ALL EYES ON THAILAND AS PRICES LOOK UPWARDS:

from last week - test post :

ALL EYES ON THAILAND AS PRICES LOOK UPWARDS:

We are increasingly feeling that prices are on their way up, not because of what is happening in the U.S., but also because of the possibilities now seen in Asia. This week’s hot news – really a combination of two weeks of developments reveals the following:

Iraq buys 100 TMT of rice, 70 TMT from Chaiyaporn at prices of $608 and $612 PMT CIF respectively, and another 30 TMT from Saif International, thought to be of Uruguay origin at $682 PMT. The reality is that many felt that Thai prices were exceptionally “cheap” with most of the trade offers seen at $620-30 PMT levels.

Thailand announces tender for release of 753 TMT of Thai stocks (of a variety of grades, brokens and fragrant rice. While the size of the release is not much compared to stocks, this news was accompanied by news in the Thai press of a 2 MMT deal to sell to China as well as a 1 MMT deal with Indonesia that most suggest to be MOUs at best. This is on top of an earlier agreement with Ivory Coast for 240 TMT. The problem is that almost none of these are showing up in the market place, with no freight market activities seen to back up some of these claims. Thai stocks are said to be at 17 MMT or nearly 11 MMT milled and while the government looks set to continue the scheme (and we expect more warehouses to be built), there is still pressure from these mounting stocks. Sources we contacted suggested that these stocks could take 3 years or more to dispose into the market, and if the current market conditions persist, the stocks will continue to rise and add even more pressure. While there is somewhat of a veil of secrecy behind what exporters may offer for these stocks (which incidentally can be used for domestic as well as export markets), higher prices in Vietnam and India would suggest that offer prices will be higher that during the last tender which was cancelled. We are however unsure as to how close this will come to government expectations, which are at a much higher level.

Vietnam prices were up over recent weeks but look stable now, to slightly lower as no Indonesian deal came, and as Philippines, shipments were also facing scrutiny now that the customs in the Philippines was on alert after the recent press news on smuggled rice, which seems to have half its problem solved.  About half the cargo was apparently purchases by a licensed importer, but the matter is still the subject of numerous views to whether the rice, currently in Subic (a transshipment zone) is actually smuggled. These higher prices are not back by much demand, though there are two trade buyers seemingly active in procurement and loading in the last week or so. The sales to Thailand seem to have created a vacuum in brokens, as we get indication prices of $390-410 PMT for Viet brokens, but with the exporters telling us that they really cannot supply it. This squeeze on broken rice is seen to be the core for the current price rises, and notably a squeeze in the premium between higher grades and low grades, with low grades looking firm due to the tightness in brokens – except in Thailand, which seems to benefit from cheaper materials coming from cross border sources.

Is old crop available from Thailand from privately negotiated sources? The answer seems to be a yes, but the details are fuzzy at best, and some traders we contacted suggested that there were a number of layers in price, from the formal indications we provide, to a variety of price options for old crop (some of it are old crop stocks held by exporters – not all are from these “secret deals” the press in on about). The market reality is that with higher offer prices from Vietnam and India, and with India looking relatively tight for supplies before the next season, there is a window of opportunity for Thai old crop, but the lock and keys to the stocks are with the government which continues to mull over these decisions, perhaps hoping for some form of news from India.

India stable, but with less availability and a higher price. India looks remarkably stable, prices are slightly firmer, shipping is relatively slow as competition between grain exports and some monsoon led loading delays (and slow loading) seem to have capped its ability to export more. The monsoon looks better, with rains now seen at 16% below norm, and with plantings almost at back to normal. There is a sense of optimism from India, perhaps from the 28.5 MMT of rice stocks and the 76 MMT total grain stocks held, but also from news of better pulses plantings, and some improved news on soy and other oilseed crops both from India and from the U.S., which has seen some improvement in weather of late. India will see higher prices partly due to a higher Minimum Support Price (MSP) which should combine with a smaller crop (we still feel that yields will be lower despite the news from plantings, but perhaps not a disaster, certainly not worse than in 2009). The only risk now from India is the possibility of an Minimum Export Price (MEP) being imposed, and we feel that the pressure on this will come from non-grain sources, like pulses, oilseed, corn and sugar and needless to say, any decision from India will likely have a strong dose of politics within. For now, sources suggest that there is no reason to curb grain exports, but most also admit that pressures elsewhere in the agronomy, and food inflation could swing decisions.

Nigeria demand is back! But softer than H1 2012. There is also some Nigerian interest that seems to be at the back of price increases seen in Thailand, India and South American origins, for parboiled rice, as talk of a 100% import tariff rate in the New Year has spurred some buying though it is also clear that the buying is not as strong as the wave we saw in the first half of 2012. There seems more questions about whether the government would go ahead with this plan, which was announced on 11 Dec 2011 during the Nigerian budget as presented by President Goodluck Jonathan. We will have to keep a keen eye on this development.

La Niña gives way to El Niño, is one which we feel could tilt the mood in markets more than many think. All eyes are now on what meteorologists all over the world describe as a shift from La Niña (typically associated with floods and excess rains) to El Niño (typically associated with dry weather and drought). This is expected to happen from Sep, and if we look around, we already hear of floods in China, monsoon weakness in India, dry weather apparently in Cambodia (though we feel its more about cross border rice movements that don’t make it to official figures), and the possibility of dry weather impacting markets for 2013.

Prices higher this week, but longer term remains cloudy, and split in views. We feel that market prices could see an upside after Sept, but prices are already higher, with Vietnam and Pakistan looking tight for brokens. Viet WR 5% is at $440-45 PMT levels, Indian WR 5% is at $430 PMT and Indian parboiled rice at $415 PMT for 5% grades while Thai PB 100S sits at $600 PMT thanks to the recent Nigerian interest we have pointed out – albeit the wave is not as strong as before. Myanmar prices were also seen at $370 PMT and higher for Emata 25%, but with the monsoon, loading is slow and the only stocks remaining seem to be in the hand of the MRIA while the rest of the market seems to be waiting for the next crop. There is a general sense of tightness that backs the current price increases and the fact that many markets are waiting for the next harvest also support these higher prices – but everyone also watches Thailand and India for signals from policy-makers.

There is still a lot of apprehension in the market, and the trade looks split on its view to just where the markets will go. We hear and equal measure of bearish talk, mostly on account of pressures from Thai stocks, to a more bullish outlook from many who feel that it may not be in the interest of Thailand to release and drop prices. Even a decision for India to continue exports do not tend to suggest bearishness, only Thailand seems to be able to evoke the “bear” in this market. The jury is out on a trend as there are many undercurrents pushing and pulling on price views. For now, markets look relatively firm until Thailand’s decision on stocks, release and price is understood.

Price Indications
21-Aug-12	Thai	Viet	Pak	India	U.S.	S. Amer.
100B	580
5%	565	440	450	430	580	585
10%	560	435	440		567	575
15%	555	425	430		550	545
25%	545	410	400	380	525	525
A1 Super or Brokens (sortexed)	505	390	350	345		360
Fragrant A1 Super	560
Parboiled 100S or 5% for Pak / Ind	600		460	415		630
Hom Mali 92% Purity or Jasmine Rice Equivalent (5%)	1030	640
Note:  Pakistan - holiday. MEP in Vietnam 4 Jul 12 as WR 35% 375 ; Glut 10% Viet $510-530 PMT - Viet brokens still very tight