Asian 5% broken white rice prices converge sub-$400/mt FOB for the first since December 2019

On July 15 – for the first time since Dec. 19, 2019 – S&P Global Platts' assessments of Thai, Indian, Pakistani and Vietnamese 5% broken white rice were all assessed below $400/mt FOB.

The turnaround has been stark. Exactly a month before, not a single one of these assessments were below $400/mt FOB. As recently as late-March, both Thai and Vietnamese 5% broken white rice were assessed by Platts above $500/mt FOB.

Each country has its own specific context, but the recent correction is not unusual in anything aside from in its scale. Each year, Asian white rice prices typically see a downward correction around June-August. In Pakistan, exporters seek to clear stocks ahead of harvesting from late August. Both Thailand and Vietnam are harvesting off-season crops at this point in the year, while Indian farmers have also just concluded their off-season rabi crop harvest.

However, with the return to sub-$400/mt FOB white rice prices, the market appears to have turned a corner following the price spikes of the past year and a half, which were primarily caused by fallout from COVID-19. However, in addition to the usual seasonality of these price decreases, one of the main reasons for the recent collapse in pricing has stemmed from the fallout from COVID-19 – shipping difficulties, both for breakbulk and container.

"Buyers disappear"

A common recent remark from Asian exporters has been that many buyers are able to justify FOB costs, but not freight costs. An Indian exporter claimed to Platts that "demand is there, but due to container issues it's difficult to book new business." A Thailand-based source confirmed that demand is there – especially following FOB price declines – "but buyers disappear when you quote freight" rates.

A European broker remarked July 16 that if they were to pay $320/mt FOB FCL for high quality Myanmar broken rice, freight to Northern Europe averages around $9,000/TEU. On the basis of 25 mt/TEU, that equates to a freight rate of $360/mt, 13% more than the cost of the product itself.

The ongoing political issues from Myanmar's coup notwithstanding, the country is not alone. One Dubai-based trader whose company has strong links to the shipping industry reported that even for them, it was difficult to source a breakbulk ship due to high demand and low supply.

A Europe-based trader also recently claimed that it is "impossible to find" containers in India. A second Europe-based trader said that "it's tough [to get containers in Thailand], but not impossible. If you pay the right price."

Even if containers are sourced, there are also no guarantees that buyers will be able to hang on to them. One major European buyer reported that the current freight situation was "dramatic," primarily because shipping contracts were often not being honored and eleventh-hour changes were not uncommon. A Pakistani exporter confirmed this situation, claiming that it was "ridiculous...even last minute, they [shipping companies] cancel the booking," creating additional costs for counterparties.

Exports falter

In this context, the Pakistani exporter added that "everybody globally is quiet now." Rolling the dice, many buyers have bet on the freight market improving and have put off orders, leaning more heavily on existing stocks and waiting for domestic rice prices to catch up with recent rises in the global freight market.

This is borne out in recent export figures, with the Pakistan Bureau of Statistics estimating that May exports were down by 48% on year. Vietnamese H1 2021 exports were also down by 14% on year, according to data from Vietnam Customs, while Thai 2021 exports as of July 11 (excluding Hom Mali Fragrant rice) were down by 20% on year, according to the US Department of Agriculture.

The only exception has been India, which has typically been priced far below its Asian competitors on an FOB basis. Indian rice exports totaled 2.02 million mt in April, more than double their year-earlier level, according to the Directorate General of Commercial Intelligence and Statistics. However, with other countries racing to the bottom to compete with India, it is exceedingly likely that the pace of India's exports will falter, while Thai, Vietnamese and Pakistani exporters start to receive large volume demand once again.

At this point, white rice FOB pricing is so similar among Asian origins that freight rates and availability become much more important in determining whether or not a deal is concluded. Unless an Asian origin sharply drops pricing further to claim the position India has held in recent months, this situation is unlikely to change in the coming months.