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--Clyde Russell is a Reuters market analyst. The views expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, Jan 14 (Reuters) - If embattled Thai Prime Minister Yingluck Shinawatra didn't already have enough to deal with as protesters try to force her from office, she could worry about the outlook for rubber and rice.
These two commodities form the backbone of Thailand's agriculture, and their fortunes are crucially linked to Yingluck's given her reliance on support from the rural poor.
Rice prices have been steadily declining for the past two years, and Yingluck can shoulder some of the blame as it's her government's intervention scheme that has created a massive overhang of global supplies of the grain.
On rubber, she may also bear responsibility for falling prices, given that her temporary removal of an export tax in September boosted shipments from the world's top exporter.
Problem is that the tax relief ended last month and rubber stocks in top buyer China are now the highest in almost a decade.
Chinese buyers took advantage of the temporary tax relief to buy up cargoes, with imports reaching a record 350,000 tonnes in December, a jump of 67 percent year-on-year.
The country breakdown of imports isn't yet available, but it's a fair bet the bulk of the increase came from Thailand, given the 38 percent jump in November.
China's rubber imports were 2.47 million tonnes in 2013, a gain of 13.5 percent from the year earlier. In the 11 months to November, Thailand's increased its share of Chinese imports by 14.7 percent, supplying just over half of total volumes.
The surge in imports has resulted in rubber inventories in warehouses monitored by the Shanghai Futures Exchange gaining 8 percent to 190,158 tonnes last week - their highest since 2004. SNR-TOTAL-DW
Total inventories in China could be nearly half a million tonnes including stocks in bonded warehouses in the port of Qingdao, well above monthly consumption of around 340,000 tonnes.
While lower prices and strong auto sector growth are likely to encourage continued imports, it's likely the pace of growth will ease sharply from that of the last quarter of 2013.
Benchmark Tokyo rubber futures for June delivery fell more than 3 percent to a five-month low of 246.4 yen ($2.38) per kilogram in early trade on Jan. 14.
Prices have declined about 26 percent from the 2013 closing high of 334 yen per kilogram, reached in early February.
Crude rubber inventories at Japanese ports are also at elevated levels, gaining 5 percent to 12,560 tonnes in the 11 days to Dec. 31, a 6-1/2-month high.
With major buyers China and Japan enjoying comfortable inventories it would appear that the only way to keep their buying interest alive will be through lower prices.
This will likely anger Thai rubber farmers, presenting a further headache to Yingluck, who is already facing mounting protests from rice farmers over late payments from her flagship subsidy scheme.
The Thai government appears to be struggling to find cash to pay farmers delivering their crops under the rice mortgage scheme. The subsidy programme has resulted in a massive build-up of unsold stockpiles and seen Thailand passed as the world's top exporter by both India and Vietnam.
Thai 5-percent broken rice RI-THBKN5-P1 has spent most of the time since the July 2011 introduction of the subsidy scheme falling, declining from a peak of $620 a tonne in October of that year to $420 a tonne as of Jan. 10.
Its traditional premium over Vietnamese rice RI-VNBKN5-P1 has evaporated and the rival grade was briefly more expensive than Thai supplies in November and December last year.
This underscores the failure, in financial terms, of the rice pledging scheme and is resulting in increasingly desperate measures by Yingluck's government.
Thailand's state-backed farm bank is trying to sell a 20 billion baht ($607 million) bond to pay farmers, who receive about a 40 percent premium to the market price for their crop.
However, the bank's prior offering of 75 billion baht in November only raised half the planned amount, and it's unlikely the new offering will succeed unless generous terms are offered.
Farmers, many of whom haven't received any cash for the main rice harvest in October, are threatening to join the anti-government protests, which are currently supported mainly by urban and middle-class residents, who generally back the opposition Democrat Party.
Yingluck appears to be hunkering down and hoping to ride out the protests until a Feb. 2 general election that is likely to renew her electoral mandate.
With the main opposition boycotting the poll, it's unlikely the vote will solve the problems or reconcile the interests of the rural poor and urban residents.
However, if rice and rubber prices continue to trend lower, then Yingluck's rural support base may erode, and this could be a more serious threat than the protesters currently blockading government offices in the capital Bangkok. (Editing by Michael Urquhart)