After 30 percent slide, Asia rice could find floor

BANGKOK (Reuters) - Asian rice prices have tumbled even faster than they surged to record highs earlier this year, but the nearly 30 percent slide will soon end as a Thai government price-support scheme is about to kick in.

Even bumper crops in leading producers and renewed exports from Vietnam and Cambodia are unlikely to force benchmark Thai rice prices much below $700 a tonne, the price at which Bangkok has agreed to buy supplies from farmers. That's down from a record $1,080 in April, but still double its $383 in January.

After six months of exceptional volatility, a return to the price stability that characterized the thinly traded rice market for most of the past three decades would be a relief to policy makers and governments fighting food inflation worldwide, and anxious about the security of supplies.

"Prices have weakened but I don't expect a big slide from current levels. We should not forget the Thai intervention program," said Vijay Iyengar, managing director of Agrocorp International, a Singapore-based commodities trading firm.

Prices have eased significantly in recent weeks as the world's biggest importer, the Philippines, has completed its buying for the year and leading producers have planted additional crops to cash in on very high prices.

But as governments rush to maintain higher grain stockpiles and as crude oil surges, making everything from diesel to fertilizer more expensive for farmers, industry experts suggest rice prices would not return to the $300-$350 range of 2005-2007.

PRICE OUTLOOK

Going back over two decades, rice prices have rarely moved outside the $200-$300 a tonne range.

But prices nearly trebled earlier this year as export bans meant to cap food-fuelled inflation in countries like India, Egypt and Vietnam triggered a scramble by importers, who rushed to secure supplies to avoid shortages of the staple.

For a graphic of Thai rice prices, click on: here "I expect a drop of at least 5-10 percent in the export price in July when supply should increase due to Vietnam's resumption of exports," said Chookiat Ophaswongse, president of the Thai Rice Exporters Association.

But the easing of world rice prices might take a long time to trickle down to the end consumers, most of whom felt only a fraction of the surge in prices earlier this year as retail prices lagged behind the surge in internationally traded supplies, which cover less than a tenth of world rice demand.

Thai 100 percent B grade white rice has eased to around $770 per tonne free on board and looks set to continue its descent from late April.

Thai exporters, who ship around just under a third of the world's traded rice, have a defacto floor price of $700 a tonne for milled rice -- the equivalent of the 14,000 baht ($418) per tonne the government has guaranteed to pay farmers for unmilled paddy in case of a market slump.

The "intervention scheme", as it is known, makes it impossible for Bangkok's massive rice-trading houses to buy from farmers at less than 14,000 baht.

The end result is that they or the government end up sitting on vast stockpiles of rice -- which can last for up to five years under the correct storage conditions -- which could be released in the market any time domestic prices rise too sharply.

VIETNAM, INDIA COMPETITION

India has yet to lift the export restrictions imposed last year after crop damage from a run of bad weather, although traders there say the predictions for coming harvests are also good, suggesting the curbs do not need to stay.

And as Vietnam returns to the market after a 3-month ban, traders said their exporters might try to undercut prices to win business from major importers who delayed signing deals while prices were more than $1,000 a tonne.

"We have no choice but to offer our export prices under the association's pricing mechanism otherwise there would be no deal," a trader at Angimex, a trading house in the top rice-growing province of An Giang said.

For a table of the world's top rice importers and exports, click on:

The price of Vietnamese rice, which tends to sell at a slight discount to its equivalent Thai grade, has also been tracking lower since April.

Last week, Hanoi cut its official minimum export price by 2.5 percent to $780 per tonne due to slow export demand. Privately, traders say prices are already lower than this.

Both Thailand and Vietnam have been steadily raising their forecasts for the impending harvest, a fact that has not been lost on the importing countries which are sitting tight in the hope that prices will decline.

The Philippines says it has already bought all it needs after a deal to purchase 600,000 tonnes of rice from Vietnam earlier this month, and Malaysia has halted talks with Thailand for a 300,000 tonne shipment.

"Traditional buyers are now putting their orders on hold, while key buyers such as Iran and Indonesia are waiting for much cheaper prices," one Bangkok-based trader said.