Indian Exports Cap Rice Prices.

The return of India to the global rice market has so far managed to cap a dangerous price rally for the grain triggered by flooding in Thailand, the world's largest rice exporter.

Rice is a staple for 3bn people in Asia, the Middle East and west Africa and its price is closely watched because of the impact on inflation and the potential for social unrest.

Thailand usually accounts for nearly a third of global rice exports, but the country's worst floods in 50 years have damaged up to a quarter of its main crop, denting the exportable surplus. The shortage pushed up benchmark rice prices to a three-year high of USD 650 a tonne last month, triggering fears of a spike in food inflation in Asia.

But since then New Delhi has lifted a four-year-old export ban on sales of non-basmati rice, filling the gap left by Bangkok, and stopping what rice traders and agricultural officials said would almost certainly have been a wave of panic buying.

"The supply response by India will compensate the loss of Thai exports," says Sunny Verghese, chief executive of trading house Olam International in Singapore.

The cost of benchmark white Thai rice has fallen back to USD 630 a tonne after the comeback of India to the global rice market. Vietnamese and Indian rice varieties of similar or slightly lower quality are trading USD 100-USD 130 a tonne below that level.

Vietnam, traditionally the world's second-largest exporter, should also help to close the gap left by Bangkok as the country harvests a relatively large crop. Even Thailand itself could help next year. The floods have damaged the country's main crop, but farmers are likely to compensate by boosting planting for the secondary crop in December and January, bringing extra supplies when paddy fields are harvested in March and April.

Concepción Calpe, senior rice analyst at the Food and Agriculture Organisation in Rome, says the extra boost from the secondary crop could prove crucial, preventing a sharp output drop. She forecasts that Thai production this year will fall to 21.2m tonnes of milled rice, down from a forecast of 23.2m tonnes before the flooding. Thailand usually exports about 40% of its crop, consuming the rest.

Yet, the rice market remains nervous as further crop failures, possibly because of bad weather due to the La Niña phenomenon in 2012, could reignite the price rally, pushing up food inflation in Asia and, thus, forcing interest rates higher.

The rice market saw its last big rally during the 2007-8 food crisis, when the commodity changed hands at more than USD 1,000 a tonne after key producers such as India, Vietnam, China and Egypt imposed export bans, and importers, particularly in the Middle East, hoarded supplies. Before the crisis, rice traded at USD 200-USD 400.

Rice traders say the price direction in early 2012 will depend on two factors; Thailand's new government buying policy and the size of India's rice exports.

Before the floods hit, Bangkok had already unsettled the rice market by announcing it would buy from local farmers at Bt14,800 a tonne, about 50% higher than domestic market prices. The plan was designed to boost the income of rice farmers - whose support in July's election was crucial to the overwhelming victory of the new government of prime minister Yingluck Shinawatra - but traders believe it could push up the country's rice export price to as high as USD 800 a tonne. Now, they say, it is unclear how the buying plan will proceed after the floods.

While the Thai government's buying programme, together with the flooding, is likely to be a bullish factor for rice prices, India is most likely to be a bearish drag.

The country's rice harvest is expected to surpass the psychological 100m tonnes level for the first time ever, convincing New Delhi of the need to authorise large exports to make room for the fresh harvest.

"India has not space to store a single rice grain," says Ms Calpe.

The US Department of Agriculture estimates Indian rice stocks in 2011-12 at 24.5m tonnes, the highest level since at least 1960 and nearly twice that of five years ago. Rice traders anticipate that New Delhi will export 5-6m tonnes of rice in 2011-12, up from just 1.9m tonnes in 2009-10, and the highest level in a decade.

Source : moneycontrol.com