical standards, they are decreasing. We forecast the production balance at 9.0mn tonnes in 2013/14 and 8.0mn tonnes in 2014/15, compared with 11.6mn tonnes on average in the two previous seasons.
|India - Rice Stock in Central Pool (mn tonnes, LHC) & Basmati Rice Retail Prices (INR/qt, RHC)|
Second, competition among Asian rice providers is intensifying, as Thailand export prices have eased by over 25% in recent quarters. Export prices of the main Asian exporters are now very close: India's 25% broken rice is trading at USD380/tonne, compared with USD395/tonne for 5% broken rice from Thailand and USD385/tonne for Vietnam. Strong demand from the Near East, Africa and South East Asian countries, combined with a weak Rupee, permitted India to keep 2013 exports at record-breaking levels. However, Thailand is battling hard to regain its lost market share in these regions, which should limit Indian exports. The export outlook for India is also dampened by a potential slow-down in trade with Iran, a market it has dominated since 2012 thanks, to a large extent, to the Rupee payment mechanism that circumvented sanctions imposed on the Near Eastern nation. Following successive years of large purchases, Iran appears sufficiently well stocked to reduce imports over the course of the year. Progress in negotiations over its nuclear program, which in November already saw a deal relaxing sanctions reached, have also raised prospects of Iran soon finding itself in a position to diversify the origin of its rice purchases.
|Indian Exports Retreating|
|Select Countries - Rice Exports (As % of total)|
The increase in exportable rice supply from Asia is likely to help CBOT rice prices ease in the coming quarters. In fact, prices are testing three-year support at USD15.40/cwt. More weakness could come 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 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 India Rice Production*||99.2||90.0||96.0||105.3||105.2||105.1||106.1|
|India Official Estimates*||99.2||89.1||96.0||105.3||105.2||106.2||na|
|USDA India Estimates*||99.2||89.1||96.0||105.3||105.2||105.0||106.0|
|India Ending Stocks (USDA)*||19.0||20.5||23.5||25.1||25.4||24.4||23.4|
|USDA Rice Area Harvested (mn Ha)||45.4||41.9||42.8||44.1||42.4||43.5||44.0|
|USDA Rice Yield (tonne/ha, Rough)||3.28||3.19||3.36||3.58||3.72||3.62||3.61|
|% Of Global Production||22.1||20.4||21.4||22.6||22.4||22.2||22.2|
|% Of Global Exports||7.2||6.6||7.9||26||27.5||24.5||21.7|
|BMI Global Rice Production*||448.7||441.4||449.2||465.8||469.5||473.4||478.1|
|USDA Global Rice Estimates*||448.7||440.9||450.1||466.9||469.5||471.1||na|
|*(mn tonnes); na = not available. Source: BMI, USDA, Indian Agricultural Ministry. Year 2013/14 refers to 10/2013 to 09/2014|
|Note: P = Plantings, H = Harvest. Source: BMI, USDA|