Caution amid Thai rice market volatility underlines COVID-19's scars

Since the closing days of March, Thai white and parboiled rice prices have moved sharply in both directions.

S&P Global Platts' assessment of Thai Parboiled 100% STX decreased from $502/mt FOB on March 23 to $464/mt FOB on April 22, a drop of 7.6% in less than a month amid persistently slow demand and harvest pressure. However, within four daily assessment windows, this price managed to close April $11/mt higher at $475/mt FOB. While a trade was reported at this level, some sources viewed this assessment as conservative, seeing the market at up to $10/mt higher than Platts' assessment on April 30.

Thai 5% broken white rice witnessed similar price volatility in April, with off-season long grain harvesting and persistently slow offshore demand weighing on the market. However, the main source of the price spikes at the end of April were undeniably led by parboiled, as opposed to white, rice demand. After a series of breakbulk shipment delays, approximately three ships are due in Bangkok Port in May to be loaded with parboiled rice for South Africa, in addition to several for West Africa and Yemen by the end of June.

Before COVID-19, this pace of demand would be viewed as not unusual in the slightest. Local prices would likely increase, but generally not to the same extent as they have done in recent days. One African buyer stated that "people don't want to take big positions" at the moment, while a Singapore-based trader added that "building a position of 10,000 mt looks risky" now.

Especially for many price-sensitive African buyers, the pandemic has harmed their purchasing power. As long grain white and parboiled rice have been available from many Asian origins at much more competitive prices since even before the start of 2020, loyalty to Thai rice has waned substantially and exporters cannot guarantee that buyers will be in the market regularly for white or parboiled rice. "Prices are high so people [are] trading with caution," a second Singapore-based trader added.

Another major shock of the pandemic was the sudden and dramatic liquidation of Phoenix Commodities following unfortunately timed currency hedges. Numerous exporters – especially Thai – were affected by the collapse, with many now much more cautious in their dealings as a result. One trader said that exporters "don't want to sell" to new companies, while a European buyer added that extended payment terms from sellers "disappeared" overnight.

On the Thai side, one major exporter said that the market was "pure speculation". A second exporter concurred, saying that speculation "hurts when you have to deliver". A third exporter said that buyers have typically requested Documents Against Payment in recent months, rather than Letters of Credit, "so [it is] not worth the risk for me – [a] huge amount for a small margin". All three exporters said they have limited their exposure to the rice export market in the past year.

In general, there is the impression in the Thai market, and perhaps the Asian rice market more broadly, that participants were acting too boldly in pre-COVID times. As one African buyer bluntly remarked, "traders were reckless," but clearly exporters were not totally innocent.

As Thai long grain prices remain internationally uncompetitive, export figures are unlikely to improve with exporters now being unwilling to take risks in dealing with new customers, restricting payment terms and not building positions locally. Increased hedging opportunities are presenting themselves for Thai participants, namely CME's Thai 5% broken white rice futures contract, but this is yet to trade.

With the Thai market clearly scarred from the events of 2020 – yet seemingly unwilling to engage in the futures market -- and buyers increasingly testing the elasticity of the Thai long grain markets, market activity is likely to remain illiquid and volatile for the foreseeable future.