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)

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.

Close To Break?
Front-Month CBOT Rice (US$/cwt, weekly) & RSI (Below)

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.

Vietnam Losing Competitiveness
Selected Countries - 25% Broken Rice Export Prices, US$/tonne

We continue to believe global rice prices will eventually break multi-year support coming in at USc15.00/cwt in the coming months, as Thailand's rice exports are picking up following the 32.5% decline in Thai rice prices in the past six months. We believe most of the upside pressure on prices linked to tightness in the US market is now behind us, and in fact prices have now moved towards support but so far failed to break. Because the harvest is now already finished and there is still uncertainty over the timing and prices of Thailand's export sales, it could take more time for prices to break below the key US$15.00/cwt level. However, we remain convinced that prices will see more weakness in the medium term. In fact, we forecast prices to average US$14.00/cwt in 2014 and US$13.70/cwt in 2015

Vietnam Rice Estimates
FY09 FY10 FY11 FY12 FY13 FY14 FY15
BMI Vietnam Rice Production (mn tonnes)* 24.4 25.0 26.4 27.1 27.6 27.7 28.1
USDA Vietnam Estimates (mn tonnes)* 24.4 25.0 26.4 27.2 27.7 27.7 na
Vietnam Ending Stocks (mn tonnes) 2.0 1.5 1.9 1.8 2.3 2.1 na
Rice Harvested Area ('000 ha) 7,330.0 7,415 7,607 7,740 7,862 7,800 na
Rough Rice Yield (tonne/ha) 5.30 5.39 5.55 5.61 5.64 5.68 na
% Of Global Production 5.4 5.7 5.9 5.8 5.9 5.9 5.9
% Of Global Exports* 20.6 21.5 20.1 19.8 18.5 19.1 na
BMI Global Rice Production* 448.7 441.4 449.2 465.8 469.5 472.4 480.1
USDA Global Rice Estimates* 448.7 441.4 449.3 465.8 471.4 474.7 na
*(mn tonnes) USDA, BMI (FY14 = 2013/2014 = 01/2014-12/2014)
Vietnam Rice Calendar
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Main H H P P P P P H H H
Winter/Spring P P P H H H
Spring H H P P
Summer/Fall P P P H H H H
Note: H=Harvest, P=Planting; Source: USDA, FAO, BMI

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Related sectors of this article: Agribusiness, Rice
Geography: Vietnam
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