Rice Harvest in India Seen at Record as State Prices Increased

Rice Harvest in India Seen at Record as State Prices Increased

FMCG SUPPLIER NEWS

Bloomberg - Jun 26th 2012, 08:48

Rice production in India, the second-largest grower, is set to climb to a record after local prices were raised, potentially allowing the nation to sustain exports for a second year and swelling a global cereal glut. 

The monsoon-sown harvest may gain 10 percent in the year beginning July 1 from 90.8 million metric tons a year earlier, said Tarsem Saini, president of the Federation of All India Rice Millers Association. An end to a three-year ban on exports last year and a forecast for normal rain will spur farmers to increase planting, he said. The monsoon crop, sown from this month, accounts for about 80 percent of annual output.

Futures have slumped 41 percent from a record in 2008 after farmers around the world increased plantings. Global output will climb to 466.5 million tons this year from 463.98 million tons in 2012, the U.S. Department of Agriculture said June 12. The global cereal harvest will reach a record 2.42 billion tons in 2012, exceeding consumption estimated at 2.38 billion tons, the United Nations’ Food & Agriculture Organization said June 13.

“If anybody is bullish on rice in the medium term, it will be a risky bet,” said R.S. Seshadri, director at Tilda Riceland Pvt., a New Delhi-based exporter. “When there is excess stocks and bumper harvests, the stocks will come like a tsunami into the open market.”

Stockpiles in India and Thailand, the biggest exporter, may almost equal the world trade in rice of about 30 million tons this year and cap any gain in prices, Seshadri said. Prices of 5 percent white rice in Thailand may drop as much as 15 percent to $520 a ton by the end of July, according to Mamadou Ciss, who is the president of Alliance Commodities SA in Geneva and has traded the grain for more than a quarter century.

Thai Stockpiles

Thailand’s Prime Minister Yingluck Shinawatra started a state purchase program in October, buying the grain above market rates, aiming to boost farmer incomes. The country will have accumulated more than 12 million tons of reserves by the end of this season, the USDA estimates.

“One way or the other, the stocks lying with the government in Thailand will have to reach the people who want to consume,” Tilda’s Seshadri said.

Rough rice for September delivery declined 0.3 percent to $14.89 per 100 pounds on the Chicago Board of Trade at 7:57 a.m. in Singapore. Futures are 0.2 percent higher this year.

India raised the minimum price of paddy 16 percent to a record 1,250 rupees per 100 kilograms (220 pounds) for the 2012- 2013 season, Home Minister P. Chidambaram said June 14. The government buys rice and wheat from farmers at set prices to assure growers’ incomes, while selling the grains at subsidized rates to the poor. The system protects farmers from having to sell their crop into a market when prices are below the government-set rates.

‘Assured Buying’

“There is no other alternative to a crop which has an assured buying system at a fixed rate,” Saini said in a phone interview. Rice yields in India have been rising every year with the use of fertilizers and pesticides, and a forecast for a normal monsoon will boost the area, he said.

The normal area under monsoon-sown rice, also called the kharif crop, is about 40 million hectares (98.8 million acres), according to the farm ministry. Farmers planted 40.5 million hectares in 2011-2012, ministry data showed. The crop was sown in 1.87 million hectares as of June 22, according to the ministry.

Rainfall will be 96 percent of a 50-year average in the June-to-September monsoon season, the India Meteorological Department said June 22. That’s less than the 99 percent predicted in April. The bureau defines normal precipitation as 96 percent to 104 percent of the average rainfall received between 1951 and 2000.

Monsoon’s Progress

The monsoon had a slow start this year after reaching the southern state of Kerala four days later than the usual date of June 1, raising concerns that sowing of the summer crops such a rice, cotton, corn and oilseeds may be delayed.

The surge in exports since the ban on so-called non-basmati rice was scrapped will encourage farmers to produce more, Saini said. Traders shipped 4.91 million tons since the curbs were lifted on Sept. 9, according to the food ministry.

India may export as much as 7 million tons of rice next year as a decline in the rupee against the dollar makes supplies from South Asia cheaper, Seshadri said.

“At 56 rupees per dollar, India can compete with any country,” Seshadri said. “The rupee equation matters most.”