|Source: BMI, November 5, 2012|
|Front-Month CBOT Rough Rice, US$/cwt (Weekly Chart)|
We continue to expect front-month rough rice to trade within its sideways band and respect the US$14.00-16.00/cwt range in the short term. Front-month rough rice prices have been fairly stable since the beginning of the year and showed weakness in September and October. Rice remains the best-supplied market among grains, which is keeping a strong lid on prices. However, prices look quite resilient, held up by elevated prices for other grains and by Thailand's paddy pledging programme, which is keeping domestic prices artificially high and has led to a drop in exports from the country.
We continue to forecast lower average rice prices in the next two years, as ample global supply should keep prices in check. Our view for prices to average US$14.75/cwt in 2012 is unfolding well (we have been expecting lower average prices since 2011 and only bumped up our forecast slightly from US$14.50/cwt to US$14.75/cwt in August on the back of strong performance in July). We maintain our forecast for prices to average US$14.00/cwt in 2013, as we expect almost all major producers and exporters to experience steady, if unspectacular, growth in 2012/13 with harvests exceeding record levels in China and Vietnam. The global surplus will shrink to 1.4mn tonnes, compared to 12.0mn tonnes in 2012, but high stocks will bring the stocks-to-use ratio to 24.3%. Looking at 2014, we see the global market easing further, with the global surplus jumping to 7.1mn tonnes and the stocks-to-use ratio reaching a ten-year high at 25.2%. We see prices averaging lower at US$13.00/cwt over 2014.
Our forecasts represent a more bearish outlook than that implied by the current futures curve, which is in a modest contango. For instance, the September 2013 contract is currently trading around US$15.50/cwt.
Production Growth Across The Board
After registering a cumulative 63mn tonne deficit between 2001/02 and 2006/07, the global rice market registered surpluses from 2007/08 to 2011/12, a trend we expect to continue in 2012/13 and 2013/14. This will help the global stocks-to-use ratio continue the recovery started in 2007 and reach 24.3% by 2012/13. We are forecasting almost all major producers and exporters to experience steady, if unspectacular, growth in 2012/13 and 2013/14, while consumption growth will remain stable.
|Rice - Global Production Balance (mn tonnes) & Stocks-To-Use Ratio (%)|
In 2012/13, global production will broadly stagnate, reaching 467mn tonnes, as India's output will drop 5.3% year-on-year to 98.5mn tonnes due to a weak monsoon in Q312, while other key producers should report weak growth. Production should rebound in 2013/14 and come in around 480mn tonnes, assuming a return to normal weather conditions and increased production in India. Thai farmers will maintain high production growth aided by the national rice programme.
|Country||2012/2013 Forecasts ('000t)||Risks||2013/2014 Forecasts ('000t)||Risks|
Consumption Growth Stable
We expect global rice consumption to register stable growth in 2013 and 2014 of 2.4% and 1.6% to 466.1mn tonnes and 473.7mn tonnes respectively. Global rice consumption is overwhelming concentrated in Asia, which comprises the world's top eight largest consumers and accounts for almost 80% of total global consumption. Major importers, such as Nigeria, China, Indonesia and the Philippines, will lower or keep rice imports steady in 2012/13 compared to 2011/12, on the back of higher production.
|Select Countries - Rice Exports (LHS) & Imports (As % Of Total)|
Risks To Price Outlook
The key risks to our price view for rice are largely on the downside. First, our expectation for weakness in the wider grain complex (especially regarding wheat and corn) from December, with the Southern Hemisphere's harvest coming on line could send rice prices lower.
|Thai Prices At A Hefty Premium|
|Front-Month CBOT Rice (LHS) & Thailand 5% Rice Export Prices (US$/tonne)|
Moreover, the unsustainability of Thailand's rice pledging programme poses strong downside risks to our price outlook. We believe the scheme is currently one of the few supportive factors for rice prices, as it is keeping Thai prices at artificially high levels and led to a drop in exports, significantly decreasing the usual amount of rice available on the international market (Thailand accounted for 30.5% of global rice exports in 2011). We believe the scheme is untenable in the medium term given its high toll on rice competitiveness and exports, as well as on national accounts, and see growing risks for Thailand to partially cut the subsidies or drop the policy. Any change to the country's policy could send global rice prices down. Also, any sudden and significant release of Thailand's rice stocks (which are reaching unprecedented levels, at around 14.0mn tonnes) could prove to be a strong bearish factor for international rice prices.
|Source: BMI, USDA|