The severity of El Nino this year may decide whether rice prices recover from the lowest since 2008.
Plentiful global inventories will probably cushion against any disruption to this year's crop, suppressing prices in the second half of the year, according to The Rice Trader. Further out, it may be a different story.
"I'm short-term bearish and, on the longer term, I'm quite bullish," Jeremy Zwinger, chief executive officer of The Rice Trader, a Durham, California-based researcher, said in Bangkok. "If it's a severe El Nino, obviously that's bullish."
El Ninos bring drier-than-usual conditions including drought to parts of Asia, hurting crops in the top exporters and boosting demand among buyers. Australia this month joined forecasters in the US and Japan in declaring an event had begun, and weathermen are seeking to determine how long it will last and how strong it may be. The last El Nino was in 2009-2010 when global rough-rice output fell 1.8%.
"At this stage, we can only speak about potential impacts, given how influential factors such timing, strength and duration can be," said Shirley Mustafa, an analyst at the Rome-based Food & Agriculture Organization, which doesn't give specific price forecasts. "A smaller crop would indeed tend to be supportive. However, this potential has to be put in the context of the still ample level of rice inventories."
More imports
The price of Thai 5% broken white rice, a regional benchmark, dropped 9% to US$381 a tonne this year, the lowest level since January 2008, as the world's largest exporter sought to sell record reserves built up during a now-ended state-support program. Rough-rice futures sank 20% to $9.38 per 100 pounds in Chicago since January after declining to $9.25 on May 13, the lowest level since 2006.
Thailand, India and the Philippines risk having smaller crops as El Ninos often suppress rainfall, according to the FAO. While global reserves may drop 4.6% to 168.2 million tonnes in 2015-2016, that's still 17% higher than the average over the past decade, data from the agency showed.
The Philippines, Asia's second-largest buyer, approved 250,000 tonnes of additional imports from July and may double purchases should El Nino cut output significantly, the National Food Authority said May 22. Remote sensing indicated below-average rain in the main rice-growing areas since April, which may hurt sowing, the FAO said in a report on May 21.
Downside risks to rice crops are high in the Philippines, India, Indonesia, the Philippines, Thailand and Vietnam, BMI Research, a unit of Fitch Group, said on May 15. Palm oil and sugar production are also threatened, it said in a report.
Reserves 'handy'
"The impact of El Nino could be even more significant because international agriculture prices have been weak for several years," BMI said. "Sentiment could quickly turn around should the weather actually prove unfavourable."
While there's no consensus yet on how severe this El Nino will be, there are signs it may intensify. Moderate conditions are likely to persist through the June-to-September monsoon and then strengthen, the India Meteorological Department said on May 21. A significant El Nino is likely, the Australian Bureau of Meteorology said on May 12, and added in its fortnightly update on Tuesday that the event continues to strengthen.
"Thai rice stocks could come in very handy in keeping the market in check and ensuring that importers not resort to panic buying," Samarendu Mohanty, head of the social sciences division at the Los Banos, Philippine-based International Rice Research Institute, said in a May 21 commentary.
Global reserves rose from 106.4 million tonnes in 2005-2006 as harvests expanded. State reserves in Thailand stand at about 16 million tonnes from about 2 million tonnes before the support program started in October 2011, government data show.
The "price is weak short term, in three to six months, because of Thai stocks and competition among major exporters," The Rice Trader's Mr Zwinger said in an interview on May 21. "The market today is more concerned on Thai stocks than El Nino."