Bearish outlook persists, as production estimates outpace consumption gains

by Melissa Alexander
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The recent slump in world rice prices should prevail at least through the end of the 1999-2000 marketing season, as production prospects grow ever brighter and surpluses continue to build.

Prices for Thai 100% grade B, f.o.b. Bangkok, the benchmark export grade, remain at their lowest levels since the 1993-94 season, averaging $229 a tonne in April. In March, f.o.b. prices for Vietnamese 5% brokens fell below U.S.$200 a tonne for the first time since at least 1997, when price quotes for that rice began to be tracked, and Vietnamese prices plunged further in April to U.S.$175.

The downward pressure on prices stems from increasing estimates of rice output in the 1999-00 season. The mid-April estimate from the U.S. Department of Agriculture put world milled rice production at a record 400.7 million tonnes, about 2 million tonnes higher than the March estimate and 2% higher than 1998-99 production.

And even though global consumption is also increasing — to an estimated record of 398.4 million tonnes, milled basis, in the current marketing year — offtake remains consistently smaller than output. This assured build-up of stocks, to a record of nearly 62 million tonnes, will leave the stocks-to-use ratio at 15.5%, its highest level since 16.1% in 1991.

When it comes to production, previous records are falling aside in many locations. India's latest harvest estimate is 86.5 million tonnes, milled basis, exceeding last season's record production by 500,000 tonnes based on higher yields; Vietnam will reap a record 20.3-million-tonne harvest based on higher plantings; Malaysia's improved yields will result in a record output of 1.37 million tonnes; and China, the world's largest rice producer, will harvest a record 141 million tonnes. U.S. production is expected to fall short of its 1994-95 record 6.64 million tonnes by fewer than 15,000 tonnes.

In the Philippines, a decade of intensive research has created 41 new higher yielding rice varieties, culminating in this season's estimated record output of nearly 8 million tonnes. Consequently, Philippine rice imports in 1999-00 are projected to drop by 500,000 tonnes from the previous season. And while Indonesia is not expecting a record harvest this year — 32.1 million tonnes versus the 1995 record of 33 million — supplies will be adequate to shave this year's import needs by nearly 50% to 2 million tonnes.

In fact, the sharp plunge in import demand from these two countries accounts in large part for the projected decline in global rice trade. The latest estimate puts trade this season at 22.3 million tonnes, down 11% from the 1998-99 season and down 18% from the record 27.3 million tonnes just two seasons ago.

In addition to Indonesia and the Philippines, other nations will import much less rice this year. Shipments to Bangladesh and Brazil, for example, will shrink from 1998-99 by 71% and 10%, respectively.

A few nations, particularly in the Middle East, are expected to import more rice this season. Iraq's imports should expand to about 850,000 tonnes, compared with 781,000 in 1998-99, based on larger food-for-oil shipments. Iran's imports are projected at 1.2 million tonnes versus 1 million a season ago, while Saudi Arabian imports are put at 800,000 versus 750,000.

Nonetheless, the overall rice balance sheet remains bearish, and the current depressed nature of prices and trade prospects have forced some countries to consider policy changes.

In Indonesia, the rice sector reportedly is in a state of disarray. Low world prices and financing difficulties for rice buyers have created an uproar among farmers, and officials are under intense pressure to hike duties on imported rice, which many blame for low domestic prices.

In Vietnam, officials are concerned about protecting the country's share in the increasingly difficult export market. One measure under consideration is a 3% to 6% cut in the government's minimum floor price to improve the export competitiveness of Vietnamese rice.

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