Local Thai white rice price increases puzzle market participants

London — The opening weeks of 2021 have been active ones for the local rice market in Thailand, much to the bafflement of sources outside of the country.

While limited fresh demand has been reported in recent weeks, exporters have been entering the local market on a semi-regular basis to cover old orders for private buyers in the Philippines, in addition to the governments of Malaysia and Japan.

Sources indicated that the local price for Thai 5% broken white rice was Baht 14.50/kg ($485/mt) on Dec. 23. Since then, prices have gradually crept up, with trade reported at Baht 15.50/kg ($518/mt) on Feb. 4 and the market subsequently indicated at Baht 15.80-16/kg ($528-$535/mt) on that day. Even taking the low point of this estimate, it would equate to a 9% increase since late December.

S&P Global Platts' assessment of Thai 5% broken white rice has also increased by $37/mt over this period and was last assessed at $542/mt FOB on Feb. 9.

However, exports so far this year have been lackluster, with no significant potential white rice demand expected, aside from regular purchases from Asian buyers. According to the US Department of Agriculture (USDA), exports in January (excluding Hom Mali Fragrant rice) totaled 270,693 mt, down by 16% year on year from 2020's already disappointing export figures.

Because of the consistent price increases, multiple sources have speculated that exporters entering the market to cover old orders must be doing so at a loss. One exporter reported an instance of local covering at Baht 15.50/kg ($518/mt) during the week ending Feb. 5 for an old contract to Malaysia concluded at $517/mt FOB.

Traders baffled

Traders buying for price-sensitive African markets pointed to price differentials with other Asian origins, questioning why they would pay such a large premium for Thai white rice unless a buyer specifically required it. Indian 5% broken white rice was assessed at a $137/mt discount to Thai 5% broken white rice on Feb. 9, with its Pakistani and Vietnamese equivalents also significantly lower than Thai.

Sources outside of Thailand are particularly confused by the significant price moves emanating from insignificant sales. Numerous traders and buyers have recounted how the purchase of more than 30,000 mt in the local market would have barely registered a reaction in recent years. While this may be an idealized history, if an exporter enters the local market to secure a cargo of even less than 10,000 mt currently, they are forced to pay higher rates compared to the last sale of a similar volume.

As one major mill recently quipped, it is "better to do nothing right now" and ride out the unusual market conditions. But this inactivity itself is causing issues. One Switzerland-based trader reported that there is currently not enough demand to support the number of mills, with some being forced to diversify and/or shut some of their operations or face a bleak economic future.

Off-season crop arrivals

Thailand's off-season crop – which arrives in March-April – typically provides a respite to Q1 price increases each year. With the current situation showing no immediate signs of improving, one Thailand-based broker remarked that the "[off-season] crop can't come soon enough". However, even with new crop paddy arrivals in March-April, significant price pressure is far from guaranteed.

The USDA forecast off-season milled rice production at 3 million mt. While this represents a 4.7% year-on-year increase, it is still likely to be below average. The USDA reported "critically low" irrigation water levels as of January, with the government discouraging the planting of a second off-season crop between March-May.

The USDA's findings have typically been echoed by sources, noting that irrigation canals look unusually low considering the time of year. As a result, only limited relief to price increases is expected in the coming weeks, despite the significant influx of supply.

While the price elasticity of Thai 5% broken white rice has already been significantly tested in the last two years as Thailand priced itself out of numerous markets – especially African – this test looks set to continue as 2021 progresses.