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Brazilian paddy rice prices rise on overselling

Highlights

January-July 2020 exports already surpass full 2019 exports

Imports during this period curtailed by the weakness of the real against the dollar

Other South American origins report spike in Brazilian demand

London — The average paddy price in Brazil's main rice producing state of Rio Grande do Sul has increased by 17% month-on-month to Real 75.90/50kg ($276/mt) as of Aug. 17, according to the Center for Advanced Studies in Applied Economics.

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The average paddy price in Brazil's main rice producing state of Rio Grande do Sul was 17% higher month on month at Real 75.90/50kg ($276/mt) as of Aug. 17, according to the Center for Advanced Studies in Applied Economics.

That represented a 74% year-on-year increase.

While millers and traders disputed the figure, saying they would have to pay at least Real 85/50kg to buy paddy in Porto Alegre, Brazilian paddy prices have risen sharply in recent days.

That has been partly caused by relatively low production. While 2019-20 paddy production was forecast to increase 6.6% year on year to 11.2 million mt, according to Conab, that would still be 9.4% and 7.4% below 2016-17 and 2017-18, respectively.

Additionally, the real has almost consistently fallen against the dollar this year amid economic uncertainty, reaching a record low of Real 5.89 per dollar on May 14.

The weakness of the real has sharply increased the competitiveness of Brazilian paddy exports. Additionally, extremely tight paddy stocks in the US South have meant that Brazilian exporters have faced little competition selling to Central America and Venezuela this year.

Exports from January-July totaled 982,903 mt, according to the Ministry of Development, Industry and Foreign Trade, up 79% year on year and 9.8% more than the whole of 2019. From May-July alone, exports totaled 701,061 mt.

Meanwhile, the weak real has hindered imports, which totaled 373,557 mt during the period, down by 12% year on year.

Despite low imports from January-July, Brazilian mills are now buying from neighboring countries to supply the domestic market and protect their market share.

Exporters in Paraguay, Brazil's main supplier, have reported a surge in demand in recent weeks, with some unwilling to offer for container shipment to other destinations due to the strength of cross-border Brazilian demand.

Exporters in Argentina, Paraguay and Uruguay are all using ex-works sales to Brazil as a benchmark for offers to other markets, leading to price increases in all of these origins for container shipment.

The S&P Global Platts assessment of Paraguayan 5% broken white rice increased $60/mt from July 24 to Aug. 14 to a record high of $480/mt FOB FCL.

With Argentinian and Uruguayan supplies already constrained by below-average production and strong demand earlier this year due to coronavirus-related panic buying, supply concerns have not been limited to Brazil.

Rising expectations that the Iraqi Ministry of Trade has the budget and the need to purchase rice will likely lead to further bullish sentiment in South America, despite limited prospects of a South American award.

"If Iraq appears now, it will be a total mess," one major Argentinian exporter said, with offers expected to rise further.

While Argentina's and Uruguay's supply situations are not nearly as severe as Brazil's, rising prices in those origins could create an opportunity for the US to export paddy to Brazil as its new crop will arrive on to the market in increasing volumes in the coming weeks.

However, it was too early to say if the US can re-open the Brazilian market after many years of absence and all eyes in the Americas are focused on the domestic price of paddy in Rio Grande do Sul.

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