(Updates price in 12th paragraph.)
July 23 (Bloomberg) -- Rice production in Thailand will probably shrink to a five-year low as drought hurts yields and farmers curb planting after the end of a subsidy program, according to the Thai Rice Packers Association.
Output in the largest shipper after India may drop 10 percent to about 34 million metric tons in 2014-2015, said Somkiat Makcayathorn, the group’s president. That would be the lowest level since 2009-2010, when the Southeast Asian nation produced 32.4 million tons, according to data from the Office of Agricultural Economics, the Bangkok-based state forecaster.
While a smaller harvest would curb farm incomes, a decline in supply may ease the challenge faced by the country’s military junta as it seeks to sell off record stockpiles that built up under the now-defunct subsidy program. Dry weather may also hurt rice output in India this season, according to the Rome-based Food & Agriculture Organization, which forecasts the first contraction in global stockpiles in a decade.
“Production has been affected by both drought and the lack of a price subsidy,” Somkiat said in a phone interview in Bangkok on July 21. “The prospect of a production decline provides an opportunity for the junta to release stockpiles.”
Drought spread across 49 of Thailand’s 77 provinces since September, with rainfall in May 31 percent below the 30-year average, according to government data. Yields may decline 20 percent to 50 percent because of below-normal rain and inadequate water supplies, according to a Bloomberg survey of 10 farmers in the biggest growing provinces.
An El Nino weather pattern, which can parch South and Southeast Asia and hurt farm production, remains likely later this year, Australia’s Bureau of Meteorology said July 15, while adding that odds of a strong event are increasingly unlikely.
Thai Prime Minister Yingluck Shinawatra, who was deposed by the junta in May, introduced the subsidy in 2011, spurring record output and reserves and ending the country’s 30-year reign as the biggest exporter. The program -- which paid farmers a guaranteed above-market rate for their crop -- lapsed in February and the junta is now checking warehouses nationwide to assess the quantity and quality of the grain reserves.
Thai reserves increased from 5.62 million tons in 2011 to 12.8 million tons last year, as exports fell from 10.6 million tons to 6.72 million tons in the same period, according to the U.S. Department of Agriculture. Output may drop to 30.5 million tons in 2015 from 31 million tons, the U.S. agency predicts.
Global ending stockpiles may contract 0.9 percent to 179.7 million tons in 2014-2015 on a milled basis, the United Nations’ FAO estimated in a quarterly report last week. The agency forecast a 1.2 percent drop in Indian supply to 157.5 million tons on a paddy basis.
Should India’s crop decline significantly from last year on a poor monsoon, it would play quite favorably for Thailand, according to Darren Cooper, senior economist at the London-based International Grains Council. Thailand may reclaim its position of the leading rice exporter, Cooper said.
Between July 3 and July 8, more than 100 teams checked 343 warehouses out of 1,787 in Thailand, junta leader Prayuth Chan- Ocha said on July 18. Irregularities, including rice missing from warehouses and quality deterioration, were found in 65 warehouses, Prayuth said in his weekly televised address.
The price of Thailand’s 5 percent broken white rice, a regional benchmark, rebounded after the junta suspended sales for the inspections. The grade advanced to a four-month high of $433 a ton today, compared with $384 on May 28, the lowest since at least 2008. The price slumped 23 percent last year.
The Philippines, the largest importer in Southeast Asia last year, may buy an additional 500,000 tons to help boost local supply, Francis Pangilinan, presidential assistant for food security, said in a statement today.
“Thai rice is still competitive at current prices, which could boost exports to 10 million tons, becoming the top exporter,” said Somkiat, who’s also secretary general of the Thai Rice Exporters Association. “Even without impact from dry weather, we should see a production decline because farmers barely make a profit from planting rice.”
--With assistance from Clarissa Batino in Manila.